Introduction
The internet, though now an almost ubiquitous resource, has gone through a massive spurt of growth, both in India and in the West. With virtually nobody online in the mid-90s to now having approximately 504 million active internet users in 2020, the internet has found a way to reach and influence millions of lives in India. Media reports suggest that, of these internet users, while more than 433 million are over the age of 12, there are also over 71 million children under the age of 12 who log on using their parents’ devices.
This spurt in the growth of internet offered a great opportunity for many industries to tap this heretofore untapped market. E-commerce and the entertainment industry have, of course, been the greatest gainers from this spurt. Another industry that has benefitted from this spurt has been the online gaming industry. Research suggests that the global online gaming market grew approximately 22 per cent. between the year 2019 and 2020 and generated over US$21 billion in revenue. Even in India, it is estimated that, as of summer 2020, the number of online gamers had reached approximately 400 million. This constitutes a substantial chunk of the number of people estimated to be accessing internet in India, and as such, indicates the level of growth that this industry could potentially achieve as and when more of India comes online. As per a recent report, mobile gaming, which constitutes 86% of the overall gaming market (including console, PC and mobile gaming) in India generated revenues of around USD 1.5 billion in 2020, and this is expected to reach USD 5 billion by 2025.
One other factor that has fuelled the growth of online games in the country (and dare we say, around the world) has been the advent of loot boxes. What is a loot box? If you are a millennial (or even slightly older) you would remember having played the game Super Mario Brothers. If so, you would also remember having to knock a bunch of bricks with Mario’s head in the hopes of winning some spinning bonus coins which could potentially add another life to your bank of lives. Yes, these bricks were a form of loot box. The add-on content that you can download (or achieve) which makes your game more interactive and the gaming experience more satisfying and engaging is what is called a “loot box". There is no uniformity in what all may constitute a loot box. From spinning bonus coins, flashy avatars, new weapons to other accessories, many such add-ons are now included in loot boxes.
Similarity Between Loot Boxes and Gambling
You may be wondering, if all of this is so simple, then why bother writing about it? That is because it isn’t as straightforward as it may seem at first glance. A user typically does not know what the contents of the loot box are going to be, and more importantly, many times ends up paying real-world money to acquire the contents of such loot boxes. Essentially, the transaction involves the person paying a certain sum of money for an uncertain reward. You may end up paying ₹100 for a reward which may otherwise have been valued at ₹1,000, ₹10 or even ₹0.
Gambling is defined by the Cambridge Dictionary to mean “the activity of risking money on the result of something, hoping to make money". It could be argued that, given the player typically pays money to obtain an uncertain “lucky" advantage in the game, the act of opening loot boxes and acquiring its contents may well be considered as an act of gambling – or that it at least satisfies the criteria of what people would commonly call gambling. Recently, the universities of Plymouth and Wolverhampton conducted research on the link between the rise of loot boxes and problem gambling and found that loot boxes were “structurally and psychologically akin to gambling". Such research also suggests that (i) of the 93 per cent. children who play video games in the UK, approximately 40 per cent. opened (and in many instances purchased) loot boxes; (ii) young men were most likely to open loot boxes, with their age and lack of education contributing to such increase; and (iii) approximately 5 per cent. gamers generated about 50 per cent. of the revenue for the game providers simply by making these in-app purchases. More importantly, what is seen increasingly is that some games make it very difficult for players to advance in the games without having acquired such loot boxes – thereby virtually making it imperative for the players to make in-app purchases. This is relevant when you consider that at the end of 2020, the value of the loot boxes market in UK surpassed £700 million.
The Public Gambling Act, 1867 (the Gambling Act) prohibits all gaming activities that are not classified as “games of skill" – and are as such, based on luck. Moreover, even in states such as Goa and Sikkim where entry into casinos is permitted, such entry is prohibited for people below a certain age (such as 18 or 21). If one were to take the argument presented in the previous paragraph to its logical conclusion, one would assume that all loot boxes which provide an uncertain value are illegal under existing Indian laws, and as such, may either need to be stopped from being included as part of online games, or restricted such that children are not able to access such loot boxes. Whilst there has been no move to outlaw loot boxes just yet (or even classify the act of opening such loot boxes as gambling), it may be helpful to understand how international markets deal with such loot boxes to get a sense of where India may be headed.
The International Examples
As is the case with most gaming law jurisprudence, the first few jurisdictions which have contemplated including loot boxes within the ambit of their gaming laws are based in Europe. The following are some of the examples that may be relevant for us in India:
- One of the first countries to regulate loot boxes was Belgium. It brought games which offered loot boxes as part of the gaming package within such law’s ambit back in 2018. Moreover, it went one step further and stated that in order for a loot box to be categorised as a wager, it was not essential to show that a monetary gain was envisaged as part of the transaction for a loot box. It would be sufficient to show that the user derived some usability from the contents of such loot box. Accordingly, a very wide definition of loot boxes was adopted.
- In 2021, Germany amended its gaming law to ensure that all games or other applications that feature in-app purchases or loot boxes will be categorised as an 18 and above game only, thereby restricting minors from accessing, and potentially getting addicted to, such games.
- The UK has, for the moment, not brought loot boxes within its gaming law ambit, and as such, loot boxes continue to be legal. However, media reports suggest that the government is currently in the process of updating UK’s gaming laws and even that some members of the UK House of Lords have weighed in to say that loot boxes should be considered as games of chance.
- Other countries such as France, Poland and Sweden do not currently have a particular view on how loot boxes are to be categorised in their respective jurisdictions, however, we understand that processes are afoot in such jurisdictions to study whether specific exceptions need to be added within their gaming laws to bring loot boxes within their ambit.
Conclusion
As discussed in the preceding paragraphs, whilst India has some of the toughest laws when it comes to the gambling industry, such laws have not, as yet, caught up with the times to include loot boxes (and some would say even online gaming) within its ambit. Accordingly, at present, the likes of Ludo King can continue providing spin the wheel and other in-app purchases or loot boxes. However, if the increasing trend towards banning or regulating online gaming by various Indian states is anything to go by, it is not hard to imagine a situation where India may well include loot boxes within the ambit of its gambling legislation.
The Gambling Act (and consequently many states’ gambling legislation) is drafted to cover not just monetary benefits, but any value earned out of a bet or wager made with real-world money. Whilst loot boxes which help users earn rewards simply by playing the game for a long duration or spinning the wheel may not get hauled up under the Gambling Act, other loot boxes which are paid for in real-world money and offer some value and usability to the user could well come within the Gambling Act’s ambit – much like how Belgium has brought loot boxes within the ambit of its legislation.
We believe that even games which offer their players an opportunity to acquire loot boxes for a monetary fee should be exempt from the ambit of the Gambling Act, so long as such games do not force users to purchase such loot boxes by making it virtually impossible to progress in the game without having purchased a loot box. We also believe that a larger debate needs to be had among the gaming industry as well the stakeholders in the government to understand how best to regulate loot boxes, if it is, in fact, decided that loot boxes should fall within the ambit of the Gambling Act. Taking some of the European jurisdictions as an example, it may be fruitful to include age-restrictions or ratings, mentioning the odds of winning items when purchasing loot boxes and establishing certain spending limits.
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Written by Uday Walia & Surbhi Soni at Touchstone Partners.
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