Our state was recently in the news when State Reps. Chris Lee and Sean Quinlan held a press conference in response to the controversy surrounding loot boxes and microtransactions in video games. Lee announced that he would be looking to introduce legislation to combat predatory practices by game publishers. He called Star Wars: Battlefront II an “online casino specifically designed to lure kids into spending money.” He added that he wants to “protect kids who are underage, not psychologically or emotionally mature enough to be able to gamble which is why gambling is prohibited under 21.”
In Hawaii, our law says that gambling is where a person (1) stakes or risks something of value, (2) upon the outcome of a contest of chance or a future contingent event, (3) upon an agreement or understanding that there will be something of value received upon a certain outcome. Which means that gambling needs to have a bet, an element of chance, and a prize.
Our supreme court held in 1961 (State v. Prevo, 44 Haw. 665, 361 P.2d 1044) that an entry fee, or paying just to play the game, satisfies the “bet” element. Most games, online or not, have a chance element (rolling a pair of dice, for example). So, we need to think about whether games such as this have a “prize.”
The Entertainment Software Rating Board, or ESRB, as well as the U.K.’s gambling regulator, took the position that a “prize” needs to have value outside the game in which it is generated before it could be considered a prize from gambling. They feel that if only in-game items result, the “bet” is a sunk cost. It may be different if the game allows, or at least turns a blind eye to, a “black market” where people can and do trade real money for in-game items.
The Hawaii law defining gambling, HRS section 712-1220, defines “something of value” in the prize context as “any money or property, any token, object, or article exchangeable for money or property, or any form of credit or promise directly or indirectly contemplating transfer of money or property or of any interest therein, or involving extension of a service or entertainment.” The last few words in this definition may be broad enough to include in-game items as satisfying the prize element of gambling. But that definition may be broad enough to sweep up lots of other things. How about paying taxes? I pay taxes, which satisfies the “bet” element. If I’m lucky (there’s the element of chance), my trash gets picked up, the pothole on my street gets fixed, or the public school that my kids attend gets a few air conditioners.
What about federal law? Federal law doesn’t regulate gambling. The Unlawful Internet Gambling Enforcement Act of 2006, or UIGEA (31 U.S.C. sections 5361 to 5366) prohibits gambling businesses from knowingly accepting payments for Internet gambling activity that is unlawful under any federal or state law. This law doesn’t legalize or criminalize the underlying game.
In any event, all we are talking about here is what kind of gambling constitutes criminal conduct. That’s a different question from whether parents should allow their kids to access gaming sites with a valid payment card (especially if it’s not the kid’s money). If you’re a parent who doesn’t want your child spending money on in-game items, you can check to see if games have microtransactions or loot boxes. You can also make sure that no payment method, such as a debit or credit card, is attached to consoles or accounts that they’re using. Whether you complain about loot boxes or microtransactions, the reality is that if consumers are buying them, developers and publishers will want to keep offering? them. But if you as a citizen make your voice heard, you can help make a difference as lawmakers or governments may start listening to the dialogue, as they did with the Star Wars: Battlefront II controversy.
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Tom Yamachika is the President of the Tax Foundation of Hawaii, a private, nonprofit educational organization dedicated to informing the taxpaying public about the finances of our state and local governments in Hawaii. Tom is also a tax attorney in solo practice and has been since early 2013. Prior to 2013, he was with the accounting firm Accuity LLP, which was formed in 2006 from the Honolulu office of Coopers & Lybrand (which later became PricewaterhouseCoopers). Before that, he served as an Administrative Rules Specialist in the State of Hawaii Department of Taxation from 1994 to 1996, where he drafted rules, interpretive releases, and legislation on several different state taxes. Prior to that, he practiced litigation and tax law with Cades Schutte Fleming & Wright in Honolulu.