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

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

To understand why loot boxes are testing their legally set limits and, at times, crossing the line to societal harm, we spoke with Leon Xiao, a leading specialist in game monetization and consumer protection.

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

A specialist perspective on loot box regulation

Xiao’s work highlights the growing tension between rapidly evolving mobile and iGaming ecosystems and the outdated legal frameworks intended to protect players.

Whenever challenged in Parliament re how video game companies are NOT disclosing loot box presence and probabilities, the previous Con and current Labour UK governments have always used the same text and maintained that research should and will be done to check compliance.

— Leon Xiao (@LeonXiaoY) June 11, 2025

These gaps allow certain digital storefronts to remain lenient toward randomized or gacha-style monetisation. These storefronts can carry addiction risks and frequently expose underage players to gambling-adjacent mechanics.

How do researchers define a loot box?

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

“If either component is missing, if 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 drives the need for monetary risk that players may become ensnared by.

What distinguishes loot boxes from other in-game purchases?

Xiao: “The essential difference is randomization. Traditional in-game purchases allow players to buy a specific item at a known price. Loot boxes introduce uncertainty and variable outcomes, meaning players don’t know what they’ve paid for until after the transaction.

“This similarity to gambling mechanics is why regulators increasingly scrutinize them.”

Why loot box regulation challenges existing gaming laws

Industry representatives often argue that loot boxes preserve player choice rather than undermine it, stressing that participation is optional and that many players engage without spending at all. Studios also maintain that randomized rewards help fund free-to-play access, allowing games to reach wider audiences without upfront costs.

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

However, regulators and consumer protection advocates argue that voluntary safeguards often fall short in practice, particularly when disclosures are unclear or inconsistently applied.

Xiao: “Randomization serves several design and economic purposes:

• Revenue optimisation: variable rewards encourage repeat spending.
• Engagement loops: unpredictable outcomes keep players returning.
• Perceived value: rare items feel more exciting when discovered randomly.
• Progression control: designers can slow or accelerate advancement.”

Loot boxes are seen as a dependable revenue engine from an industry viewpoint, as studios spend money to acquire licensed intellectual property, (IP) like Marvel or DC to entice players.

From a player protection perspective, that reliable money-making machine dressed in a cosmetic or branded IP is what causes the risk.

British ASA clamps down on misleading loot box disclosures

To understand the regulatory side, we examined a recent ruling by the UK Advertising Standards Authority (ASA). Xiao supported several complaints that highlighted 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 cautioned all three studios for failing to provide clear, accurate information about loot box probabilities and each was wrapped in a desirable and lucrative IP, reinforcing Xiao’s view that transparency is the first and most crucial safeguard.

Do loot boxes pose risks to players?

Xiao: “Yes, particularly for younger players and those prone to impulsive behaviour. Overspending, driven by repeated attempts to obtain a rare item and gambling-style reinforcement loops, including near misses and escalating rewards are risks.

“As are players’ misunderstandings of odds, especially when probabilities are unclear or intentionally opaque. This can contribute to the early formation of harmful spending habits, normalising gambling-adjacent behaviour.”

Xiao emphasizes that the mechanics themselves are not inherently dangerous, but “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 prohibits minors from accessing loot boxes entirely.

Brazilian President signed the under-18 loot box ban into law (Lei 15.211/25; effective March 2026). https://t.co/vWdy0Bj1b0.

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

UK failed to implement 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 nation’s new law, “Loot boxes, offered in electronic games aimed at children and adolescents or likely to be accessible by them, are prohibited, in accordance with the respective age rating.”

How should regulators approach loot boxes?

Xiao argues that the core challenge is categorization. Loot boxes resemble gambling but are embedded within entertainment products, making them difficult to regulate under existing laws.

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

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

“Regulation should not assume all loot boxes are harmful, but it should ensure players, especially children, are adequately protected.”

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

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

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

For researchers like Xiao, the question is no longer whether loot boxes require safeguards, but how quickly legal systems can adapt to the accelerating monetisation models shaping modern games.

Transparency is critical, says Xiao, “When players do not know the actual odds, they cannot make informed decisions. This lack of information amplifies the psychological pressure of randomized spending.

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

Featured image: Adobe Firefly

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