FTC Scrutinizes Loot Boxes – What are the Odds?

The FTC recently released its staff perspective paper on video game loot boxes. The report details discussions from the FTC’s loot box workshop that took place in August last year, summarizing key points and takeaways. You can read our write up of the workshop here.

The workshop, “Inside the Game,” brought video game industry representatives, researchers, and consumer advocates together to examine consumer protection issues related to loot boxes and related microtransactions in video games.

A loot box is a digital container of virtual goods that a user can purchase in-game using real‑world currency. A user does not know what is in the loot box before purchasing. The loot box may contain digital goods (such as character skins, tools, weapons, etc.) that the user can use in the game. Importantly, the user cannot choose the contents of the loot box. The box could contain an extremely rare/sought-after item or the contents could be a collection of items already owned by the user (or somewhere in between).

The FTC first agreed to investigate the use of loot boxes in 2018 when Senator Hassan (D-NH) specifically requested the newly appointed Commissioners look into the issue during their confirmation hearings. The FTC staff report, published on August 14, 2020, is the latest development in the Commission’s efforts to understand the consumer protection concerns over in-game loot boxes and related microtransactions. Reflecting on the discussions raised in its workshop, the FTC highlighted the following top concerns in its report:

Manipulative or Confusing Mechanics. The FTC emphasized a common concern that some monetization schemes may obscure real transaction costs and that other in-game mechanics, including visual cues and sounds, may prompt spending and addictive behavior.

Spending Pressure. Other commentators expressed concerns that some games employ grinding gameplay loops and offer loot boxes or other microtransactions to bypass these slowdowns. In online multiplayer games, loot boxes and microtransactions may confer a competitive benefit, pressuring players to spend money for an edge.

Impacts on Children. The Commission was particularly sensitive to concerns over the effect of loot boxes on children. The report stressed public concerns that kids are more vulnerable to manipulation and social pressure, or may not comprehend the costs of such transactions.

Disclosure of Odds. The report also highlighted concerns over loot box transparency. Particularly if a game uses dynamic odds that varies over time, players may not understand their chances of winning a particular item. The FTC also noted one panelist’s concern that publishers could offer content creators, like popular YouTube or Twitch streamers, better loot box odds, and that any such agreements or connections should be disclosed pursuant to the FTC’s Endorsement Guides.

The FTC’s report also indicated that many large mobile platforms already require mobile games featuring loot boxes to disclose odds, and that Sony, Nintendo, and Microsoft will require similar disclosures on new games developed on their platforms by the end of 2020.

The report concludes by observing that emerging research is providing new insights on the impact and use of these mechanics and that the FTC will continue to monitor developments. The FTC did not, however, recommend additional government regulation or signal a need for loot box specific rules, instead opting to encourage further industry self-regulation to provide clear and meaningful information to consumers on loot box mechanics and related microtransactions.

For additional information on loot boxes and potential regulatory issues, such as money transmission and escheatment, please refer to one of our prior client alerts, Filthy Lucre: Regulatory Risks of Digital Currency, Loot Crates, and Other Video Game Monetization Strategies.

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