By: Dante S. Pavan, Editor-in-Chief, Vol. 47
Since Murphy v. NCAA held prohibitions to state authorization and licensing of sports gambling schemes unconstitutional,[i] gaming law has been in flux, and Delaware is no exception. The advent of online and internet gambling has also revolutionized the way we look at gaming law, a field in which Delaware has been a trailblazer.[ii] The combination of these two transformative shifts in the gaming regulatory scheme, while progressive, are still not moving at the speed of new technological changes; one of which is the advent of microtransactions in interactive entertainment. Microtransactions are defined as “a type of in-game conducted purchases that aim to give the customer access to special or premium abilities, content, or characters … [where t]he purchases are always virtual and may be acquired with real-world currency….”[iii] While many of these transactions are a clear exchange, such as paying price X for good Y, there are some mechanisms at play which make the process murkier. One such feature is the “loot box,” which are “video-game specific packages containing randomized items that enhance gameplay experience.”[iv] A consumer purchases the loot box digitally for a percentage chance of receiving certain goods. To ascertain the best course of action for loot boxes, one should first determine if they classify as “gambling” within the state regulatory scheme.
In Delaware, “table games” are defined as “any game played in a video lottery facility with cards, dice or any mechanical, electromechanical or electronic device or machine … for money, credit or any representative of value….”[v] “Internet table games” are permissible,[vi] but are to be regulated by the State Lottery Office.[vii] Similarly, loot boxes are a mechanism where real money is inserted, software releases a randomized item from a list of possible outcomes, and something of value is returned to the player.[viii] A study on loot boxes found “a clear concept of value-based motivations perceived by all of the participants.”[ix] Some games, like Blizzard’s Overwatch, assign their own levels of value to the items within the loot boxes; “common” is white, “rare” is blue, “epic” is purple, and “legendary” is orange.[x] Although the in-game value is purely representative, the purchases are all completed with real-world currency. The value extends beyond the game itself, as a quick internet search will yield a great number of accounts for sale for hundreds of dollars each, differentiated in price mainly due to the number and rarity of items the account possesses. There is one clear difference between microtransactions with gambling mechanics and online lotteries; one is completely unregulated by the State.
On a larger scale, regulations specifically regarding microtransactions are already underway. United States Senator Joshua Hawley [R-MO] proposed a bill banning loot boxes and “pay-to-win” game mechanics in minor-oriented games or all games if the publisher has constructive knowledge of players under 18.[xi] The bill would allow for criminal enforcement on the federal level and paves a path for civil enforcement by State Attorney Generals.[xii] A study by the UK Parliament found there to be harmful financial and psychological effects associated with “immersive technologies,” and recommended regulating mechanics like loot boxes under gambling laws.[xiii] Some countries have banned these mechanics entirely after classifying them within their gambling regulatory scheme. In Belgium, loot boxes available for purchase with real currency are classified as ‘games of chance,’ and therefore are in violation of gambling law and can create criminally liability.[xiv] The Netherlands reached the same conclusion and implemented a similar statutory result.[xv]
The Delaware Constitution provides that “[a]ll forms of gambling are prohibited in this State” besides for a short list of explicitly stated exceptions, encompassed by lotteries run by the State, and private gambling regulated by the State.[xvi] Should gambling microtransactions be integrated, or explicitly included, within the State gambling regulatory scheme, it would provide additional safeguards to the public. First, Delaware Statute already requires as “a condition of registration, each operator and registrant shall implement commercially reasonable measures to … [i]implement measures to protect the privacy and online security of authorized players and their accounts.”[xvii] The same statute also requires perhaps the most critical effect of unregulated gambling; protection of minors.[xviii] In approving “internet lotteries,” the Delaware General Assembly clarified the first purpose as expanding “access to certain lottery games by offering them on the Internet in a well-regulated and secure system designed to create a positive customer experience that limits access to minors, those with gambling problems, and others who should not be gaming[.]”[xix]
There are three clear paths forward: allow such transactions to remain unregulated, ban them completely, or include them with the gambling regulatory scheme. The first option is the path of least resistance, but is also the least permanent; the federal government will ultimately regulate it, and other states will create their own models. The second option is the most extreme, and the countries who used it (Belgium and the Netherlands) only did so because online gambling was not permissible lock, stock, and barrel.[xx] The best option is therefore inclusion within the state regulatory scheme, either under “internet table games”[xxi] or as its own statutory subset, for two main reasons. First, it would extend the protections to consumers which all other types of online gambling in Delaware provide, such as protection of minors, data security, and user privacy requirements.[xxii] Second, Delaware can again set a pioneering precedent on the national level by including microtransaction restrictions and regulations within state gambling laws. The first reason is done with the citizens of Delaware in mind, while the second is for the State itself – keeping Delaware ‘the first state.’
[i] See generally Murphy v. NCAA, 138 S. Ct. 1461 (2018).
[ii] Brett Collson, Delaware Becomes First State to Launch Full-Scale Real-Money Online Gambling, Poker News (Nov. 8, 2013), https://www.pokernews.com/news/2013/11/delaware-becomes-first-state-to-launch-full-scale-gambling-16741.htm.
[iii] Martin Ivanov, Helmut Wittenzellner & Marcin Wardasko, Video game monetization mechanisms in triple A (AAA) video games, in Simulations & Gaming through time and Across Disciplines 422-23 (Marcin Wardasko ed., 2019).
[iv] Denise Randau, Anh Nguyen & Adrien Mirgolozar, Loot boxes: gambling in disguise?: A qualitative study on the motivations behind purchasing loot boxes, 12 (2018) [hereinafter Loot boxes].
[v] 29 Del. C. § 4803(cc).
[vi] 29 Del. C. § 4803(l).
[vii] 29 Del. C. § 4803(s) (defining “office” within the code).
[viii] See generally S. 1629, 116th Congress (2019).
[ix] Loot boxes, supra note iv, at 30.
[x] Daniel Friedman, Are Overwatch’s loot boxes worth your money?: The $700 game, Polygon (May 26, 2016), https://www.polygon.com/2016/5/26/11785084/overwatch-loot-system-guide.
[xi] S. 1629, supra note viii.
[xii] Id.
[xiii] See Digital, Culture, Media and Sport Committee, Immersive and Addictive Technologies, 2017-19, H.C. 1846, at 61-63 (UK) [hereinafter “Committee Report”].
[xiv] Koen Geens, Loot boxen in drie videogames in strijd met kansspelwetgeving [Loot boxes in three video games in violation of gambling laws] (Apr. 25, 2018, 9:31 AM), https://www.koengeens.be/news/2018/04/25/loot-boxen-in-drie-videogames-in-strijd-met-kansspelwetgeving.
[xv] Boete van 6 ton voor illegaal aanbieden online kansspelen [Fine of 6 tons for illegal offering of online games of chance], Kansspelautoriteit [Gaming Authority] (Jan. 8, 2021), https://kansspelautoriteit.nl/nieuws/2021/boete-6-ton-illegaal/.
[xvi] Del. Const. art. II, § 17.
[xvii] 29 Del. C. § 4865(a)(10).
[xviii] 29 Del. C. § 4865(a)(2) a-c. (“As a condition of registration, each operator and registrant shall implement commercially reasonable measures to [p]rohibit minors from participating in any contest, which includes: [i]f a registrant becomes or is made aware that a minor has participated in 1 of its contests, such registrant shall promptly, within no more than 2 business days, refund any deposit received from the minor, whether or not the minor has engaged in or attempted to engage in a contest; provided, however, that any refund may be offset by any prizes already awarded; [e]ach registrant shall publish and facilitate parental control procedures to allow parents or guardians to exclude minors from access to any contest or platform; and [E]ach registrant shall take appropriate steps to confirm that an individual opening an account is not a minor.”).
[xix] 29 Del. C. § 4801(c)(1).
[xx] See generally Committee Report, supra note xi, and Geens, supra note xii.
[xxi] See 29 Del. C. § 4803(l)
[xxii] See 29 Del. C. § 4801(c)(1).