The UK government is set to publish plans in the coming months to tighten regulations against the £700m loot box industry, a third of which is spent by underage gamers. But campaigners warn it’s too little too late as the industry is already devising new ways of getting gambling into games.

As a teenager, Hassan Hadif thinks he spent close to a thousand pounds trying to win virtual items in popular video game Counter Strike. He got hooked after he realised these items could be traded to other gamers for real money.

“The rarest items in the games go for upwards of £1,000 on marketplaces and the idea of claiming an item of that value to my young mind was baffling,” the 20-year-old said.

“But it turns out I’ve spent hundreds nearing a thousand on this game and ended up with nothing of any particular rarity or value.”

What Hassan was buying is called a loot box – a virtual slot machine that offers players the chance to win certain items like weapons or costumes. A few loot boxes can be opened for free, but those with better odds at winning higher valued items usually require additional purchases.

Loot boxes are estimated to be worth £700m, just over 10% of the UK’s almost £6bn video game market in the UK, but they are not regulated under the current gambling laws. The Gambling Commission, which regulates UK gambling, does not consider this part of its remit because items in loot boxes cannot be cashed out for real money. But researchers and parents are calling for something to be done to regulate these mechanics.

“You can go into a bookie on a high street... That’s so heavily regulated. But that’s happening in Roblox with six or seven year-olds”

Matthew Bloch, a York-based software engineer was alerted to loot boxes when his nine-year-old son was playing on Roblox, an online game platform. He was worried at the lack of checks and regulation, compared to more traditional forms of gambling.

“You can go into a bookie on a high street, pay with your credit card and play on their roulette wheel. That’s so heavily regulated. But that’s happening in Roblox with six or seven year-olds,” he said.

“You can’t win any money with Roblox, but for a child, whose excitement of an afternoon is staked on it, it’s the same buzz. It can get to the same level of desperation because I saw it in my son.”

The gaming industry has long used various methods of monetisation. Traditionally, this has been in the form of a one-off purchase, a subscription or free games, supplemented with advertising revenue. Since the rise of mobile games in the early 2010s, which are mainly free to play, the industry has shifted towards ‘microtransactions’. These encourage users to purchase in-game items such as loot boxes using real money.

Although most games don’t allow players to cash out loot box rewards, there are online marketplaces where they can buy and sell loot box items for real money.

“Even if it’s legislated against, it’s still not going to be going far enough”

Following research that suggests links between loot boxes and gambling, the Department for Digital, Culture, Media and Sport launched a call for evidence on loot boxes in September 2020, as part of a wider review of legislation. Following several delays, DCMS Minister Julia Lopez claims their findings will be published “in the coming months”.

The Department for Digital, Culture, Media & Sport has been approached for comment.

But campaigners fear any upcoming reforms will not be enough as the gaming industry has already moved on to developing new mechanics.

“Even if it’s legislated against, it’s still not going to be going far enough” said Marc Skinner, of the charity Addiction Recovery Agency.

“Loot boxes are one element but there are other things online that lawmakers need to protect people from. But they haven’t, they just dragged their heels.”

He pointed to skin betting, which involves using cosmetic in-game items such as "skins", as virtual currency to bet on the outcome of professional matches.

EA, the makers of FIFA and Star Wars Battlefront which both feature loot boxes, have previously said loot boxes aren't akin to gambling but are instead "surprise mechanics” similar to Kinder Eggs.

They are one of the largest video game publishers in the world, and have faced significant consumer backlash over their use of loot box mechanics.

Appearing before the Digital, Culture, Media, and Sport Committee in 2019, Kerry Hopkins, the company’s vice president of legal and government affairs, said: “We think it's like many other products that people enjoy in a healthy way, and like the element of surprise.”

EA declined to comment.

Meanwhile, other countries have taken regulatory action against loot boxes. In 2018, the Belgium Gaming Commission banned all loot boxes in video games while the Netherlands Gaming Authority declared that loot boxes where the content was transferable would be gambling and illegal.

A 2021 report by Juniper Research suggests that the amount of money generated by loot boxes will continue to grow but at a much lower rate compared to previous years. There is also evidence to suggest models such as subscriptions or battle passes are becoming more popular.

Battle passes let players unlock rewards for completing in-game challenges. Games usually offer some free passes but players can also pay for premium passes annually or seasonally for enhanced rewards, often including loot boxes.

Adam Wears, research analyst at the market research company, said: “In recent years, publishers and developers have pivoted towards subscriptions and battle passes, recurring sources of revenue that provide long-term returns on investment, as opposed to traditional, one-off purchases of downloadable content or, indeed, loot boxes.”

He expects the government to set out measures to restrict the use of loot boxes in video games in the upcoming gambling law review.

This could include listing prices in real-world currencies, capping how many loot boxes a player can buy over a certain period of time, and displaying the odds of winning high-quality loot boxes.

Legal experts in the gaming industry however believe a complete ban on loot boxes is unlikely.

“I think the hope is that if there’s any sort of regulation coming up, it’ll be consumer- orientated,” said Isabel Davies, video games and digital entertainment solicitor at Wiggin, “but having gone from saying they are not a regulated gambling product to banning it completely seems pretty severe.”

While the government delays taking action, loot boxes remain popular in mobile games, with many console and PC games moving towards battle passes. Some companies, meanwhile, are introducing NFTs for in-game items, which can be used across a variety of games and potentially have real world value.