Professional Documents
Culture Documents
Conner Ellis
Northeastern University
ENGW3315
Prof. Suzanne Richard
ellis.co@northeastern.edu
November 7, 2022
State of the Art in Electronic Gaming Microtransactions and its Connection to Gambling
Abstract
Monetization models like loot boxes, “freemium” games, and skin lotteries 1 are common
modes via which digital game studios garner additional revenue on top of game sales. This practice
has become increasingly common in recent decades to the point where some publishers and studios
make the majority of their income from microtransactions. Ten (10) peer reviewed essays are
discussed in the greater context of the ethics, economics, and psychology of the aforementioned
microtransactions. This essay seeks to examine and compare current peer reviewed research that
considers these types of microtransactions, their effects on players, and current international,
Background
North American arcades in the Spring of 1991 saw the release of a new upright cabinet arcade
game that took players by storm: Double Dragon 3: The Rosetta Stone. The game in and of itself was
nothing remarkable; a side-scrolling “beat ‘em up” game similar in feel, pace, and style to the
majority of its contemporaries – what made DD3 special was a new mechanic yet seen by any gaming
enthusiast – microtransactions. Certain stages in the game began by offering players items and power-
ups available for purchase by inserting additional coins into the machine. This model proved so
successful (albeit controversial) that earnings per unit in the US averaged $188.25 per week (Akagi,
1991).
Video games since have followed and built upon this model, netting companies like
1
Skin lotteries are hosted and maintained by third party sites not affiliated with publishing companies,
however they take advantage of preexisting monetization practices by enticing users to gamble for cosmetics
that can be bought in-game.
Controversy surrounding these practices stems from consumers’ accusations of studios and producers
supporting predatory monetization models that take advantage of either a player’s age and naivete or
pre-existing struggles with gambling. These models can exist in the form of “freemium” games,
which allow the clientele to play a basic version of the game for free while softlocking further content
(levels, equipment, in-game currency) behind in-app purchases (IAPs), in the form of loot boxes,
which encourage a player to perform cash transactions in exchange for a randomized in-game item
(typically accompanied by flashing lights and music), or in the form of “skin lotteries”, which involve
players betting on in-game cosmetics using real money, hoping to win either a cosmetic they have an
interest in for cheap, or winning a popular cosmetic that can be sold at a premium.
Loot Boxes
Loot boxes have been studied intensely in recent academic history, both in the interest of
businesses and their finances, as well as players and their health. In Economic Model of
Microtransactions in Video Games, Nenad Tomić discusses the definition of microtransactions and
their place in the industry financially, disclosing, “…publishers are aware that most customers will
not use microtransactions. A survey in 2014 showed that only 1.5% of free-to-play-games players use
microtransactions, and that 10% of them produce 50% of total revenue” (2018, p. 21). The paper
displays current trends in the industry regarding microtransactions, including the movement of total
revenues by game type between 2012 and 2017 and their future projections; comparing cumulative
annual growth rate to adjustments that studios have made to their monetization models. For example,
in 2012 mobile games made up just 18% of revenue earned by major studios (2018, p. 22); nine years
later dominating with a 45% share of the market nearing $41.7 billion in 2022 (Statista, 2022). Tomić
explains that publishers have adjusted to this trend by incorporating microtransactional schemes into
these games to capitalize on consumer volume, like EA’s “live services”, which netted them $2.19
billion in 2018. These microtransactions now account for 42% of the entire company’s revenue.
Tomić then goes on to conclude that due to high development and marketing costs of video games in
recent years, publishers have been forced to alter their approach to game monetization in favor of
more aggressive models like in-app purchases, warning that, “The loot boxes system may not be a
gambling itself, but it develops children’s fondness towards gambling.” This concern for the ethics of
these types of monetization schemes stems from the modes by which they are offered – mainly
The concerns raised by these models are addressed and a solution is presented in Towards an
Ethical Game Design Solution to Loot Boxes: a Commentary on King and Delfabbro by Xiao et al. It
is important to note that King and Delfabbro’s paper Video Game Monetization (e.g. ‘Loot Boxes’): a
Blueprint for Practical Social Responsibility Measures is one in a series of essays written by the pair
on the proclaimed exploitative and predatory nature of microtransactions, specifically loot boxes (this
paper will be discussed further). Xiao et al. begin by correcting King et al’s claim that loot boxes in
Hearthstone are purchased using in-game currency which is then purchased using a credit card (or
other payment method): loot boxes in this game are purchased directly via real-world currency. This
essay uses these corrections and King et al. as a framework through which to discuss the current
research and proposed solutions regarding predatory monetization models. Xiao et al. discuss games
such as Monster Hunter Online, which include “instance-based” fatigue systems where a player has a
limited number of tries to accomplish a task before they are softlocked and forced to pay real cash for
additional attempts, they claim features like these are more deceptive and misleading than loot boxes,
given the lack of presentation as a game of chance. The authors believe that complete bans on models
such as the fatigue systems cause economic harm – a sentiment shared by Peter Honer in Limiting the
Loot Box (Honer will be discussed in the solutions section) – therefore, the authors suggest a less
ultimate solution: “nudging”. Xiao et al. say rather than attempting to codify King and Delfabbrio’s
solution which proposes “social responsibility” measures as law, studios can be incentivized with tax
To understand Xiao et al.’s claims regarding King and Delfabbrio’s purported solution, we
must first understand and discuss their flagship paper Video Game Monetization (e.g. ‘Loot Boxes’): a
Blueprint for Practical Social Responsibility Measures. This paper is one of many that focus on
‘social responsibility measures’ for consumer protection, and accomplishes this through the
comparison of microtransactions to electronic gambling machines, equating existing research and
solutions to the aforementioned field. King et al. highlight global jurisdictions to compare to current
legislation efforts in Australia (their country of origin), showing the Chinese government to pass
legislation requiring the disclosure of loot box odds and the Belgian and Dutch governments
preexisting gambling laws. In order to circumvent what they call the ‘gaming-gambling dichotomy’
(the idea that activities are either gaming or gambling, never both), King and Delfabbro propose the
usage of the term predatory monetization to refer to microtransactions that involve gambling or prey
on a player’s predisposition to gambling habits. The inclusion of this term affirms the majority of
current academic sentiment surrounding loot boxes and practices such as these – that they are
predatory and not in the consumer’s best interest. Though this is not the principal argument of the
paper (the paper focuses on solutions rather than the issue itself), it is revealing of the authors’
personal opinions. King and Delfabbro introduce four main sections for the paper: monetization
systems, transparency and accuracy, consumer protection measures, and industry accountability. The
authors present 13 different solutions for the issue of predatory monetization, notably removal of
duplicate rewards, removal of limited time offers, removal of audio-visual stimulation (flashing lights
and music), and the ability to obtain loot boxes through standard play.
concurrent research regarding the qualitative sympathetic response of players while opening loot
boxes such as Brady et al.’s Are Loot Boxes Addictive? Analyzing Participant’s Physiological Arousal
While Opening a Loot Box. This paper outlines an experiment where 25 male participant’s heart rate
and galvanic skin response were recorded 3 seconds before, during, and 3 seconds after opening FIFA
Football loot boxes. These participants were experienced gamers in order to ensure natural responses,
as well as to compare the responses of participants with higher level of gaming addiction to responses
of lower or non-addicted gamers. Brady’s experiment and a similar study performed by Drs. James
Close and Joanne Lloyd (Close et al., 2021) serves to inform the academic community which up until
recently suspected, but did not confirm, a link between loot boxes and gambling. Brady’s results
found that participants with higher GAS (Gambling Addiction Scores) presented less of an increase in
GSR than their less addicted counterparts, in agreement with prior research claiming that problem
Freemium games
As stated previously, freemium games are another vessel for microtransactional monetization
models, where players are invited to play a game (typically mobile) that may include ads or other
ways to slow down gameplay which are remedied by in-app purchases (IAPs). IAPs can include
purchases to remove advertisements, gain items, or speed up gameplay. Elizabeth Evans’ The
Economics of Free: Freemium Games, Branding, and the Impatience Economy discusses three
freemium games and their methods to “monetize player impatience” (let the reader know that the
author of this literature review has extensive experience with one game discussed, The Simpsons’
Tapped Out and has invested money into the game they later regret), as well as the trends in video
Evans argument and analysis relies not on the games’ content and the relationship this content
has with players, but rather how game marketing and design interact within the “system of interactive
capital” (Kline et al., 2003: 270). This makes Evans’ article an interesting placeholder in a niche not
concerned with player experience, but with producer revenue and the relationship between digital
design and economics: the motives of why companies engage in freemium monetization schemes. She
discusses five strategies she claims are employed by all freemium-model games: Strategy-based
simulation, never-ending game world, short and frequent playing times, sociability, and in-game
currency. Evans argues that these five strategies serve to elevate the developer’s brand in non-licensed
freemium games and the preestablished media brand in licensed games. In licensed games, she
highlights that developers aggressively highlight features that will play on ideas, concepts, and
characters already known to the consumer. For example, in Snoopy Street Fair, the most expensive
stalls (the mode through which players build their world) feature original Peanuts characters, and that
these stalls include animations others do not, making them more familiar and exciting to consumers.
Furthermore, the App Store listing of the game includes dialogue encouraging players to ‘recruit your
favorite PEANUTS characters’. Evans says that, “…branding logics are infused within the games’
structures and intended pleasures and designed to generate consumption outside of the game itself”
(2016, p. 9). This creates a cyclical pattern of consumption where hypothetically players play a
branded game, watch the associated television show/movie/etc., are inspired further by the original
media to play the branded game, a game which is designed specifically, according to Evans, to
increase company revenue rather than focus on creativity and player enjoyment (2016, p. 3).
Bin Fang et al.’s Social Influence and Monetization of Freemium Social Games analyzes this
concept from the perspective of publishers, examining how social influence and purchasing behaviors
are correlated to Simmelian friendship (Simmelian ties are the basic element of a social clique) in
order to better market social freemium games to consumers. This paper doesn’t necessarily inform
any potential legislation, but does serve to give businesses potential practices to follow and consumers
potential practices to avoid (assuming the customer has a disdain for studios utilizing their
interpersonal social network for monetary gain). Bin Fang highlights another’s research: Geng et al.’s
findings show that having some friends initially increases a user’s spending, having too many friends
curb it (Geng et al., 2015). This informs their research into the relationship between friendship and
spending by influencing sample sizes for Simmelian units. The researchers studied one game in
specific, RoyalSword, a mobile freemium social game which involves players leveling up, fighting
monsters, buying items, and socializing. The game itself, like many MOBA (Massive Online Battle
Arena) games is free to play, but players have to invest real-life money into buying items. Bin Fang’s
study sought to observe and quantify the “cohesion effect”, or the behavior contagion theory (i.e. if a
close friend of an actor in a social network spends money on items in a particular game, the actor will
tend to follow suit). Bin Fang argues this effect is stronger online in comparison to real life, as
friendship in an online game “may be established merely based on some ad-hoc event, such as liking a
user’s picture”. The researchers began the experiment by obtaining complete server log data from
RoyalSword developers Tencent, who provided them with one month of data from November 2012.
This log included all actions, purchases, and communications from 86,022 players across this span of
time. Network effects models were applied to time spend in-game, number of friends, friend-to-friend
relations, and the researchers found that players that had paying pure or Simmelian-tie friends (non-
direct) are inclined to pay more, as well as the effect being increased by pure friendship ties rather
than Simmelian ties. This finding is relevant to the field as it informs business researchers to
implement platforms and models that highlight friendships and their purchases (friendships created
ad-hoc or real-life), and informs players to pay attention to how their friends purchases influence their
own.
Gambling is a concept often associated with microtransactions, however this typically applies
to the act of opening a loot box (i.e. paying for a “chest”, opening it, and receiving a randomized in-
game item) (Macey, 2019). Gambling also exists in the world of microtransactions in the form of
cosmetic sales and cosmetic raffles, sometimes referred to as “skin lotteries”. Joseph Macey and Juho
Hamari’s Esports, Skins, and Loot Boxes: Participants, Practices and Problematic Behaviours
Associated with Emergent Forms of Gambling produced an international online survey aimed at
eSports (professional video gaming competitions) spectators, often male and under-age. Macey et al.
highlight the economy of skins lotteries and its origins in the Valve game Counter Strike: Global
Offensive. Weapon cosmetics are stored in a player’s inventory on the Steam platform and can be
traded or sold for other cosmetics or real-world cash, a marketplace that has been capitalized on by
the social gambling industry. Macey et al. discuss the concept of “crash betting”, in which enthusiasts
can use cash or in-game cosmetics (which are then converted to a site-specific currency: gold, coins,
credits, etc) as stakes for gambling activities. Crash betting involves a player setting a stake and
watching as a rocket or other item traverses an exponential curve before stopping, or “crashing”. If the
player cashes out before the crash, the player’s stake is multiplied by the on-screen multiplier. If not,
the player loses their stake. Macey et al.’s survey (n=582) found 67% of participants to be involved in
gambling and gambling-like activities involving loot boxes and skin gambling and 50.34% to produce
problematic gambling symptoms, suggesting exposure to skin monetization models and the skin
gambling market in eSports could be influencing problematic gambling behavior in adolescents. The
authors then discuss the legal context of skin lotteries and crash betting on a state-by-state and
country-by-country basis, citing a legal proceeding involving Valve, the publishers of CS:GO
(Counter Strike: Global Offensive) in which the use of skins in third party gambling websites that host
Adolescent Betting on Esports Using Cash and Skins: Links with Gaming, Monetary
Gambling, and Problematic Gambling by Hing et al. confirms the inferences of Macey and Hamari
through two surveys, (𝑛𝑛𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 = 1667) asking participants for variables such as age, gender,
parent’s living arrangements, problem gambling severity, and past-month esports skin betting on a
five item scale. What makes Hing’s research interesting in the field of adolescent betting and the
effects of microtransactions on younger audiences is that it makes the same connections as Macey et
al. but does so in a manner that considers external factors such as parental living situation and general
wellbeing (not to mention it includes an interesting correlation between the participant identifying as
Aboriginal or TSI and increased likelihood to report esports cash betting in both samples). As stated
above, the study finds that recent esports bettors who used cash or skins were more likely to involve
themselves with esports activities than those who didn’t – though those who bet solely with cash had a
significant connection to playing an esports video game in only one sample, suggesting some
participants engage in these activities do so specifically for the gambling aspect rather than a total
“cultural” involvement. The connection between playing esports games and betting on esports and
skins may create a cyclical relationship similar to the brand-game relationship argued by Evans; Hing
et al. proposes that the results of the study suggest, “Playing, watching, and competing in esports
activities may encourage young people to bet on esports, especially because skins are an easier wat for
underage people to bet compared to using cash; alternatively, betting on esports may encourage them
to take more interest in these games.” Hing then goes on to present the possibility of this “heightened
play” on esports games may contribute to problematic gaming symptoms – a suggestion confirmed by
In the past five years, research has pivoted from identifying correlations between loot boxes
and gambling to limiting and regulating loot box consumerism. Three levels of abstraction exist as
platforms for a solution: individual and parental regulation, corporate and studio regulation, and
international regulation. Very little research has been done on solutions that could be accomplished by
companies save King and Delfabbrio – this is because of a broad resistance on the part of studios
against changing the microtransaction infrastructure of their games. For the purpose of this section,
only personal and international regulations will be discussed, as solutions for corporate regulation is
under-researched. Gong and Rodda’s An Exploratory Study of Individual and Parental Techniques for
Limiting Loot Box Consumption explores 19 behavior change techniques and 85 strategies for self-
regulation and parental regulation. Gong et al. conducted an internet search to compile strategies to
reduce consumption specifically targeted at parents and adult gamers; the study found that the most
common parental BCTs (behavioral change techniques) involved environmental restructuring (i.e.
restrict access to money, games, devices), persuasion (i.e. informing their child about dangers
involved in loot boxes and addiction), and monitoring (i.e. recording usage and checking for
problematic symptoms). The study found that as far as personal regulation is considered, the most
common BCTs involved antecedents (i.e. environmental restructuring and avoidance), substitution
(“grinding” or playing the game to an extent where loot boxes were no longer required for
progression), and self-control (refusing to purchase boxes 2). Gong and Rodda point out that across the
data set taken, views were voiced that parents should be aware of potential dangers (including
increased risk of adolescent involvement in gambling) and that to aid this, parents “could act to limit
consumption before, during or after play”. The authors claim that forums held two main opinions
regarding regulation: that the individual is responsible for regulating loot box consumption while
acknowledging that loot boxes are predatory and addicting – that regulation is not as easy as turning
2
Note that this method would only prove successful for those without high predispositions to gambling-based
addictions or those currently seeking supplemental restrictive methods
off the console for an addicted individual. After this point is made, Gong and Rodda offer solutions
based on their findings that could be employed by the video game industry, mainly the option to
remove loot boxes from the game on a player-by-player basis, spending limits within the game, and
the recording of monthly spending being sent to a third party (parent or partner). The solutions offered
for individuals included pre-game planning and limiting of spending, limiting access to funds during
gameplay, and “know when to stop buying loot boxes and when to walk away). These findings and
solutions serve to educate parents, partners, and afflicted (possibly pre-afflicted) gamers on the
dangers of loot boxes and how to navigate the microtransactional infrastructure in a healthy and self-
aware manner.
Where personal and parental restriction fail, however, legislation may prevail. Peter Honer
argues in Limiting the Loot Box: Overview and Difficulties of a Common EU Response that banning
loot boxes and other similar monetization schemes is unfair for studios and will force them to find
alternative revenue streams in order to offset the rising cost of game development, while at the same
time asserting that not enough is done by the industry to guarantee that these schemes do not harm
vulnerable consumers (children and problem gamblers). Naturally, a compromise must be found
between these extremes in order to ensure fair, safe, and healthy gameplay while minimizing studio
losses. Honer introduces the affected and affecting demographics of loot boxes; primarily the
consumer, game companies, and industry bodies such as ESRB and PEGI. He then discusses current
legislative approaches to tackling the issue by country: The French regulatory body ARJEL
determined that loot boxes are “questionable” in their legality, The Belgian Gaming Commission
maintained that loot boxes fell under the definition of betting and therefore games companies would
be liable for criminal sanctions for enabling gambling without the proper licenses, and the United
States has many state-by-state legislations ranging from regulating the sales of games to those 21 and
over to no restrictions at all. Honer offers three levels of possible legislation that an EU-based
approach could be characterized by and their drawbacks: First being the “baseline” scenario, which
champions state-led legislature (akin to the way in which the United States has managed the issue thus
far) but becomes difficult from the perspective of enforcement, as enforcement and restrictions will
not be uniform across the Union. The second approach is the self-regulatory scenario, which sees
exercise in the form of PEGI and ISFE rating for appropriate ages for games and calls for disclosure
of odds, however this approach proves to be fickle due to numerous loopholes existing in the wording
of odds disclosures, as well as the lack of assurance that any consumer will adhere to and change
behavior based on outrageous odds. The final category is the consumer law approach, which offers
legislation regulating practices of EU gaming companies. Where this approach falls apart is legally
defining loot boxes in order to compartmentalize them into the responsibility of a single legislative
body or directive. Directives can be violated if loot boxes are not defined properly, leaving both
governments and corporations liable. The fifth and final part of this article proposes a three-part
hybrid, consolidating each legislative approach into a single effective regulatory framework. This
framework exists as a pyramid, in ascending order: education, persuasion, warning, shame tactics,
with civil sanctions at the top. Honer calls the civil sanctions at the top a “benign big gun”, effectively
saying the sanctions are there as a deterrent from unsavory practices, not to be enforced regularly.
Education consists of “enhanced” stakeholder dialogue under the purview of GREF (Gaming
Regulators European Forum) officials in order to facilitate knowledge and awareness of the issue to
corporate officers and consumers. Persuasion involves tax relief for the development of video games
in exchange for the reduction of loot box monetization. Warning is fairly self-explanatory, games
would include a warning cautioning the consumer of the inclusion of microtransactions and loot
boxes. Shame tactics are left up to current industry bodies such as PEGI or ISFE based on their vision
of predatory monetization. Finally “Big Gun” civil sanctions would involve a tacit threat of
constituting loot boxes as gambling, as the Netherlands and Belgium have done previously. Honer
asserts that the combination of these approaches in a cohesive framework has the potential to
Conclusion
The practice and study of monetization models like loot boxes has increased in recent years,
leading to research becoming quickly outdated or irrelevant. This essay sought to connect current peer
reviewed findings in order to give the reader an accessible and thorough understanding of the state of
microtransactions, their effects on players, and current legislative attempts at reducing consumer
harm. Through the findings of Hing and Macey et al., the connection between loot boxes and
problematic gambling opens the doors for legislation like the framework proposed by Honer to treat
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