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Will a government review make online gambling regulation more effective? All bets are off

Will a government review make online gambling regulation more effective? All bets are off

Since the Gambling Act 2005, various gambling-like features have appeared in online games. The government’s white paper due next year could be a chance to reign them in

Twice. That’s how many times the word “internet” is mentioned in the Gambling Act 2005. Early next year the UK government’s white paper on the review of that piece of legislation is expected. The aim is, in the government’s own words, to ensure that the act is “fit for the digital age”. It’s something which, given the internet’s lack of prominence in the original legislation, many believe is long overdue.

In the 16 years since the act became law, a plethora of digital games with gambling-like features have arisen, including E-Sports wagering, social casinos and Twitch services. “A lot of these kind of newer set-ups have the same mechanics as gambling but different outputs and different ways of getting a reward,” Elena Petrovskaya, a researcher at the Centre for Intelligent Games and Game Intelligence tells me. “And if it’s not directly real money, even though it might resemble the same mechanics, it’s probably not going to be subject to the same rules.” 

Perhaps the most notorious of these newer setups is loot boxes – packs of randomly selected bonus items in video games – some merely superficial, some stocked with items which give the player a better chance of winning – paid for either by real-world money, or in-game credit purchased using real-world money. They’re immensely valuable to game developers, generating a total revenue of $15 billion in 2020.

The Gambling Act’s limited definition of what constitutes gambling – a game of chance played to win either money or money’s worth – is key to explaining why loot boxes and other digital forms of wagering are still unregulated. As there’s no way to monetise the content of loot boxes – the contents merely aid players within the game – the Gambling Commission is unable to classify them as gambling under the existing legislation. It’s one of the key changes campaigners are hoping to see in the upcoming white paper.

“If you change the definition of gambling to … just a wager for something of value, then you kind of broaden that definition out,” says Matt Zarb-Cousin, director of Clean Up Gambling. “And the reality is these digital items have considerable value to the people that attempt to win them. And that’s why they spend so much money trying to win them.”

The prominence of loot boxes in the popular football video game FIFA and children’s high exposure to them (40 per cent of children who play video games have purchased a loot box, according to research commissioned by the charity GambleAware) mean that they’ve received disproportionate attention in the debate over what to classify as gambling. A study earlier this year found a clear correlation between the use of loot boxes and problem-gambling behaviour, and both Belgium and the Netherlands have classified them as a form of gambling when purchased with real-world money. 

The corporations behind video games argue, perhaps unsurprisingly, that loot boxes should be free from any proposed or hypothetical regulation. In 2019, EA’s ​​vice president, Kerry Hopkins, compared loot boxes to Kinder Eggs when questioned about them by MPs, and in October this year, the company’s chief experience officer claimed they exist “to reflect the real world of football”.

But David Zendle, a video games researcher and computer scientist at the University of York, worries that by focusing on a few of the better-known forms of digital gaming, the wider problem they represent will be ignored.

“Loot boxes are one symptom of a broader shift in how video games are monetized,” says Zendle. “And there are other phenomena here that are really important … And what I’d be hopeful for is that people take a view that this is kind of a broad and multifaceted construct, rather than just one specific thing that you can get rid of and solve a problem.”

One problem, for instance, is the prominence of non-fungible tokens (NFTs) in video games. They’re unique digital assets which can’t be replaced or replicated, but can be bought and sold. And boy, do they sell for a lot. 

They’re based on blockchains – digital databases which contain information that can be used and shared simultaneously within a large decentralized, publicly accessible network. The NFTs then act as markers that confirm a user owns a digital item on that blockchain. The decentralized format the data is stored in on blockchains means they’re very resistant to any form of regulation.

The first really popular game with NFTs at its core was Cryptokitties, which involved players buying and selling unique digital cats, with one user spending $172,000 on one in 2018. While NFTs are still relatively rare in video games, there’s currently a lot of interest around creating a bigger role for them, calling it “play to earn”. NFTs can then be used within a game, sometimes enhancing a players’ ability to win, with their value often increasing over time, before being sold off for profit at a later point. In Cryptokitties, users can then, after agreeing a price with their fellow players, breed their “cats” with others. While the “kittens” generated will be unique, the exact number of them created can vary.

“So even though you’re only owning a line of code that says you own something, it could still be used in the game, and Cryptokitties kind of did that,” Zendle says. The amorphous nature of these features is what makes them tough to pin down. “So it’s a bit gambly, it’s a bit gamey …”

Esports betting – essentially placing bets on competitive video gaming as opposed to live sports – is another relatively new form of online wagering. But while the Gambling Commission states that if a platform wants to offer esports betting they’ll need a betting license, some have found a way around it. Players’ Lounge, for instance, is a digital wagering platform which enables gamers to bet on their own performance. “So you know, you’re about to play a game of FIFA, but you could make it really fun by wagering £50 against the person you’re playing against” Zendle explains. The platform will then take a 10 per cent cut of the players’ entry fees.

There are plenty of games which are widely played on mobile phones which involve gambling mechanics. Coin Master, the highest grossing mobile game in the UK, requires players to spin to win coins. While these spins are limited to seven per hour, additional attempts and items can be purchased, both through real-world money or by subscribing to an email newsletter. Coin Master is classified by some as a social casino – a gambling-like game on a social networking site. 

But a big problem with attempting to measure the reach and potential harm platforms like social casinos and players’ lounge could potentially be posing is the lack of data on how much they’re costing users. “These continue to make loads of money and there’s still no real appreciation for who that money is being made from, whether they can afford it and whether it’s hard on their lives,” says Zendle. “Still no movement towards thinking of this as a kind of gambling.”

We won’t know until the review arrives whether these phenomena will be given the attention they deserve. But what is clear is that, with the sheer range of mechanics and formats available online, being able to regulate effectively and in the long term will be anything but a safe bet.