regulation

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On February 19, the Directorate General for Gambling (“DGOJ”) announced that it was initiating a participatory process on the future regulation of random reward mechanisms in video games, which will be open until March 31, 2021 for stakeholders to submit comments and observations.

By initiating that participatory process, the DGOJ has officially opened the debate on the regulation of economic transactions that activate the purchase and release of random reward mechanisms (commonly known as “lootboxes”), widely used in the video games sector.

The similarity between the functional design of these random mechanisms and more traditional games of chance — already regulated in the Spanish market since 2011 — has sparked the regulator’s interest in establishing whether offering this type of mechanisms should be subject to similar regulation to that of games of chance and betting.

The DGOJ states that the reason for the consultation is the special importance of consumer protection in this sector, and the prevention of thoughtless, compulsive and pathological consumer behavior, as well as the need to analyze the phenomenon of lootboxes, which has been addressed by international gambling regulators in recent years. 

Random reward mechanisms or “lootboxes” are virtual processes or objects integrated in the dynamics of some video games; activating them offers the player the opportunity to randomly obtain virtual prizes or rewards that can be used within those games. Marketing these mechanisms, in their wide variety of formats, constitutes a significant revenue channel for the video games industry, which must be watchful of the development of this initiative.

The main aspect that the DGOJ is submitting to public consultation is whether the regulation of these lootboxes mechanisms must be developed independently from the current regulations on games of chance and betting or whether, on the contrary, it must be developed in the same regulatory framework as games of chance and betting (that is, within the Spanish Gambling Act (Ley 13/2011, de 27 de mayo, de regulación del juego) and its implementing regulations).

If it is considered that the regulations on these mechanisms must be independent from the Gambling Act, the DGOJ seeks to determine the key aspects to be regulated in those regulations.

However, if it is considered that the lootboxes mechanisms must be regulated within the framework of the Gambling Act and its implementing regulations, the DGOJ raises the following scenarios:

  • If the lootboxes mechanisms comply with the following requirements: (i) payment is made to participate in the activation of the random process; (ii) the result is based on chance; and (iii) the prize — which must be monetizable at any time — is transferred to the winner, then offering these mechanisms fits within the current definition of gambling under the Gambling Act and, therefore, offering them should be subject to the limitations established in that regulation;
  • The Gambling Act must be updated to develop the definition of gambling included in that regulation at regulatory level to include lootboxes mechanisms (i.e. eliminating the requirement of the ability to convert the prize into cash to include these mechanisms within the Gambling Act).

In that case, the DGOJ raises the possibility of regulating lootboxes mechanisms as a new modality of gambling under the Gambling Act, in which case:

  • The current lack of regulation for this type of game of chance could be maintained, therefore prohibiting it; or
  • A specific regulation could be established for this new type of game of chance, to regulate: (i) what general license should be obtained to offer these games; (ii) which of the companies offering these games to end users should obtain the license; (iii) what requirements providers of this type of services should meet; (iv) what controls for verifying the user’s identity should be applied; (v) what the applicable tax base and the optimum tax rate of this new type of game would be.

Finally, the DGOJ also raises the additional question of whether the self-regulation mechanisms of the video game industry should be promoted in relation to random reward mechanisms.

Author: Mònica Ferrer

This post is also available in: Español

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monica.ferreralberti@cuatrecasas.com