Is Gaming The New Gambling?

Exploring the merging of two high growing industries

Archie Cochrane
Nov 5, 2018 · 6 min read
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We at Anthemis are in the game of building and investing in category creating companies operating at the intersection of industries. Finding scalable solutions to large societal problems.

One area we have been looking into is improving the identification of at-risk gamblers and exploring the potential correlation with at-risk gamers in the video gaming world.

Let me elaborate.

Shortly before Christmas 2017, an anonymous gamer posted on Reddit, his account of how he racked up $16,000 of credit card debt within a year, by playing a free-to-play mobile game based on the Final Fantasy series.

Instead, players buy, with real money or in-game currency a random item or set of items, in what are termed “loot boxes” (one type of micro-transaction). Players have no guarantee of what they’ll get, and no way to guide the game into giving them something they need or want.

This micro-transactional system is a sort of weaponised behavioural psychology, perfectly pitched to exploit all the cognitive weaknesses that make people so susceptible to addiction and compulsion. They pull all the standardised strings of problem gambling:

1. The desire for one more go

2. The misplaced belief that an unlucky streak must come to and end.

3. The hope that continuing to bet will reverse the losses already incurred.

Historically, video gaming has been good clean fun. You paid $50 for a video game and you spent the following hours, days and weeks playing your favourite game to your heart’s content.

Times have clearly changed.

We now see two key trends highlighting the direction of travel for the gaming industry:

1. Free-to-play games implementing micro-transactional elements to their game design to extract maximum monetary value from each player.

2. Game publishers start implementing gambling industry techniques such as ‘Random reward schedule’ — which gives the player the illusion of skill.

3. Free-to-play games are now targeting a particular player group called ‘whales’ who pour huge amounts of money into the games via these micro-transaction techniques.

‘Whales’ now account for 70% of in-app purchase revenue for gaming companies.(1)

The similarities between this practice in the gaming industry and the practice of gambling operators targeting willing VIP’s is clear.

Why is this important?

There are many rules and regulations that protect children from participating in gambling activities. But very few rules exist in the gaming industry. This is a concern when it is estimated that Fortnite, arguably the worlds most popular game, pulled in an audience of 78 million in August 2018 alone.(2)

Many experts argue that increasing numbers of children are being introduced to gambling with computer games such as Fortnite acting as a gateway drug.

One of the key hurdles at the moment is that not everybody agrees on what exactly counts as a gambling activity for children.

In gaming, some believe that skin betting and loot box features, which are important in many of the most popular games, are indeed a form of gambling.

Skins themselves are items which can be won or bought within a game to change the appearance of a character, avatar or weapon. Players can trade, bet on and sell their skin to try to get better ones on separate websites. This is what we mean by skins gambling. This is only legal when the sites offering skins betting facilities have a proper licence and they shouldn’t be targeting children.

But the Gambling commission’s study found that just over one in ten 11–16 yr olds in the UK say they have participated in skins gambling before.(3)

Loot boxes allow players to pay — often with real money — for a chance to win a virtual item.

I would argue that using these features should count as gambling because the player is risking something of value (either real money or in-game coins) in the hope of winning something else. Even if you are not spending real money, I would argue that this encourages risk-taking and gambling-style behaviour, which could potentially be harmful to young people in later life.

Case Study: Star Wars: Battlefront II

When Electronic Arts, the video game studio behind Battlefront II published their game in November 2017, the backlash against the micro-transactional nature of the game design from fans was widespread.

By one estimate on the fan website SWTOR Strategies, it would take 4,528 hours of gameplay (equivalent of playing over 12 hrs a day for 1 year) or spending $2,100 on loot boxes to unlock all of the game’s content.(4) This illustrates how games like Battlefront have been designed to make game progression slow unless players choose to spend money.

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Are loot boxes psychologically akin to gambling?

The games progression system was designed top to bottom to extract as much money from players as possible — and fans could tell. The backlash was so great that eventually, EA pulled the purchasing system entirely.

International response

The response globally has varied considerably.

Back in April, The Netherlands and Belgium took the lead in declaring loot boxes and skins a form of gambling and therefore illegal.

In China, they have also been strict. They mandate that gaming companies have to show what the chance of getting rare items in loot boxes actually is so that players know what to expect before paying.

In the UK and the continental US however, the Entertainment Software Ratings Board — which is responsible for things like age ratings on video games — has said it does not consider loot boxes to be gambling, as “the player is always guaranteed to receive in-game content (even if the player, unfortunately, receives something they don’t want).”

However, this sentiment is not shared by Hawaiian state representative, Chris Lee, who said the following:

“This game is a Star Wars-themed online casino designed to lure kids into spending money. It’s a trap. This is something we need to address to ensure that particularly kids who are underage, who are not psychologically and emotionally mature enough to gamble — which is why gambling is prohibited under [the age of] 21 — are protected from being trapped into these cycles which have compelled many folks to spend thousands of dollars in gaming fees online.”(5)

Clearly we will see multiple different regulatory approaches take shape as this sector continues to mature and gain momentum.

However, I am more interested in what can be done from a business perspective to develop and deploy a data-driven product that can work seamlessly alongside these games to monitor players and flag those who seem to be at risk of going beyond their spending limits.

Lets talk!

We believe that as the lines between these two industries continue to blur, there will continue to be an acute need for a tool that is able to identify and intervene when a gamer or gambler is starting to display signs of addiction and loss of control.

If you are an entrepreneur interested in this sector and would like to discuss the topic further. Please feel free to reach out:

Email: archie@anthemis.com

LinkedIn: https://www.linkedin.com/in/archie-cochrane-59848234/

Twitter: https://twitter.com/cochrane_archie

— — — — — —

Footnotes:

(1)https://www.adweek.com/digital/infographic-whales-account-for-70-of-in-app-purchase-revenue/

(2)http://www.nintendolife.com/news/2018/09/fortnite_had_a_whopping_78_3_million_players_in_august_largest_numbers_ever_recorded

(3)https://www.bbc.co.uk/newsround/44736452

(4) https://variety.com/2017/digital/news/star-wars-video-game-controversy-microtransaction-loot-box-1202621913/

(5) http://uk.businessinsider.com/ea-star-wars-hawaii-gambling-2017-11

Anthemis Insights

Thoughts on the future of financial services from the…

Archie Cochrane

Written by

Early stage fintech investor @Anthemis. Building and investing in ventures from pre-seed to series A. Previously @Naspers / @PayU

Anthemis Insights

Thoughts on the future of financial services from the Anthemis ecosystem

Archie Cochrane

Written by

Early stage fintech investor @Anthemis. Building and investing in ventures from pre-seed to series A. Previously @Naspers / @PayU

Anthemis Insights

Thoughts on the future of financial services from the Anthemis ecosystem

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