Disclaimer: As with all of my posts, this is NOT LEGAL ADVICE. This is academic analysis on a subject of law – and I don’t even have a good tool set (WestLaw, Lexis, etc) for that.
1- Introduction: Micro Transactions and Loot Boxes
The business model for free to play games is to include micro-transactions for aesthetic, trivial add-ons. For Counter Strike: Global Offensive, this manifests as the opportunity to pay a few dollars to buy a key to unlock boxes which are randomly distributed during play. Paying to unlock a box gives a play a random chance to receive aesthetic enhancements for a weapon (a “skin”). The rarity of the skins varies widely. Some of the most rare and prized ones are occasionally sold on eBay (or other 3rd party sites) for over $1,000.*
The question is: Are Loot box systems gambling? What about cereal boxes, TCG booster packs, or other things that allow children to participate in contests involving chance?
Some internet-folk grew a discussion thread to eight pages on the Overwatch forums discussing this topic, and not a single one of them reached for a legal definition of the subject at hand. People just talked about how they felt about the subject. Apparently, it takes a law degree to find the first search result on Google. Law has some flexibility – and that makes these questions difficult-, but there are rules, people!
2- What is the Definition of Gambling?
(For simplicity, I removed references to Insurance, Commodities, and Securities.)
31 U.S. Code § 5362 – Definitions
(1)Bet or wager.—The term “bet or wager”—
(A) means the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome;
[Lotteries and gambling administration]
(E) does not include—
[Insurance, Commodities or Securities]
(viii) participation in any game or contest in which participants do not stake or risk anything of value other than—
(I) personal efforts of the participants in playing the game or contest or obtaining access to the Internet; or
(II) points or credits that the sponsor of the game or contest provides to participants free of charge and that can be used or redeemed only for participation in games or contests offered by the sponsor; or [Fantasy Sports]
3- Analysis: Winning the Gamble Must be Distinct from Winning the Prize
The real key is in part (1)(A): “upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person … will receive something of value in the event of a certain outcome.”
Let’s take three examples that are not legally considered gambling: buying TCG booster packs, putting random prizes in cereal boxes, and… *sigh* there are a lot of reasons I don’t want to mention a certain online service that sends subscribers monthly boxes containing a random assortment of goodies… but imagine that such a thing exists.
My best guess** is that the law requires the “certain outcome” and the prize (“receive something of value”) to be two different and distinct things. In the case of cereal boxes and booster packs, the “certain outcome” is the prize. There is a chance of getting a Holographic Charzard, but winning only means getting the Holographic Charzard. You cannot “win” the card without, at the very same time, having the card: winning the prize always already entails having the prize.
In contrast, consider some examples that are legally considered gambling: slot machines, lottery tickets, and blackjack. In each of these cases, the outcome entitles the player to a prize: the slot machine dispenses quarters (“makes it hail”) as a result of the outcome. For a slot machine, the outcome itself is only a sequence of matched cherries or bars; for a TCG booster pack, the outcome of opening a pack is having a stack of cards.
This distinction may seem pedantic or petty, but it allows people to play games of chance without involving money. It allows people to play poker among friends for no money, or to made idle wagers for fun. It allows Disney to sell boxes of figurines with one shrouded “mystery” figurine included and it allows schoolteachers to play “Science Bingo” in class. It’s a tiny distinction that allows a lot of innocent behavior.
4- Application To Loot Boxes
However, there is still an interesting metaphysical investigation required to conclude this legal analysis: is the opening of a loot box like the opening of a booster pack, or is it like playing a slot machine? Is it actually two different events, or only one? Does the computer run the RNG when it is unlocked, and then determine the prize based on the outcome of the RNG? Or does the loot box already “contain” the prize before the opening?
Blizzard already told players not to bother hoarding loot boxes in the hope of getting future skins, because the contents of the box are already determined when the box is given to the player. If this is true (and if my guesswork-analysis is correct) then there is good reason to think that loot boxes are not legally considered gambling under 31 USC 5362.
I don’t know if a judge would actually go to this level of technical granularity, but there has been a long-standing debate about whether electricity should be legally classified as a “good” or as a “service” – and the distinction relies on a scientific understanding of whether you are being given electrons at your home, or just having your electrons vibrated. It seems like the order of operations carried out by a computer program is somewhat of a macro-level question than the movement of sub-atomic particles.
*A tiny cottage industry grew out of this: 3rd party websites that allowed people to wager their digital property from Valve’s game. Several of these sites were recently issued cease-and-desist letters after one of them was revealed to be promoting itself under false and misleading pretenses on YouTube.
** I looked around, and was surprised that I didn’t find a case, law review article, or law that dove into this issue with more specificity. I suspect that there has been a case about this, or at least an article – I just don’t have access to a law library right now.
UPDATE: I try to add some extra links when the rest of the world catches up to me.
Robot Congress did a podcast on this subject.
The Verge wrote about it.