The Netherlands rules that some loot box systems violate EU gambling laws

Loot boxes with gambling mechanics have been in the news lately, and they’re becoming a common trend in the gaming industry as it struggles with the slow, inevitable slide to live services. Just because EA and Warner Bros. pulled them out of their respective top-tier AAA releases for 2017 doesn’t mean that the rest of the industry is also doing the same, and in fact we had publishers like Ubisoft putting loot crates into older games to liven up the profit earnings a bit more. Governments worldwide are in full swing with several investigations into the loot box trend, and at least one EU country has completed their initial study into the tactic… and it’s not painting a pretty picture for publishers.

The Netherlands’ local gambling authority, Kansspelautoriteit has some very strict interpretations about what is and isn’t gambling. Loot boxes fall under the board’s lottery regulations technically, which are part of the nation’s Betting and Gaming Act of 1964, and thus any videogame which has element of a game of chance in them must adhere to the board’s laws. That means, in effect, that games which feature loot boxes which the board determined were subject to lottery regulations may have penalties forced on them if they don’t monitor their compliance, and may additionally be barred from selling their product to Dutch customers.

Kansspelautoriteit found that four out of ten loot box/lottery box mechanisms in games researched were violating gambling law, and urged the companies involved to comply with the standard by 20 June 2018 or face enforcement by the board. The four loot box mechanisms that violate Dutch law must either be removed from the games before the end date, or else they will not be able to sell copies of these games in the Netherlands. Since the Netherlands is also an EU country, this ruling could easily be adopted by other signatory countries in the EU to prohibit the sale of these games in their own country as well, which is bad news for the publishers who might not be able to implement the necessary changes in time.

Source: /r/Gaming subreddit

In their study titled “Study into loot boxes – A treasure or a burden?“, the board found that loot box mechanisms in four out of the ten selected games violated Dutch laws because the contents of the box are determined by chance and have a market value for which the prizes can be sold. These kinds of things are not allowed under Dutch law (it would be perfectly fine if it was regular money, in which case a gambling license would be applicable). The ten games were selected based on their popularity on streaming platforms like Twitch and YouTube Gaming. Two of these has a PEGI rating of 18, while the others feature ratings of PEGI 3, 7, and 12. Some have no PEGI rating, replaced by the US-standard ESRB rating.

In addition the board found that all the loot boxes examined had an element of addiction to them, being designed to appeal just like slot machines or roulette, but they did not find indications of loot boxes “being opened on a large scale by problem players and/or addicted players” – which means they didn’t find the mythical “whales”, players with enormous amounts of money that they put into their games in order to gain an advantage over other players (although the board concedes that these groups of players may yet exist). Using standard evaluation tools, the board also determined that the risk potential for addiction was moderate to high, and was of special concern when it came to games played by young children and teenagers, who have a higher risk of addiction to gambling than adults.

According to this tool, on average, loot boxes have a moderate to high addiction risk potential (hereinafter referred to as risk potential). The risk potential very much depends on how the loot box is offered. The loot boxes with a higher score have integral elements that are similar to slot machines. With these loot boxes, there is very often a (higher) jackpot where the virtual goods are transferable, players can keep opening unlimited loot boxes, multiple visual and sound effects are added and a ‘near miss’ effect is used. According to this tool, the loot boxes with a higher score are comparable with blackjack or roulette in terms of addiction potential. According to this tool, the loot boxes with a lower score are comparable with small-scale bingo in terms of addiction potential.

The study also notes a lack of controls by the gaming industry to ensure that children and teenagers are not targeted by these mechanisms which may cause addiction. In 2009, over nine million people in the Netherlands had played or were playing a video game, which is almost 70% of the country’s population. Between 75% to 95% of minors in the country also played video games regularly, as reported in other studies that the Kansspelautoriteit references. In addition:

The integration of loot boxes into games of skill provides a low threshold for playing a game of chance. This integration creates a mixture of games of chance and games of skill in an environment that is comparable, in physical terms, with the low threshold of the hotel and catering industry. Such mixing at these locations was prohibited in the Netherlands in the 1990s to reduce exposure to games of chance and to protect minors.

Interestingly, the study also includes some numbers about the winnings and payback intervals in the tables pictured below:

Loot box ID #1 is very likely to be Counter-Strike: GO, as the playing environment entry for a game on the market with a PEGI 18 rating with loot boxes and a market where earned goods can be used as a stake in other games of chance does match its description (I will be writing to the Kansspelautoriteit to ask if they can reveal which games they looked at). The risk potential table shows that:

  • There is a 75% chance of getting an “event”, aka a loot crate drop
  • There is a 100% payback interval (you always get something)
  • There is a jackpot chance of 40%
  • There is no block against continuing to play the game of chance (except a lack of funds)
  • Your chance of winning the jackpot item is 12.5% (12.5% out of a 40% chance)
  • The loot crates are always available
  • There’s a “sensory product”, like a jingle or some kind of sound that plays
  • A “near win” is indicated by a visual or sound effect
  • The in-game goods are transferable and the boxes can be purchased for real money

Those are rather low odds, which contributes to the high risk potential of the game of chance inside the title. ID #2 is likely PlayerUnknown’s Battlegrounds, as it is the only other game which allows the transfer of goods for money and using the goods as a stake in other games of chance. However, PUBG currently has a PEGI rating of 16. It did recently launch out of Early Access, so it is possible that it started off without a PEGI rating and was eventually awarded one with the launch on PS4 and Xbox One. The chance of winning the jackpot in ID #2 is 60% from the 40% of loot crates generated, but there is a variable strike of 50%; as in, there’s an additional factor in the game which could leave you with earning something good or bad, equivalent to calling heads or tails on the final outcome. ID#4 is most likely DOTA2, as it does not have a PEGI rating, and matches the descriptors for the playing environment.

There also does not seem to be an entry that matches the description of Overwatch. Overwatch’s goods are not transferable, but there are certainly jackpot items in the form of unique skins only given out at certain times or events that players can pay money to purchase, or earn through regular gameplay. Overwatch does have a PEGI 12 rating, so it could certainly be included in here. If it turns out that it is included in the study, that would means that the Kansspelautoriteit did not take their special event drops into account. I’ll also ask them about this in my email to them later today. Though, more important is the question of what game is rated PEGI 3, has worse jackpot stats than CS:GO, and allows for goods to be sold for money and used as stakes in third-party gambling sites? PEGI 3 is suitable for all age groups without adult supervision, and a Dutch gambling board has just said that the loot boxes in this game are definitely a form of gambling.

All in all, this report isn’t kind to the games industry. Either the publishers of the four games which have transferable goods remove their loot box mechanisms from these titles before 20 June 2018, or their sales in the Netherlands will be prohibited. This could have a marked effect on the rest of the industry, as they move to avoid scrutiny from gambling boards by continuing to offer these games of chance, but prohibiting the sale of items tied to the accounts, or the accounts themselves. Time will tell how this changes things in the long term.

Eskom dials loadshedding threat level to “get ready, lol”