Is loot box regulation keeping pace with legal and societal risks?

It’s a question increasingly asked by regulators, researchers and guardians of vulnerable players, and one that is increasingly difficult for the gaming industry to ignore.

To understand why loot boxes test their legally set limits and, at times, going beyond the bounds of societal harm, we spoke with Leon Xiao, a leading expert on game monetization and consumer protection.

It is a voice frequently heard in parliamentary inquiriesand his studies have been featured in publications in the UK, EU, US and Asia.

A specialist perspective on the regulation of loot boxes

Xiao’s work highlights the growing tension between the rapidly evolving mobile and iGaming ecosystems and outdated legal frameworks intended to protect gamers.

Every time Parliament has been challenged on why video game companies are NOT disclosing the presence and probabilities of loot boxes, the previous government and the current UK Labor government have always used the same text and argued that research should and will be carried out to check compliance.

– Leon Xiao (@LeonXiaoY) June 11, 2025

These loopholes allow some digital storefronts to remain lenient toward random or gacha-style monetization. These showcases may carry risks of addiction and frequently expose underage players to game-like mechanics.

How do researchers define a loot box?

Xiao: “A loot box is an in-game purchase that contains the following two elements: the player must spend real money (directly or indirectly), and the reward received is determined randomly.

“If any component is missing, no money is spent, or the outcome is known, then it is not considered a paid loot box for regulatory purposes.”

Money and the staking cycle, or loop, are key factors in the debate over what a loot box is. Uncertainty leads to the need to take monetary risks in which players can become trapped.

What sets loot boxes apart from other in-game purchases?

Xiao: “The key difference is randomization. Traditional in-game purchases allow players to purchase a specific item at a known price. Loot boxes introduce uncertainty and variable outcomes, meaning players only know what they paid for after the transaction.”

“This similarity to game mechanics is why regulators are increasingly scrutinizing them.”

Why Loot Box Regulations Challenge Existing Gambling Laws

Industry representatives often argue that loot boxes preserve player choice rather than undermine it, emphasizing that participation is optional and many players engage without spending at all. The studios also argue that random rewards help fund free access, allowing games to reach a wider audience without upfront costs.

In response to regulatory pressure, major publishers point to existing self-regulatory efforts, including voluntary likelihood disclosures, parental controls and spending limits, presenting these measures as proof that the industry can manage risks without heavy-handed legislation.

However, regulators and consumer protection advocates say voluntary guarantees are often insufficient in practice, particularly when the information provided is unclear or applied inconsistently.

Xiao: “Randomization meets several design and economic objectives:

• Revenue Maximization: Variable rewards encourage repeat spending.
• Engagement loops: Unpredictable outcomes keep players coming back.
• Perceived value: Rare items seem more exciting when discovered randomly.
• Progress control: Designers can slow down or speed up progress.

Loot boxes are considered a reliable revenue driver from an industry perspective, as studios spend money to acquire licensed intellectual property (IP) like Marvel or DC to attract players.

From a player protection perspective, this reliable money-making machine, dressed up in a branded cosmetic or intellectual property, is the source of the risk.

UK ASA cracks down on misleading loot box disclosures

To understand the regulatory side, we looked at a recent decision from the UK Advertising Standards Authority (ASA). Xiao has upheld multiple complaints highlighting misleading disclosures in three major mobile titles:

• Hutch Games Ltd – F1 Clash
• Kabam Games Inc – Marvel Contest of Champions
• Nexters Global – Hero Wars: Alliance RPG

THE ASA warned the three studios for failing to provide clear and accurate information about the odds of loot boxes and each was wrapped in a desirable and lucrative IP, reinforcing Xiao’s point that transparency is the first and most crucial guarantee.

Do loot boxes present risks for players?

Xiao: “Yes, especially for younger players and those prone to impulsive behavior. Excessive spending, driven by repeated attempts to obtain a rare item and gambling-style reinforcement loops, including near misses and increasing rewards, are risks.”

“As can gamblers’ misunderstandings of odds, especially when probabilities are unclear or intentionally opaque. This can contribute to the early formation of harmful spending habits, normalizing gambling-like behavior.”

Xiao points out that the mechanisms themselves are not dangerous in themselves, but that “the combination of money and uncertainty can create problematic patterns.”

Brazil bans loot boxes for players under 18

Some governments have already taken decisive action. Brazil now bans minors from accessing loot boxes entirely.

The Brazilian president signed into law a ban on loot boxes for those under 18 (Lei 15.211/25; effective March 2026). https://t.co/vWdy0Bj1b0.

Belgium failed to ban loot boxes: https://t.co/1hyCgjs3ez.

The UK has not implemented age verification: https://t.co/oWHWFoqImS.

Will Brazil succeed? pic.twitter.com/d3sW4JHyBH

– Leon Xiao (@LeonXiaoY) September 26, 2025

According to article 20 of the new national law, “loot boxes offered in electronic games intended for children and adolescents or likely to be accessible by them are prohibited, depending on the respective age group.”

How should regulators approach loot boxes?

Xiao argues that the main challenge is categorization. Loot boxes are similar to games of chance but are integrated into entertainment products, making them difficult to regulate under current laws.

Xiao: “A practical and effective regulatory approach would include:

• Transparent disclosure of probabilities
• Age-appropriate restrictions
• Clear consumer information
• Consistent international standards

“Regulation should not assume that all loot boxes are dangerous, but it should ensure that players, particularly children, are properly protected.”

How do you see the future of loot box regulations evolving?

Xiao: “The direction is clear,” says the research specialist, highlighting four key points to consider:

• More markets will adopt or strengthen disclosure rules
• Age restriction will become more common
• Mobile and iGaming ecosystems will face stricter scrutiny
• Sector self-regulation will no longer be enough

For researchers like Xiao, the question is no longer whether loot boxes require collateral, but how quickly legal systems can adapt to the accelerated monetization models that shape modern games.

Transparency is key, says Xiao: “When players don’t know the real odds, they can’t make informed decisions. This lack of information amplifies the psychological pressure of random spending.

“Ultimately, loot boxes have outgrown the laws that govern them, and the next decade will determine whether they will remain a mainstream monetization tool or be constrained by gambling-style legislation,” concludes Xiao.

Featured image: Adobe Firefly

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