Could a Wave of New Gambling Laws Be Loot Boxes’ Undoing?

(Bloomberg) -- The sports gambling world is giddy right now, following a landmark Supreme Court ruling that could pave the way for broadly legal betting on games. But teams and bookies aren’t the only businesses whose economics could change.

On Monday, the U.S. Supreme Court struck down the federal law that blocked states from legalizing gambling on sports. Now a bevy of U.S. states are gearing up to pass laws that would bring sports betting out of the shadows. The British company William Hill is ready. As soon as the State of New Jersey—which brought the successful court challenge—gives the go-ahead, the bookmaker will jump into action. Delaware says it should be ready in June. Before the ruling, Nevada was the only state with legal sports betting on individual games. Now, Mississippi, Pennsylvania, New York and West Virginia are all considering joining the party.

Several tech companies stand to benefit. Fantasy sports company DraftKings is reportedly eyeing a sports betting contract in Rhode Island. Meanwhile, tech investor Mark Cuban believes that the rule effectively doubled the value of popular sports franchises like his Dallas Mavericks. It's likely that more than a few venture capitalists are scrambling to invest in businesses ready to seize on this watershed moment.

And some less traditional players also stand to gain. As more state legislatures weigh legislation, it could also provide an opening for esports companies. Analysts believe potential winners could include Activision Blizzard and even Facebook.

The ruling "should pave the way for more widespread access to betting on professional esports," said Barclays analyst Ross Sandler in a research note. Cuban, too, invested in a crypto esports betting platform—because how many more buzzy concepts could you cram into one company?

But there’s also a risk to all the attention that online betting is about to get. A slate of new gambling laws are about to wind their way through state houses around the country. Video game publishers like Activision Blizzard and Electronic Arts could find some parts of their business curtailed rather than loosened.

I'm talking about loot boxes, the industry's magical money machine. If you don't know, loot boxes are a digital contraption that has taken over the video game business. Years ago, video game publishers learned that they could make more money by selling costumes and characters inside games, rather than just charging upfront for a completed video game. Over the last few years, that system has grown even more complex. Instead of purchasing an in-game item directly, games will ask you to buy an undisclosed assortment of in-game items and in-game currency. You don't know what you're getting until after you've made a purchase. That means if you have your heart set on a particular item, you might have to buy many, many of these loot boxes until you land on the item you want, or earn enough in-game currency to buy it. You're effectively rolling the dice over and over again.

Loot boxes are a widespread phenomenon that has been embraced by top publishers. Electronic Arts Star Wars Battlefront II faced a wave of backlash after it announced what many gamers considered an overly greedy loot box scheme. EA relented, but not before it received the most down-voted Reddit comment of all time.

Opening a loot box has the feel of pulling the lever on a casino slot machine. There's usually a dramatic unveiling animation and a satisfying sound once the crate opens up. One is never enough. There are countless YouTube videos with tens of thousands of views that just show people opening them. It's depressingly satisfying.

To critics, this all looks a lot like gambling. And unlike regulated gambling, gaming companies don't have to tell you the odds—and they sell them directly to children. Countries like Belgium and the Netherlands have outlawed loot boxes.

Chris Lee, a state representative in Hawaii, has been at the vanguard of the effort in the U.S. to regulate these random number generator-powered, money-making digital contraptions. Lee, a gamer himself, introduced legislation in Hawaii that would prohibit companies from putting loot boxes in games that children play. The legislation would require those companies to disclose the odds of winning to adults.

Lee has been working with other states to pass legislation to crack down on these video game gambling machines. He thinks that as states weigh whether to legalize gambling in light of the Supreme Court ruling, it will be a good time for them to consider what to do about loot boxes.

"No matter what moves forward—protecting minors and underage kids from the psychological and addictive impacts of opening up gambling in Hawaii means ensuring that those same protections apply to kids across the board," Lee said, "which means having a meaningful discussion about loot boxes and other gambling mechanisms being included in kids' video games."

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