Loot Boxes in Video Games : Gaming or Gambling under the Remote Gambling Act?

Was quoted on the law in Singapore in The Sunday Times' feature yesterday on loot boxes : "Loot boxes in video games: Cool rewards or gambling trap?, 10 December 2017" : 

'Loot box mechanisms, while having elements of chance and items of value, usually do not allow users to cash out. So, they are most likely exempt from the Act, said lawyer Adrian Kwong, managing director of Consigclear, which has a strong focus in video gaming and entertainment law.
​
Still, "it is also worth noting that the Act is expressly intended to prevent the games engendering crime and social order issues in Singapore, as well as help protect the young and vulnerable", said Mr Kwong.

"If complaints are received that the young are being exploited, for example by overspending on loot boxes or becoming addicted... the authorities may consider a particular game as objectionable."'

If you were interested in understanding more about the Remote Gambling Act, applied to loot boxes, lucky boxes, and the like in video games, do read on.

 
What does the law in Singapore say?
 
The Remote Gambling Act 2014 defines “gambling” as including both lotteries and gaming played over a remote network such as the internet. 

Under the Act, “lotteries” involve allotting prizes amongst players “by chance or by lot”, while “gaming” involves playing games of chance (or mixed chance and skill) in the hope of obtaining prizes.  In either case, prizes can be both actual money or “money’s worth”, defined as “anything recognised as equivalent to money and includes virtual credits, virtual coins, virtual tokens, virtual objects or any similar thing” – such as the virtual currencies and items such as points, skins, weapons, boosters or player cards found in many games.

If you define loot boxes as randomized collections of virtual items that have value, won through playing a game of chance over the internet, the loot box mechanism in a game might be considered as remote gambling.
 
 However, consider situations when the loot box (and associated element of chance) is only a small part of a specific game (eg a mini-game within a RPG), or whether the game is playable (including loot boxes) without ever connecting to the remote network for game play (because it's a pure single-player campaign: is it then "remote gambling"?).  Arguably, these would not be covered.

Policy direction does not target games without "cash-out"

​Looking back, however, when the draft Act was first introduced in 2014, there was a public uproar and industry feedback over whether (then-popular) social games (eg Facebook games) would also be stopped by the law, which was seen as widely-drafted (the Minister described it as “cast broadly”). 

The Minister then expressly clarified at the Second Reading of the Bill in Parliament  in October 2014 that this was not the intention, and that most games were not the current target (casino-style games were however called out). 

"There are freemium games, in other words, games which you can get it for free, and in-game, buy additional credits. This is where players can purchase in-game credits to improve the game-playing experience (e.g. to outfit a avatar with a new costume); others have developed virtual currencies of their own which can be used to buy or redeem other entertainment products such as games of other developers, music or even movies; yet others allow their virtual currencies, credits and points to be traded with possible value in the real world.

https://www.mha.gov.sg/Newsroom/speeches/Pages/Wrap-Up-Speech-on-the-Remote-Gambling-Bill-by-Mr-S-Iswaran,-Minister-in-the-Prime-Minister%27s-Office-and-Second-Minister-for.aspx

(Interestingly, the speech could even be taken widely not just cosmetic items like a “costume”, but possibly include “pay to win” items that improve the game experience (for user)) (italics above)
 
The then-MDA then expressly clarified this before the Act came into force in February 2015, stressing in particular the real-world cashing-out into money as of particular concern. See MDA quoted at https://www.imda.gov.sg/about/newsroom/archived/mda/media-releases/2015/remote-gambling-act-clarifications-on-the-scope-of-social-games

·        Games that do not allow players to win money or real-world merchandise that can be exchanged for money through the game.
·        Games that allow players to purchase or exchange game credits or tokens but don’t provide the in-game facility to convert them to money or merchandise that can be exchanged for money.
·        Games that allow players to buy, gain, or trade enhancements but don’t let them convert these enhancements through the game into money or merchandise that can be exchanged for money.
·        Games that rank players but don’t let them convert their positions through the game into money or merchandise that can be exchanged for money.
(emphasis added)
 
MDA called out specifically that “will not impede the development of legitimate social media gaming businesses and will continue working with the gaming industry to ensure its continued growth and development.” (emphasis added)
 
This is consistent with the Minister’s October 2014 speech:
 
14.         The fact is that the line between social gaming and gambling is increasingly becoming blurred. What may appear benign today can quite quickly morph into something a lot more sinister tomorrow in response to market opportunities and consumer trends. This is why the legislation is cast broadly. However, as a matter of principle, the Bill does not intend to cover social games in which the players do not play to acquire a chance of winning money, and where the game design does not allow the player to convert in-game credits to money or real merchandise outside the game. The games such as Farmville, Candy Crush and Monopoly, in their current form, would fall into this category. They are not the target. MDA has issued a statement that the Bill will not impede the development of legitimate gaming businesses and we will work with MDA and the industry to clarify the application of the law.
(emphasis mine)
 
In light of the Minister’s statements and IMDA’s clear focus on cashing-out, loot box mechanisms that do not allow cash out into real money do not appear of concern to the regulator under the Remote Gambling Act. Indeed, their view is mentioned in the Sunday Times report.

However, given the express purpose of the Act to prevent remote gambling engendering crime and social order issues in Singapore, as well as help protect the young (*up till 21 years of age) and vulnerable (*section 7 of the RGA, below), designers and operators would be mindful to bear in mind the spirit, and not just the letter of the law:
 
Purpose of Act
7.  The purpose of this Act is to regulate remote gambling and remote gambling services affecting Singapore with the object of --
(a) preventing remote gambling from being a source of crime or disorder, being associated with crime or disorder or being used to support crime or disorder; and
(b) protecting young persons and other vulnerable persons from being harmed or exploited by remote gambling. 

​Wider perspective on controversy and regulation, beyond Singapore 

On an industry level, the recent attention on loot boxes seems to be much more a Western concern than an Asian one. There have been micro-transactions – as well as loot boxes aka “lucky boxes” or “gacha” which involve elements of chance - in games in Asia (think China, South Korea, and Japan) for some time now, and gamers there are used to “paying to play”, as the base game is usually free to download and play.  

Shanda in China and Nexon in Korea, for example, were pioneers of server-based monetisation of online games via micro-transactions as a gaming business model.  Today, you see not just cosmetic virtual items in the market, but often quite powerful modifiers and even some distinctly “pay-to-win” cards.  In China at least, this was due to the regulations that prevented traditional “Western” console and PC gaming, as well as rampant piracy, which meant no one was getting paid. 

In Western markets, however, micro-transactions have not been as widespread, especially with relation to AAA or full-priced USD60 games, where many gamers expect to have "paid the price to play" and resent what they see as money-grabbing and exploitation.   
 
Because the Asian markets have more history with micro-transactions and the same concerns over gambling and addiction, however, they also tend to be more advanced in legally regulating them:
 
a. In China, companies must disclose the odds of getting specific items, so people know better whether the spending might pay off
https://www.theverge.com/2017/5/2/15517962/china-new-law-dota-league-of-legends-odds-loot-box-random
 
b. In Japan, “kompu” or “complete gacha” was regulated to specifically control risks of gambling 
https://www.wired.com/2012/05/gacha-watch-japan-social-games/
 
c. In Vietnam (and China), underaged gamers were limited in their ability to play after 10 pm 
http://www.escapistmagazine.com/news/view/107904-Vietnam-Bans-Online-Gaming-at-Night
http://fortune.com/2017/07/03/tencent-is-rationing-game-time-for-chinese-kids-due-to-addiction-fears/
 
Which brings me to the final point :

Loot boxes may not be treated as remote gambling today, under the law and by the authorities.  However, that does not mean that there are no grounds for concern - especially for parents, who should try to know what their children are playing - where "casino-style" mechanics such as flashing lights, snazzy animations and the thrill of "just one more spin" may lead to increased addiction risk and anti-social behaviour.  Game developers and operators should also take note.

​Do ping me if you have questions or comments.