Hawaii’s Chris Lee wants to protect minors from “psychological manipulation”

It’s been a rough holiday season for video game loot boxes. The increasingly common in-game microtransactions (usually just a few dollars each) offer a small chance at ultra-rare upgrades, cosmetic tweaks, and a much larger chance at being packed with common junk. Games like Forza Motorsport 7, Need for Speed Payback, and, of course, Star Wars Battlefront 2 are receiving a slew of critical and user ire for the way they push randomized sets of in-game items on players.
While plenty of gamers are fed up with the practice, one gamer who happens to be a Hawaiian state legislator is trying to do something about it.

Last month, state representative Chris Lee publicly launched his effort to pass legislation regulating the sales of video games with loot boxes in Hawaii. In a press conference flanked by religious and business leaders, parents, and affected gamers, he called out “predatory practices in online gaming and the significant financial consequences they can have on families.” Battlefront 2 got specific condemnation as a “Star Wars-themed online casino” in Lee’s telling.

Rep. Lee doesn’t use the word “predatory” lightly in describing loot boxes. He says it’s an appropriate adjective for game makers who are knowingly exploiting addictive gambling mechanisms to manipulate players and increase their bottom line. “We know inside the development process for many of these games that there are clear and deliberate decisions being made to employ these kinds of mechanisms with the full knowledge of the effects they can have,” he told Ars in a recent interview. “That's made obvious by kinds of people who have been employed, including psychologists and other sorts of experts.”
“This issue is not about regulating content or speech or anything like that,” he continued. “It’s about protecting public health when there is unquestionably a significant impact, particularly on children and youth. As elected leaders, we clearly have an obligation to prevent an industry from exploiting people.”

A gamer at heart

The first time video games came under the serious scrutiny of potential government regulators, in 1993, the elderly congresspeople worrying over the likes of Mortal Kombat and Night Trap admitted they had little direct experience playing games themselves. But Lee is part of a rising generation of lawmakers who grew up with video games as an everyday part of their life. They come at potential regulation from a different perspective.
The 36-year-old Lee says he grew up playing games like Wolfenstein 3D and SimCity, that he’s “had just about every [console] out there” in the years since, and is currently playing around with VR gaming in his limited spare time. He says there are at least “four or five” other avid gamers in the Hawaii legislature and that many lawmakers he’s worked with in other states are gamers, even if they don’t make it “publicly known.”

“It’s ironic that the gaming industry had all these customers and all these players that it created 20+ years ago that are now in positions to affect where that industry is headed today,” Lee said. “These issues I think, unlike the 1990s—when I don't think that first-hand experience existed in politics— it’s very prominent today. When I talk to legislators in other states, there are a good number of them that get it right off the bat, and I don’t have to say a word about what I’m calling about.”

Lee, who’s represented a small corner of the island of Oahu since 2009, has so far focused on issues like gay marriage, renewable energy, and universal basic income in his legislative career, so video game regulation is a bit of a left turn. But while Lee says he’s been aware of the rising tide of loot boxes and microtransactions in the gaming business for a while now, it was a direct experience spending hundreds of dollars on Clash of Clans over a few months that helped make him aware of the impact of the problem.
“It didn’t really even really occur to me it was turning into a thing,” Lee said of his spending on the popular mobile game. “At that point, I finally realized I had to delete this, because I’ve got nothing to show for spending that money once the game is gone. It was just a bad investment. If that can happen to somebody like me, who I think is cognizant of what I'm typically doing, imagine the folks who have addictive tendencies out there or who have other issues that are far more vulnerable to the kind of loot box and gambling mechanisms out there... it's the kind of situation that people can get caught in without ever intending to.”

Think of the children

Games like Clash of Clans, which let you buy in-game items and upgrades directly, probably wouldn’t be targeted by the legislation Lee and his colleagues are currently working on. The real target, he says, are the randomized in-game loot boxes that let players simply buy a chance to get items of varying rarities.

Lee cites medical experts and psychologists who focus on gambling to show the negative effects this kind of variable reward mechanism in games can have on people. But he’s also relying on the “hundreds” of stories he says have flooded his office since his bill was introduced. Those messages are variants of “I know I have a problem; I spent thousands of dollars on games; I know it’s bad, but I can’t help myself now.”
“If people want to spend a thousand hours grinding away to earn a new character skin, by all means have at it,” Lee said. “If they want to spend money to buy that character skin in the game, that’s great, too. It just shouldn’t be through an exploitive, targeted gambling mechanism in which the player is being encouraged to spend money to win a chance at getting something, rather than getting that thing itself.”

But there's still some question as to whether buying loot boxes is psychologically harmful to children in the same way as other forms of gambling. "Whether this random reward structure leads to harmful purchasing/playing behavior is still up in the air, as it is so new and has yet to be investigated empirically," Chanel Larche, a doctoral candidate at the University of Waterloo's Gambling Research Lab, told Ars. "It is way too early speculate how players may experience these rewards, or the cognitive and behavioral consequences, be they positive or negative, that some players may undergo from purchasing loot crates."

Because different players can value a loot boxes rewards differently, some players may not see themselves as "losing" even if they get relatively common items in exchange for their purchase, Larche suggested. "If they gain what they were hoping for, it could be a rewarding experience... If the loot-box feature was a central goal of the game that is mandatory to use for the purpose of the game, we might see a clearer need for regulation. Alas it is not that simple."

Regardless, just as with casino gambling, Lee wants games with these kinds of randomized in-game purchases restricted to purchasers and players 21 or older. Under that age, players are “psychologically vulnerable to it; they’re said not to have the cognitive maturity at that point to make the appropriate decisions in that context,” Lee said.

For adult players, Lee said games should be required to display the odds of getting certain items from each loot box purchased, as is already required in countries like Japan, China, and Australia. “They believe there’s a chance of winning whatever is advertised, but nobody knows whether it’s one in 100, one in a million, or even just zero. You never really know... That's a concern, because how do we know people aren’t being ripped off?”

Is it really “gambling?”

Likening a randomized loot box purchase to casino gambling is a controversial comparison, for some. Defenders compare a loot box to purchasing a randomized pack of collectible cards, or buying a chance to win a prize at a crane game (which are not always based on skill).

“The difference,” Lee says, “is that people aren’t spending thousands of hours in front of [the] crane game at their supermarket trying to win a stuffed animal and being exploited all the while to the kinds of psychological manipulation built in to loot boxes and online gaming. The fact that people are encouraged to spend countless hours playing a game which exposes them to repeated psychological manipulation makes this a totally different class of concern.”
The Entertainment Software Rating Board (ESRB) doesn’t agree. In statement released in October, the industry-linked game rating organization said it doesn’t consider loot boxes to be gambling. “While there’s an element of chance in these mechanics, the player is always guaranteed to receive in-game content (even if the player unfortunately receives something they don’t want),” the group said.

The Entertainment Software Association (ESA), which represents many large game publishers, echoed the sentiment that loot boxes are not gambling. In a statement to Ars, the lobbying group called loot boxes “a voluntary feature” that lets “the gamer make the decision” to “enhance their in-game experience.”

That’s not a distinction that means much to some gambling experts. “The justification that ‘it’s not gambling’ because every box has something in it doesn’t wash,” writes David Schwartz, Director of the Center for Gambling Research at UNLV. “If it did, a slot machine that paid back a penny on every 50-cent bet wouldn’t be considered gambling.”

For Schwartz, gambling includes anything that entails “risking something of value on an unknown outcome in hopes of a gain.” That includes loot boxes, Schwartz tells Ars, even if the benefit in this case doesn’t have a direct cash value. That said, Schwartz notes that things like the stock market, church raffles, and arguably insurance also fit into this definition of “gambling,” but are regulated very differently from casinos.

To Lee, the existing legal definition of gambling isn't what's at issue here. “The concern isn’t whether or not loot boxes fall into a 20th-century definition of gambling, but rather what kind of impact are these mechanisms actually having on people in the real world and what should be done about that,” he said. “The fact that these companies know what they’re doing, have purposely employed these mechanisms [and are] well aware of their potential dangers to people and especially kids out there, make it extremely apparent that steps need to be taken to address this.”

Lee says he reached out to the ESA and the ESRB well before going public with his legislative plans, but he has yet to receive a response from either. (Both organizations responded to Ars Technica’s request for comment with prepared statements.) And while Lee says he’d potentially be eager to talk about self-regulation if the industry were willing, he adds that “the very fact we didn’t even get a call back indicates there’s an unwillingness to have a discussion or negotiate, which is unfortunate. “

“Many have seen the ESRB as losing a lot of its credibility on this particular issue,” he continued. “It would have been great if industry had taken responsibility years ago and taken action in interest of consumers. Clearly the only things that’s been demonstrated that’s of value to them is increasing the quarterly shareholder reports. That’s something even now that’s guiding decision making.”

Laying down the law

While specific legislative language is still being drafted, Lee says a final bill would likely put the onus on retailers and online distribution platforms (Steam, Apple’s App Store, Google Play, etc.) to ensure they weren’t selling loot-box-equipped games to Hawaiians under 21. These companies would then be liable for setting up “reasonable protections” to verify the player’s age, akin to gambling websites in many countries. Those retailers and platforms would also have to alert purchasers before they bought a game that includes randomized in-game purchase mechanics.

Legislation in a single state that accounts for 0.4% of the national population isn’t exactly a direct threat to the gaming industry’s business model. But Lee is actively reaching out to gamers and lawmakers in other states to push for similar restrictions. Lee says he’s heard from 15 to 20 other state legislators as of last week and is in talks with regulators and public health departments in other countries about the issue as well. Belgium and the UK are among the nations looking into loot boxes, though New Zealand says loot boxes “do not meet the legal definition for gambling.”

“I don’t think every state has to change its laws for the public and the gaming community to see a change in the way these mechanisms are being employed in games,” Rep. Lee said. “I think you only need a few.”

Lee says he’s optimistic about the law’s chances of moving forward once Hawaii’s legislative session begins again in January. That’s partly because “Hawaii takes protection of the public seriously... I don’t think there’s a single legislator I’ve talked to who’s said that the status quo is OK.” But it also helps that “we’re not a state that’s divided by political party politics,” a reference to the Democrats’ supermajorities in both chambers of the Hawaii state house (including control of every single seat in the state Senate).

That said, Lee was quick to add that “this isn’t a partisan issue. We’ve heard from Republicans just as much as Democrats. The faith community which is a more traditional Republican ally is completely on board. Businesses and so forth have reached out on this.”

While Lee says he’d welcome federal action on this issue, the gridlock in Washington means this will probably remain a state-level issue for now. And states can’t afford to wait when the psychological well-being of children is on the line, he said.

“The science and psychology is clear. How do we update our 20th-century laws, designed before online gaming even existed, to protect public health given concerns that have been seen? This is an issue and a danger to people and families that is of [the industry’s] own creation... It is, as one psychologist put it in one of our conversations, as significant a public crisis as opioid addiction.”