6. Simulated gambling and gambling-like activities
   1. Australians are increasingly concerned about the exposure of children and young people to simulated gambling and gambling-like activities. These activities include:

• Loot box features in popular interactive games and mobile apps that give players the chance to win valuable in-game items. There are a range of different types of loot boxes in games. Loot boxes can involve in-game purchases (sometimes referred to as ‘microtransactions’), or the use of in-game currency that can be purchased, or can be accessed during normal gameplay as rewards based on merit. Some loot boxes more closely resemble gambling than others.[1]
• Social casino games, which do not involve real money but mimic regular casinos and electronic gaming machines. Social casinos are widely available on computers, game consoles, handheld devices and social media. Players can earn or buy virtual currency but cannot ‘cash out’ any winnings.[2]
• Skin betting, which involves the gambling of rare and sought after in-game items referred to as ‘skins’. Skins can be found in loot boxes and have value outside the game as they can be sold, traded, or gambled on online marketplaces, such as illegal skin and esports gambling websites, for money.[3]
  2. This chapter examines the potential for harm of simulated gambling and gambling-like activities in interactive games, and the adequacy of existing regulation and consumer protections. It considers the regulatory approaches of other countries and the need for further measures to reduce the risk of harm to young Australians from these products.

Potential for harm

6.3Concerns were raised that simulated gambling and gambling-like features in interactive games may cause harm, including addiction, and can normalise monetised gambling among young people, leading to gambling harm in the future.

6.4Many young Australians are developing gaming disorder and experience a wide range of harms from their use of interactive games. Gaming disorder, like gambling disorder, is classified in the International Classification of Diseases (ICD-11) as a disorder caused by addictive behaviours. This suggests the need for an evidence-based clinical response to the harm caused by games and public health measures to protect Australians, particularly young people.[4] Young adolescents may be particularly vulnerable to gaming disorder. Of Australians aged 13 and 14 years,15-16 per cent were reported to have gaming disorder in 2022.[5]

Popularity with young Australians

6.5Simulated gambling and gambling-like features in interactive games are popular among young Australians. Up to 40 per cent of adolescents in 2022 reported gambling on digital games.[6] In 2020, of those aged 12-17 years, 36.5percent had purchased loot boxes, 31.7percent had played games with gambling components, 26per cent had played social casino games and 14.5 per cent had gambled on skins.[7]

6.6Social casinos appeal to young people because they are promoted and easily available on social media and online platforms, and through free apps.[8] They may incorporate components such as leader boards and competitions on social media, where users are encouraged to share updates and invite their online connections to play.[9] Relationships Australia noted that ‘children are increasingly exposed to and interact with gambling themes, brands, and games because of the difficulties in age-gating social networking sites’.[10]

6.7Loot box features are popular with young people because they can provide desirable items that benefit gameplay and can enhance the in-game experience. These include powerful weapons or other items that provide a competitive advantage, specific items or characters that can be used to create a collection, or the option to apply cosmetic changes to characters. Loot boxes also provide excitement because the outcome of opening the box is unknown.[11]

6.8Loot boxes were found in 58 per cent of the top games in the Google Play Store, in 59per cent of the top games on the Apple Store and in 36 per cent of the top games on the Steam store.[12] The Australian Gaming and Screens Alliance (AGSA) noted that nearly all of these games ‘were considered suitable for children aged 12+’.[13]

6.9Skin betting is popular among young people because it provides an opportunity for players of interactive games to use in-game items to engage in online gambling, for money, on websites that do not enforce age restrictions.[14]

Normalising gambling

6.10Some interactive games can share striking similarities with monetised forms of gambling.[15] The simulation of gambling activities, and in particular winning, can provide the same feelings as activities that are regulated as gambling, and carry similar risks for addiction and other negative social, economic and health consequences.[16] The development of addictive behaviours early in life can be a precursor for other addictive behaviours to develop later.[17]

6.11Central Queensland (CQ) University said that some peoples’ underlying vulnerabilities to gambling can be nurtured by these games, making them more susceptible to ‘harmful psychosocial processes, behaviours, and dependency in real-money gambling’.[18]

6.12According to the Royal Australian and New Zealand College of Psychiatrists (RANZCP) and Royal Australasian College of Physicians (RACP), design features in games that exploit people’s vulnerabilities and can lead to gambling harm include:

• variable ratio reinforcement schedules (a reward structure where users do not know how many purchases are required to obtain the sought item)
• micro-transactions
• mechanisms used in electronic gaming machines such as rapid playing speeds.[19]
  13. There is growing evidence suggesting either a strong correlation or a causal link between young people who play games that simulate gambling or have gambling-like features, and gambling harm.
  14. The strongest evidence relates to social casinos. The Australian Institute of Family Studies’ Australian Gambling Research Centre (AGRC) said its research showed a ‘really strong causal link’ between simulated gambling and monetised gambling.[20]Growing Up in Australia: The Longitudinal Study of Australian Children found that young people who played games that simulated gambling at age 16 or 17 years were significantly (40 per cent) more likely to gamble with real money when they turned 18or 19 years.[21]
  15. Some researchers argue that people who spend money on loot boxes are similarly more likely to experience harm from gambling with money than those who do not. Forexample, DrAaronDrummond from the University of Tasmania said that recent research findings demonstrate that loot boxes are ‘a gateway to future gambling.’[22]
  16. Others have suggested it is too early to tell whether playing ‘gamblified games’ leads to the development of harmful gambling behaviours in adulthood. For example, CQUniversity said ‘it is not clear if adolescents who play gamblified games face higher risks of gambling problems in adulthood, but preliminary research suggests that there may be harmful effects associated with these types of games’.[23]
  17. Similarly, the Gambling Treatment and Research Centre, University of Sydney (GTRC) said that further research is required to demonstrate a causal link between certain kinds of games and gambling harm, noting this ‘doesn't mean that's not the case. It means the research question hasn't been sufficiently addressed.’[24]
  18. By contrast, the International Social Games Association (ISGA), a global industry body, described the correlation between interactive games containing loot boxes and social casinos, and gambling harm as tenuous, stating:

…there's no causation proved. There's no smoking gun here that shows that these things create a particular type of harm. It would be really interesting to have a conversation about a broader look at people's routes into gambling rather than having just a very narrow focus on one specific mechanic within some video games, if that's the harm we're looking to address.[25]

Young people’s experience of simulated gambling

6.19Research conducted by CQ University in 2023 with adolescents in New South Wales found that:

• gambling is becoming increasingly normalised for children through exposure to loot boxes and other gambling-like features in games during primary school, and teenagers’ use of social casinos
• this normalisation occurs before children are aware that these activities resemble gambling and by this time simulated gambling has become embedded in their social and recreational activities
• some teenagers started gambling with money because they tired of being able to win only virtual prizes
• teenagers experiencing gambling harm said that simulated gambling made them more interested in, and had taught them about, monetised gambling. They also noted that the experience of winning easily during virtual gambling shaped erroneous beliefs about monetised gambling.[26]
  20. The teenagers were concerned they were being groomed to gamble and exploited by games that simulated real gambling and were being targeted by advertisements for these products.[27] They advocated for age restrictions and consumer protection measures such as transparent odds and spending limits, and measures that reduce the marketing of both monetised and simulated online gambling to young people.[28]

Social casino games

6.21According to GTRC, social casino games ‘saw an incredible boost in popularity’ during the COVID-19 pandemic by providing a ‘simulation of a live gambling experience unaffected by health restrictions’.[29] In the first half of 2022, Australians spent an estimated $115.8 million on social casino games and Australia was the fourth largest market for these games globally.[30]

6.22GTRC reported that, in 2016, 29 per cent of Australians aged 12 to 17 years who played gambling-themed games reported that their desire to gamble had increased. GTRC said ‘young people appear to be focused on the possibility of winning money gambling and it is possible that social casino games increase irrational beliefs in future success at gambling activities’.[31]

6.23Banyule Community Health reported that in-game gambling elements are familiarising secondary school children in Victoria with casino games and ‘anecdotally it does seem that the young people are interested in trying them in real life when they get a little bit older’.[32]

6.24Relationships Australia reported that some game operators are encouraging young people ‘…to try real-money gambling, and many have gone on to gamble as a result of using social casino games’.[33]

6.25Participation in social casino games can lead people to have a lower appreciation of risk when they gamble with real money. For example, Turning Point and the Monash Addiction Research Centre said:

Of concern is that social casino game designers utilise ‘dynamic game balancing’, whereby odds change mid-game based on whether the player is winning or losing so that they never become bored (for example, if a player has lost multiple times, the odds will change so that they begin winning more often). This may cause social casino gamers to believe that commercial gambling will reap the same rewards, which is misleading and could lead to gambling-related harm.[34]

Deceptive and manipulative design features of loot boxes

6.26Up to five per cent of people who spend money on loot boxes report ‘substantial spending’, sometimes up to $1,000 per month.[35] The Committee heard that deceptive and manipulative design features of loot boxes contribute to these losses. For example, the Consumer Policy Research Centre (CPRC) stated that some games induce consumers to engage in transactions where they cannot make an informed choice. CPRC explained that some businesses track individuals’ gaming behaviours:

The challenge with loot boxes is that a business has quite significant superior knowledge about an individual's gaming behaviour and a lot of data about how they're engaging with the game that could be used to manipulate them in ways that make it quite an unequal transaction.[36]

6.27CPRC added that some game developers ‘are able to work out when would be a good time to offer you a loot box, and then make it really hard for you to actually close that option or minimise it’.[37] CPRC emphasised that:

…if your personal information, vulnerabilities, and how you play is all being pushed through an algorithmic decision, then if chances and loot boxes are curated specifically for you, and these are there to deceive or manipulate you that's unfair.[38]

6.28The Australia Institute noted that some loot boxes can only be bought using an in-game currency, which obscures the player’s actual losses. Some loot boxes closely resemble the pokies and show near misses that give the appearance that the player almost won big.[39]

6.29As noted in Chapter one, the Senate Environment and Communications References Committee examined loot boxes in 2018. It found that loot boxes vary in type and content and, as such, argued that any ‘policy or regulatory response, including the classification of games, should take account of this.’[40] That Committee observed that it will be challenging to apply evidence-based regulatory responses to reduce harm from loot boxes until there is further research-based evidence on their impact on players.[41]

Skin betting

6.30Skin betting is a new and largely unregulated gambling market where there is underage gambling, match fixing and players promoting gambling sites they have an interest in without disclosure.[42]

6.31Skin betting is popular. In 2021, nine per cent of Australians who used illegal online gambling services were engaging in skin betting.[43] It is also more popular with teenagers than adults. In New South Wales, 14.5 per cent of young people aged12-17 years reported recent engagement in skin gambling, compared to one per cent of Australian adults.[44]

6.32Concerns were raised that third party websites that allow virtual items to be gambled are operating in breach of Australia’s gambling laws.[45] There was some uncertainty about whether these websites are covered by the IGA.[46]

6.33The Committee heard that the ability to cash out winnings means that skin betting websites are covered by the definition of a ‘gambling service’ under the IGA[47] and noted that ACMA is taking enforcement action against some websites that offer skin betting.[48] There was support for a crackdown on illegal gambling operators that facilitate skin betting.[49]

Regulation of simulated gambling and gambling-like activities in interactive games

6.34All interactive games must comply with the Australian Consumer Law (ACL) and the National Classification Scheme. Simulated gambling and gambling-like activities in interactive games, such as social casinos and games containing loot box features, do not meet the criteria of a gambling service in the IGA, which means that ACMA has no jurisdiction to regulate them.[50]

6.35Many aspects of interactive games are largely self-regulated by industry. ISGA and IGEA both said that game developers and online gaming storefronts provide a range of consumer protection tools, such as probability or drop rate disclosures, labels for in-app purchases and parental controls.[51]

Australian Consumer Law

6.36The ACL prohibits businesses from engaging in misleading or deceptive conduct or engaging in unconscionable conduct. IGEA argued that as loot boxes are digital purchases, then ‘all relevant consumer protections and remedies are available to all consumers of loot boxes and other in-game purchases in Australia’.[52]

6.37However, the Committee heard that the ACL offers weak consumer protection for users of games that include gambling elements. Submitters argued that the ACL should be strengthened to ban unfair and manipulative business practices such as companies benefiting from data collected on its customers.[53] ISGA suggested that the Australian Competition and Consumer Commission (ACCC) should be given ‘more powers to investigate and receive more types of complaints’ to protect consumers from ‘bad actors in not just the games industry but also other places online’.[54]

6.38ACCC is examining dark patterns as a manipulative business practice as part of its Digital Platforms Inquiry.[55] ACCC supports an unfair trade practices prohibition to help address dark patterns.[56]

National Classification Scheme

6.39All interactive games must be classified by the Classification Board or the International Age Rating Coalition (IARC) Global Rating Tool before they can be sold in Australia.[57] Currently, the presence of a loot box in a game does not affect its classification rating, but consumers must be advised that a game includes ‘in-game purchases.’[58]

6.40On 29 March 2023, the Australian Government announced a two-stage approach to classification reform. The first stage will focus on immediate legislative improvements while more comprehensive reform is considered. The immediate legislative improvements include:

• expanding options for industry to self-classify content using accredited classifiers
• expanding the Classification Board’s powers to revoke content classified by accredited industry classifiers
• addressing gambling-like content in computer games through a minimum classification of:

• M (Mature – not recommended for persons under 15 years) for computer games containing loot boxes that can be purchased, and
• R18+ (Restricted to 18 and over) for games containing simulated gambling.[59]
  41. The Australian Government is also considering industry-led measures such as greater transparency, education and awareness.[60]
  42. These changes were informed by DITRDCA’s Review of Australian Classification Regulation (the Stevens Review), which was released with the Government’s classification reform announcement. The Stevens Review made several recommendations that include updates to the National Classification Scheme, specific content that should be classified, and updates to classification categories, consumer advice, classification guidelines, computer games guidelines and governance.[61]
  43. The Stevens Review recommended that, to ensure classification labels are available across all online platforms, computer games should be classified through either:

• Industry self-classification by people trained and accredited by the regulator, who could be either in-house staff or third-party classifiers.
• Industry self-classification using classification tools approved by the Minister (includes the International Age Rating Coalition tool).
• Submitting content to the regulator for classification.
• An alternative classification system (such as the Apple rating system) which meets certain criteria and is authorised by the Minister.[62]
  44. The Committee heard there is potential for the National Classification Scheme to better help consumers, particularly parents, to be aware of the presence of gambling elements in games, and to make more informed decisions about the potential risks of engaging with such games.
  45. CQ University and The Australia Institute argued that games containing loot boxes should be classified as R18+ as young people are exposed to these games throughout their childhood and adolescence.[63]
  46. Mr Leon Y. Xiao raised concerns about the enforceability of the proposed changes to the National Classification Scheme and noted that the M classification, which would apply to loot boxes, is an advisory rating, while R18+ is a legally restricted classification and would apply to social casino games. Mr Xiao said it may be difficult to define the differences between loot boxes and simulated gambling when allocating classification ratings and suggested ‘it would be easier to treat both as ‘in-game transactions with random elements’ and regulate both under the same definition with identical minimum age rating requirements.[64]
  47. The Committee heard there is a lack of consistency in how mobile phone app stores, which are the predominant way that consumers purchase games, classify and display information about games.[65] Mr Xiao reported that about 70 per cent of games on mobile platforms contain loot boxes.[66]
  48. Currently, online app stores display varying age ratings. For example, the Apple App Store uses its own ratings of 4+, 9+, 12+ and 17+, while the Google Play Store uses the IARC ratings of 3+, 7+, 12+, 16+ and 18+,[67] with games containing simulated gambling rated as 12+ in both stores. Steam, a popular computer game storefront, does not require game developers to classify games before the games are made available to consumers and does not display Australian classification information for all games.[68]
  49. Children and Media Australia established its own service, KnowBefore You Load,to provide information for parents on age suitability and content descriptions on mobile apps that may appeal to young children. The service includes a section on gambling content, provides a ‘children and gambling watch list’, and identifies apps containing loot boxes.[69]
  50. There is a need to improve parents’ awareness of the Australian Classification Scheme and what it means for their children, particularly given evidence in earlier chapters that shows parents’ attitudes to gambling shape their children’s gambling behaviour. In 2022, less than half of Australian adults were completely familiar with classification labels.[70]
  51. Children and Media Australia argued that an ‘M’ classification does not give a clear age-based recommendation to parents and that parents would have a greater ‘willingness and tendency to rely on these systems, if it gave them that useful age-based information’.[71]
  52. The Association of Heads of Independent Schools of Australia called for the National Classification Scheme to review contradictions in classifications, stating that it has found that similar games containing simulated gambling are classified differently.[72]

Loot box presence warning label

6.53There was support for a loot box presence warning label to be incorporated into the National Classification Scheme to ensure that consumers can make informed purchasing decisions.[73] It was emphasised, however, that labels must first be proven to be effective through academic research. Dr Drummond noted that research conducted into warning labels in the United States and Europe found a ‘substantial proportion’ of people did not understand that the phrase ‘includes random items’ means that chance-based items were available in these games and said this is ‘a really big problem’.[74]

6.54Dr Drummond recommended that an effective warning label will ‘require some stringent academic research’:

We really need something that is going to be more explicit to consumers…and then we need to do some work to find out whether parents are using these labels in an appropriate way to make decisions and whether people are using them; so vulnerable gamers in particular are using these labels to make informed decisions for themselves.[75]

Interactive Gambling Act 2001

6.55The Committee considered whether the definition of ‘gambling service’ in the IGA is appropriate for modern technologies and if it should be amended to capture additional gambling-like activities such as games containing loot boxes and social casino games.

6.56As noted in earlier chapters, the IGA is enforced by ACMA and prohibits the provision or advertising of prohibited online gambling services to people in Australia such as online casinos.[76] If games containing loot boxes and social casino games were included in the definition of ‘gambling service’ under the IGA, the games would be considered prohibited interactive gambling services and be subject to the offence provisions under the Act.

6.57Games containing loot boxes and social casino games are not considered gambling in the IGA because they are not played for money. DITRDCA noted that, for example, ‘social casino games involve the use of virtual 'gold coins' that can be purchased and played within the game, but they cannot be 'cashed out' for real money or anything else of value.’[77]

Views on changes to the Interactive Gambling Act

6.58There were contrasting views on whether the definition of gambling service in the IGA should be broadened to include games and game elements like social casinos and loot boxes.

6.59Those that opposed changes to the IGA argued that the National Classification Scheme is a more appropriate regulatory framework, particularly for games that contain loot boxes, and called for a consumer-centred approach that educates consumers to make more informed decisions. For example, Dr Drummond, Ms Hall,Dr Lowe-Calverley and Associate Professor Sauer observed that ‘gamers will almost certainly react more favourably to a strategy which educates, informs, and protects consumers while allowing consumers to maintain their freedom of choice than a strategy which might be perceived as paternalistic’.[78] Similarly, Mr Leon Y. Xiao warned banning loot boxes would stigmatise the activity and the players who engage in it.[79]

6.60The New South Wales Government did not support amending the IGA to address harms associated with simulated gambling and suggested that gambling legislation may not be the appropriate avenue to address these concerns as there are existing regulatory bodies responsible for gaming and consumer protection.[80]

6.61Further, ISGA, IGEA and the New South Wales Government warned that changing the definition could inadvertently define all social games that have an element of chance as gambling.[81] ISGA said regulation through legislation is an ‘outdated tool,’[82] while IGEA warned Australian game developers may move operations overseas which would devastate investments in the local sector.[83]

6.62Additional reasons for not expanding the definition of gambling service in the IGA included:

• efforts to ban loot boxes internationally have not been effective, primarily due to enforcement difficulties[84]
• banning items can create backfire or ‘forbidden fruit’ effects where the items become more attractive and valuable to consumers[85]
• consumers can circumvent bans on loot boxes by using a Virtual Private Network (VPN) or changing their device’s country setting[86]
• gamers may feel that they are being disadvantaged if they do not have access to rewards which provide gameplay advantages when competing against peers in other jurisdictions[87]
• people may resort to other activities or riskier opportunities where there are fewer or no consumer protections.[88]
  63. Those that supported changes to the IGA did so because they believed this would better protect children and young people from gambling-like content in loot boxes and social casino games.[89] For example, CQ University argued that since loot boxes and social casino games ‘share many harmful characteristics of monetary gambling [they] warrant adequate consumer protection and gambling harm minimisation measures’.[90] Similarly, the Australian Psychological Society (APS) and AGSA both argued the current definition of ‘gambling service’ is outdated. APS emphasised the importance of future-proofing the definition ‘to prevent the need for ongoing amendments’ as gambling and technology continue to evolve.[91]
  64. Fairfield City Council argued that simulated gambling services should be included in the IGA so that operators are ‘subject to similar regulation, tax, age restrictions and account monitoring’ as monetised gambling.[92]

Strategies on harm minimisation

6.65As noted in Chapter three, harm minimisation strategies like spending controls are useful for people who have trouble limiting their gambling because they help people make less risky decisions.[93] Similarly, there was support for further harm minimisation strategies such as spending controls and limits and improved transparency for loot box purchases.[94] It was also suggested that players should be required to re-enter or re-authenticate credit card details for every purchase.[95]

6.66Additional harm minimisation strategies were suggested, such as requirements for games containing simulated gambling to:

• display the odds for winning each prize[96]
• provide loot box contents at a fixed and reasonable price so players do not need to chase desired items[97]
• fix odds of loot boxes so that different odds cannot be offered to different players based on their playing or spending patterns[98]
• fix sets of prizes[99]
• list prizes and prices in real money terms[100]
• include an age verification system[101]
• allow players to track expenditure[102]
• allow players to self-exclude from games[103]
• provide options to play games without algorithmic decision-making that aims to influence consumer behaviour[104]
• release data for research purposes.[105]
  67. As noted earlier, teenagers in New South Wales advocated for stronger regulation and consumer protection strategies such as age restrictions, transparent odds, warnings, spending limits, and restrictions on the advertising of simulated gambling.[106]

Parental controls

6.68IGEA and ISGA advocated for industry-led tools, such as parental controls, to empower parents to have some control over what their child is playing. IGEA stated that parental controls ‘give players more information and control of in-game spending and loot boxes’, and added that:

Pretty much all gaming machines, whether on mobiles, consoles or hand-helds, are able to be set up so that parents can control not only the content to which their children are being exposed but also what they do with that content, how they engage with it: are they able to spend and, if so, how much are they able to spend; and what are they able to see?…Pretty much four or five actions with your finger will set up those parental controls.[107]

6.69However, the Committee heard that parental controls can be circumvented, children and teenagers can have various sources of money to use on loot boxes, and the burden should not entirely be on parents to control their child’s gaming. For example, Children and Media Australia noted that parents may have set up a credit card on their own device and purchases can be made without a password. In addition, older children and teenagers may have access to their own money. Children and Media Australia suggested ‘a system that avoids that kind of thing happening at all rather than putting the burden on parents to do it at the front line’.[108]

6.70Children and Media Australia argued for ‘safety by design in regulation and in online apps’ and said this is ‘the only approach that can minimise relevant risks without shifting responsibility on to already overburdened parents and teachers.’[109]

Education

6.71Education on simulated gambling and gambling-like activities in interactive games may also help minimise risks of harm, particularly for vulnerable people that have limited abilities to make informed choices, such as children and adolescents. However, Children and Media Australia reported that there is a lack of resources providing routine and relevant information about games that contain simulated gambling.[110]

6.72Children and Media Australia, among others, emphasised that parents and young people need more educational support to understand the harms of such games and have tools for protection.[111]

6.73Dr Drummond, Ms Hall, Dr Lowe-Calverley and Associate Professor Sauer suggested an educational campaign is needed to:

inform consumers about the presence and potential risks of engaging with loot boxes to allow consumers to make informed decisions for themselves and their children [and] educate users about the broader features of loot boxes and other monetisation mechanisms in video games.[112]

Regulation of loot boxes overseas

6.74Other countries are taking action to address the risk of harm from simulated gambling and gambling like features in games through various reforms and industry-led consumer protection measures. There is not yet enough evidence demonstrating the effectiveness of these different approaches because measures have either only recently been implemented or are still in development.[113]

6.75The evidence received about international approaches focussed on the regulation of loot boxes. An examination of international regulatory approaches to social casinos is part of ACMA’s 2022–23 research program.[114]

6.76Laws that define loot boxes as gambling are being circumvented by game developers and game marketplaces and risk overwhelming regulators’ capacity for enforcement. For example, in 2018 the Belgian gambling regulator issued an interpretation of existing gambling law and ‘opined that paid loot boxes and social casino games (by implication) constitute illegal gambling’.[115] The regulator declared that it would enforce its interpretation by ‘criminally prosecuting non-compliant video game companies’.[116] MrLeonY. Xiao conducted a study on compliance with this legal interpretation and found that despite the threat of criminal prosecution, ‘paid loot boxes remained widely available amongst the 100highest-grossing iPhone games’ in Belgium more than four years later.[117]

6.77Mr Xiao added that 82 per cent of the games continued to ‘generate revenue through a randomised monetisation method’[118] and that these games were operating illegally as ‘none of the games identified possessed a gambling licence’.[119] He noted that the regulator is underfunded and does not have the resources to enforce the law, given the volume of games available on various platforms. The Apple App store alone has more than 1 million games.[120]

6.78The Dutch parliament is considering new laws to capture loot boxes in the definition of gambling.[121]

6.79Japan banned specific kinds of loot boxes on a case-by-case basis, implemented transparent odds, which have been widely adopted by gaming companies, and restricted in-game trading of loot box prizes to prevent the trading of virtual items for real world money.[122]

6.80Germany updated its classification rules in 2021 to take into consideration if an interactive game has loot boxes, although this will not automatically change the game’s rating to 18+.[123]

6.81The United States has implemented some industry-led measures for regulating loot boxes, such as transparent odds.[124] Similarly, following a two-year consultation, the United Kingdom government adopted an industry-led approach,[125] which is expected to include:

• restricting loot box purchases to people aged over 18 years
• transparent spending information and controls
• improved access to game data to inform evidence and research for future policy.[126]
  82. In China, interactive games are required to disclose loot box probabilities.[127] Mr Xiao reported that probability disclosures may only ‘have limited impact on reducing spending, particularly in relation to dedicated and high-spending players’.[128] A 2022 study in China found that probability disclosures did not affect the loot box purchasing behaviour of 72 per cent of participants.[129]

Committee comment

6.83Young Australians are increasingly being exposed to gambling-like activities that are widely available and marketed to them on all digital platforms, with limited regulation and age-gating. Research suggests that simulated gambling in interactive games normalises gambling for children and young people and carries risks for lifelong addictive behaviours and the range of harms that online gambling causes.

6.84While the evidence is not fully developed in relation to the harms of loot box features in games, young people who play these types of games may be more likely to gamble with real money in adulthood and players can be manipulated into spending more money than they can afford to lose. This is extremely concerning, and it is the Committee’s view that Australia cannot wait another generation before acting on this important issue.

6.85To date, there appears to be no right answer to addressing simulated gambling and gambling-like activities in interactive games through regulation. Some countries have tried to define certain types of games as gambling, some have adopted industry-led consumer protection measures and others have used classification restrictions to help people to make safer choices.

6.86The inquiry would have benefited from more evidence about international approaches to regulating social casinos. The Committee encourages ACMA to finalise and publish the results of its 2022-23 research program to further inform the Australian Government’s consideration of these issues.

6.87The Committee supports ACCC’s calls for the ACL to be amended to include an unfair trade practices prohibition to help address dark patterns and to allow the ACCC to take stronger enforcement action against games that feature deceptive and manipulative design.

6.88There was some support for loot boxes and social casino games to be included in the definition of ‘gambling service’ under the IGA. This would prohibit these games in Australia unless they were provided under a gambling licence. The evidence suggests that regulating loot boxes as gambling could result in circumvention and may challenge the capacity of regulators to enforce the law. It can also stigmatise the activity and the players who engage in it.

6.89It is too early to tell whether new classification rules for loot boxes are helping Germans to make more informed choices, and there will need to be independent evaluation conducted of the United Kingdom and United States’ industry-led consumer protection measures before any conclusions can be drawn. The Committee considers that a combination of approaches that better inform consumers and provides improved consumer protection measures is likely to be most effective.

6.90The National Classification Scheme provides a nationally consistent age-rating system across all platforms, physical and digital, and regular, up-to-date information for consumers on the themes contained in interactive games. The Committee acknowledges the reforms to the National Classification Scheme recently announced by the Australian Government, including a minimum rating of M (Mature) for computer games containing loot boxes that can be purchased, and R18+ (Restricted to 18 and over) for games containing simulated gambling. This is a good first step in ensuring that consumers can make more informed purchasing decisions and is consistent with the evidence received in this inquiry about the relative risk of harm of these types of games.

6.91The Committee is aware that some games that contain loot boxes more closely resemble gambling than others and therefore have a greater risk of harm. The Australian Government should consider applying a more granular approach to determining the classification of games with loot boxes through the NationalClassification Scheme. Games that contain loot boxes that can be purchased, and which closely resemble gambling, should be given a higher classification.

6.92The National Classification Scheme can be strengthened further by applying its ratings to online app stores. Currently, online app stores vary in their age rating systems, with Steam, a popular computer game storefront, not requiring game developers to classify games. It is critical that ratings are uniform across all platforms so consumers can have clear and consistent information to help them make safer choices.

6.93In making this recommendation, the Committee expresses its support for the adoption of the further comprehensive reforms proposed by the Stevens Review, including the recommendation that online content is compliant with the current Scheme.

6.94The Committee recommends that the National Classification Scheme be consistently applied to games available from online app stores, such as the Google Play Store, Apple App Store and the Steam Store.

6.95Parents and guardians would be more likely to rely on the National Classification Scheme if they were provided better age-based guidance about the presence and risks of simulated gambling and gambling-like elements in games. Similarly, better education is required to help vulnerable consumers, such as children and adolescents, to make more informed choices and to minimise harm.

6.96A public information campaign is needed across all platforms, including television and social media, with an aim to educate parents, caregivers, teachers and young people on all elements of simulated gambling. The campaign should include information on loot boxes, skins, gambling with virtual currency, chance based microtransactions and emergent features.

6.97The Committee recommends that the Australian Government develops and implements a public information campaign that educates all consumers, in particular parents, caregivers, teachers and young people, on all elements of simulated gambling. The campaign should be informed by research and publicly evaluated.

6.98A simulated gambling warning label should be incorporated into the NationalClassification Scheme to ensure that consumers can make more informed purchasing decisions. Further research and market testing will be required to ensure that the labels are easy to read and understand, particularly by parents.

6.99The Committee recommends that the Australian Government commissions research into an effective simulated gambling warning label. The label should be incorporated into the National Classification Scheme.

6.100There is a need for stronger, consistently applied consumer protection measures in games featuring simulated gambling and loot boxes. Spending controls can slow down impulse purchasing, reduce overspending and should be a default feature. Similarly, if people are being asked to bet, they have a right to know the probability they will lose.

6.101Australia should adopt the approach taken by other countries to work with industry to implement consumer protection measures in interactive games through self-regulation. However, if tangible improvements to consumer protections are not realised, the Australian Government should consider legislative options.

6.102The Committee recommends that the AustralianGovernment convene a working group to develop and implement minimum consumer protections for interactive games and make suggestions for legislative mechanisms to implement tighter controls on simulated gambling and its advertising. The working group should consider whether games containing loot boxes that can be purchased for money or simulated gambling should have:

• spending controls as a default function
• transparent odds and drop rates for items
• algorithmic loot box features disabled as a default setting, allowing players to opt in.
  103. The Australian Government should conduct a review of the implementation of these protective measures and consider legislative options if minimum consumer protections are not being consistently applied.
  104. Many young people are using skin betting or esports gambling websites to risk in-game items for real-world currency. These activities are occurring at the interface between games that are largely marketed towards young people and the black market for online gambling, where operators may have links to organised crime and money laundering. This is deeply concerning.
  105. Third party websites that allow gambling on skins are clearly operating in breach of the intent of the definition of ‘gambling service’ in the IGA and should be treated like any other illegal online gambling website. Given it is illegal to advertise an unlicenced gambling service in Australia under the IGA, game developers should not be linking to or permitting their content to be used on skin or esports gambling websites. The regulator should be monitoring and blocking skin and esports gambling websites in a timely manner and taking strong enforcement action against website owners.
  106. The definition of ‘gambling service’ in national regulation should be flexible to future-proof its application, given the emergence of products that may fall outside of the current definition. National regulation should include a requirement for legislative review, two years after commencement and then every five years subsequently. The review should consider developments in research about the risk of harm from simulated gambling, gambling-like elements in games and the gambling of in-game items, particularly to children and young people, and the effectiveness of regulatory responses to these issues overseas.

6.107The Committee recommends that a legislative review of the national regulator (Recommendationthree) be conducted, two years after commencement and then every five years subsequently. The review should consider developments in research about the risk of harm from simulated gambling, gambling-like elements in games and the gambling of in-game items, particularly to children and young people, and the effectiveness of regulatory responses to these issues overseas.

Ms Peta Murphy MPChair

Footnotes

[1]Dr Aaron Drummond, Ms Lauren Hall, Dr Emily Lowe-Calverley and Associate Professor James Sauer, Submission 89, page 3; Interactive Games and Entertainment Association (IGEA), Submission 60, page 4. Lootboxes are also referred to as loot crates, loot chests, prize crates, and card packs. See also, SenateEnvironment and Communications References Committee, Gaming micro-transactions for chance-based items, 27 November 2018.

[2]Turning Point and the Monash Addiction Research Centre, Submission 68, pages 15-16; GamblingTreatment and Research Clinic, University of Sydney (GTRC), Submission 65, page 14; International Social Games Association (ISGA), Submission 47, page 3.

[3]Turning Point and the Monash Addiction Research Centre, Submission 68, page 16; CentralQueensland(CQ) University, Submission 24.1, page 3.

[4]RANZCP and RACP, Submission 110, page 3.

[5]Gambling Treatment and Research Clinic, University of Sydney, Submission 65, page 17.

[6]CQ University, Submission 24, page 5.

[7]CQ University, Submission 24, page 5.

[8]Relationships Australia, Submission 93, page 12.

[9]Relationships Australia, Submission 93, page 12; Turning Point and the Monash Addiction Research Centre, Submission 68, page 16.

[10]Relationships Australia, Submission 93, page 12.

[11]Dr Aaron Drummond et al, Submission 89, page 3; The Australia Institute, Submission 10, Attachment A, page 18.

[12]Australian Gaming and Screens Alliance (AGSA), Submission 53, page 4.

[13]AGSA, Submission 53, page 4.

[14]CQ University, Submission 24.1, page 3.

[15]Dr Aaron Drummond et al, Submission 89, pages 4 to 5.

[16]Turning Point and the Monash Addiction Research Centre, Submission 68, page 16; Mr Les Whittle, Submission 30, page 11; Relationships Australia, Submission 93, page 12; AGSA, Submission 53, page 3; Australian Institute of Family Studies’ Australian Gambling Research Centre, (AGRC), Submission 76, page8.

[17]Australian Medical Association, Submission 83, page 5; CQ University, Submission 24, page 5; MrJoeStaniszewski, Submission 44, page 5.

[18]CQ University, Submission 24, page 5.

[19]Royal Australian and New Zealand College of Psychiatrists and Royal Australasian College of Physicians (RANZCP and RACP), Submission 110, page 7.

[20]Dr Rebecca Jenkinson, Executive Manager, AGRC, Committee Hansard, 5 April 2023, page 5.

[21]K Sakata and R Jenkinson, ‘What is the link between video gaming and gambling?’, Growing Up in Australia Snapshot Series, Issue 7, Australian Institute of Family Studies, October 2022, page 2.

[22]Dr Aaron Drummond, Lecturer, School of Psychological Sciences, College of Health and Medicine, University of Tasmania, Committee Hansard, 1 March 2023, page 11. RACP provided three exhibits of recent research showing links between loot box use and gambling harm: Exhibit 15, ‘Adolescents and loot boxes: links with problem gambling and motivations for purchase’; Exhibit 16, ‘Loot boxes use, video gaming, and gambling in adolescents: Results from a path analysis before and during COVID-19-pandemic-related lockdown in Italy’; Exhibit 17, ‘Loot boxes, problem gambling and problem video gaming: Asystematic review and meta-synthesis.’

[23]CQ University, Submission 24, page 5.

[24]Professor Sally Gainsbury, Director, GTRC, Committee Hansard, 1 March 2023, page 42.

[25]Mr Michael Luc Delany, Chief Executive Officer, ISGA, Committee Hansard, 1 March 2023, page23.

[26]CQ University, Submission 24.1, page 3.

[27]CQ University, Submission 24.1, page 3.

[28]CQ University, Submission 24.1, page 3.

[29]GTRC, Submission 65, page 14.

[30]GTRC, Submission 65, page 14.

[31]GTRC, Submission 65, page 15.

[32]Ms Adrien Ali, Gambler's Help Senior Health Promotion Officer, Banyule Community Health, CommitteeHansard, 1 March 2023, page 54.

[33]Relationships Australia, Submission 93, page 12.

[34]Turning Point and the Monash Addiction Research Centre, Submission 68, page 17.

[35]Dr Aaron Drummond, Committee Hansard, 1 March 2023, page 11.

[36]Ms Erin Turner, Chief Executive Officer, Consumer Policy Research Centre (CPRC), Committee Hansard, 1March 2023, page 3.

[37]Ms Chandni Gupta, Digital Policy Director, CPRC, Committee Hansard, 1 March 2023, pages 4-5.

[38]Ms Chandni Gupta, CPRC, Committee Hansard, 1 March 2023, pages 4-5.

[39]The Australia Institute, Submission 10,Attachment A, page 20.

[40]Senate Environment and Communications References Committee, Gaming micro-transactions for chance-based items, 27 November 2018, page 73.

[41]Senate Environment and Communications References Committee, Gaming micro-transactions for chance-based items, 27 November 2018, page 73.

[42]The Australia Institute, Submission 10, Attachment A, page 24.

[43]Department of Social Services, Submission 87, page 8.

[44]CQ University, Submission 24.1, page 3.

[45]New South Wales Government, Submission 114, page 10.

[46]The Australia Institute, Submission 10, page 2.

[47]Dr Drummond et al, Submission 89, page 5; Mr Michael Luc Delany, ISGA, Committee Hansard, 1March2023, page 27.

[48]Australian Communications and Media Authority (ACMA), ‘ACMA takes action against illegal ‘skins’ gambling site’, Media release, 17 May 2023

[49]CQ University, Submission 24.1, page 3.

[50]ACMA, Submission 96, page 10.

[51]ISGA, Submission 47, page 9; IGEA, Submission 60, pages 12-14.

[52]IGEA Submission 60, page 7.

[53]Ms Erin Turner, CPRC, Committee Hansard, 1 March 2023, page 1; Mr Michael Luc Delany, ISGA, Committee Hansard, 1 March 2023, page 27.

[54]Mr Michael Luc Delany, ISGA, Committee Hansard, 1 March 2023, page 27.

[55]Australian Competition and Consumer Commission (ACCC), ‘Expanding digital platform ecosystems to be examined by ACCC’, Media release, 8 March 2023.

[56]ACCC, Digital Platform Services Inquiry Interim Report No. 5 – Regulatory reform, page 68.

[57]Department of Infrastructure, Transport, Regional Development, Communications and the Arts (DITRDCA), Submission 104, page 6.

[58]DITRDCA, Submission 104, page 6.

[59]DITRDCA, Submission 104.2, page 2; The Hon Michelle Rowland MP, Minister for Communications, ‘Albanese Government outlines key reforms to National Classification Scheme’, Media Release, 29March2023.

[60]Ms Maria Vassiliadis, Assistant Secretary, Classification Branch, DITRDCA, Committee Hansard, 4April2023, page 70.

[61]DITRDCA, Exhibit 27, ‘Review of Australian classification regulation Report’, May 2020, Appendix 1.

[62]DITRDCA, Exhibit 27, ‘Review of Australian classification regulation Report’, May 2020, pages 53-55, Appendix 1.

[63]CQ University, Submission 24.1, page 3; The Australia Institute, Submission 10, page 2.

[64]Mr Leon Y. Xiao, Submission 127.3, page 2.

[65]The Australia Institute, Submission 10, page 2; CPRC, Exhibit 01, ‘Insert Coin – How the gaming industry exploits consumers using loot boxes’, May 2022,page 6; Banyule Community Health, Submission 75, page3; Children and Media Australia, Submission 102, page 3.

[66]Mr Leon Y Xiao, PhD Fellow, Video Game Law, IT University of Copenhagen, Committee Hansard, 1March2023, page 21.

[67]Mr Leon Y. Xiao, Submission 127.1, page 1.

[68]DITRDCA, Exhibit 27, ‘Review of Australian classification regulation Report’, May 2020, pages 10 and 31.

[69]Children and Media Australia, Submission 102, page 10.

[70]J E Brand and J Jervis, Digital Australia 2022, IGEA, 2021, page 40.

[71]Professor Elizabeth Handsley, President, Children and Media Australia, Committee Hansard, 7February2023, page 5.

[72]Association of Heads of Independent Schools of Australia, Submission 62, page 12.

[73]Mr Leon Y. Xiao, Submission 127.1, page 3; Dr Aaron Drummond, Committee Hansard, 1March2023, page13.

[74]Dr Aaron Drummond, Committee Hansard, 1 March 2023, page 13.

[75]Dr Aaron Drummond, Committee Hansard, 1 March 2023, page 13.

[76]Australian Communications and Media Authority, Submission 96, page 4.

[77]DITRDCA, Submission104, page 6.

[78]Dr Drummond et al, Submission 89, page 8.

[79]Mr Leon Y. Xiao, Submission 127, page 5.

[80]New South Wales Government, Submission 114, page 9.

[81]ISGA, Submission 47, page 7; IGEA, Submission 60, page 4; New South Wales Government, Submission114, page 9.

[82]ISGA, Submission 47, page 1.

[83]IGEA, Submission 60, page 15.

[84]Dr Drummond et al, Submission 89, page 7; Mr Leon Y. Xiao, Submission 127, pages 1-4.

[85]Dr Drummond et al, Submission 89, pages 7-8.

[86]Mr Leon Y. Xiao, Submission 127, page 5; Dr Drummond et al, Submission 89, pages 7-8; ISGA, Submission47, page 1.

[87]Dr Drummond et al, Submission 89, pages 7-8.

[88]Name Withheld, Submission 118, page 2; Mr Michael Luc Delany, Chief Executive Officer, ISGA, CommitteeHansard, 1 March 2023, pages 24-25.

[89]Hobsons Bay City Council, Submission 38, page 3; Department of Social Services, Submission 87, page 6; Dr Sophie Scamps MP, Submission 100, page 4; Mr Joe Staniszewski, Submission 44, page 1; AGRC, Submission 76, page 8; Children and Media Australia, Submission 102, page 3; Wesley Mission, Submission85, pages 6-7.

[90]CQ University, Submission 24, page 7.

[91]Australian Psychological Society, Submission 109, page 4; AGSA, Submission 53, page 7.

[92]Fairfield City Council, Submission 50, page 10.

[93]Dr Aaron Drummond, Committee Hansard, 1 March 2023, page 16.

[94]The Australia Institute, Submission 10, Attachment A, page 30; CQ University, Submission24, page 6; Associate Professor Charles Livingstone, Submission 113, pages 8-9; Dr Drummond et al, Submission 89, page 9.

[95]Dr Drummond et al, Submission 89, page 9.

[96]The Australia Institute, Submission 10, Attachment A, pages 29-30.

[97]Mr Leon Y. Xiao, Submission 127, page 5; The Australia Institute, Submission 10, Attachment A, pages29-30.

[98]The Australia Institute, Submission 10, Attachment A, pages 29-30.

[99]The Australia Institute, Submission 10, Attachment A, pages 29-30.

[100]Ms Chandni Gupta, Digital Policy Director, Consumer Policy Research Centre, Committee Hansard, 28February 2023, page 3; The Australia Institute, Submission 10, Attachment A, pages 29-30.

[101]CQ, Submission 24, page 6.

[102]CQ Submission 24, page 6; The Australia Institute, Submission 10, Attachment A, page 31.

[103]CQ University, Submission 24, page 6.

[104]Consumer Policy Research Centre, Submission 46, page 2.

[105]The Australia Institute, Submission 10, Attachment A, pages 29-30.

[106]CQ University, Submission 24.1, page 3.

[107]Mr Ron Curry, Chief Executive Officer, IGEA, Committee Hansard, 1 March 2023, pages 31-32.

[108]Professor Elizabeth Handsley, Children and Media Australia, Committee Hansard, 7February2023, page 4.

[109]Children and Media Australia, Submission 102, page 1.

[110]Children and Media Australia, Submission 102, page 3.

[111]DITRDCA, Submission104.1, page 1; Children and Media Australia, Submission 102, page 3; GamblingTreatment and Research Clinic, University of Sydney, Submission 65, page 16; DrAaronDrummond et al, Submission 89, page 7; TheAustraliaInstitute, Submission 10, Attachment A, page 2; AGSA, Submission53, page 6.

[112]Dr Aaron Drummond et al, Submission 89, page 7.

[113]Dr Aaron Drummond, Committee Hansard, 1 March 2023, page 17; Mr Leon Y Xiao, CommitteeHansard, 1March 2023, page 22.

[114]ACMA, Social casinos in Australia and overseas: a market snapshot, March 2023, page 1.

[115]Mr Leon Y. Xiao, Submission 127, page 3; L Y Xiao, ‘Breaking Ban: Belgium’s Ineffective Gambling Law Regulation of Video Game Loot Boxes’, Collabra: Psychology, University of California Press, 2023, page 1.

[116]L Y Xiao, ‘Breaking Ban: Belgium’s Ineffective Gambling Law Regulation of Video Game Loot Boxes’, Collabra: Psychology, University of California Press, 2023, page 1.

[117]L Y Xiao, ‘Breaking Ban: Belgium’s Ineffective Gambling Law Regulation of Video Game Loot Boxes’, Collabra: Psychology, University of California Press, 2023, page 1.

[118]L Y Xiao, ‘Breaking Ban: Belgium’s Ineffective Gambling Law Regulation of Video Game Loot Boxes’, Collabra: Psychology, University of California Press, 2023, page 1.

[119]Mr Leon Y. Xiao, Submission 127, page 3.

[120]Mr Leon Y. Xiao, Submission 127, page 4.

[121]DITRDCA, Submission104.1, page 3.

[122]DITRDCA, Submission104.1, page 1.

[123]DITRDCA, Submission104.1, page 3.

[124]DITRDCA, Submission104.1, page 3.

[125]Government of the United Kingdom, Consultations, ‘Consultation outcome, Government response to the call for evidence on loot boxes in video games’, 18 July 2022, www.gov.uk/government/consultations/loot-boxes-in-video-games-call-for-evidence/outcome/government-response-to-the-call-for-evidence-on-loot-boxes-in-video-games, viewed2May 2023; DITRDCA, Submission104.1, page 2.

[126]DITRDCA, Submission104.1, page 2.

[127]IGEA, Submission 60, page 12.

[128]Mr Leon Y. Xiao, Submission 127.2, pages 2-3.

[129]Mr Leon Y. Xiao, Submission 127.2, pages 2-3.