It’s a rainy day outside. Your plans to go to the smoothie shop, restart your gym membership, and drive to the beach after you go shopping at the Grove in Beverly Hills have been canceled. You know that California weather tends to be dry and hot for the most part, so you push off your plans to have a rainy-day in. This day consists of watching movies on your Netflix account and cooking with leftovers around the house. This day is a good day to finally pick up that book you bought two years ago about success. One might not think these very actions serve any impact to the surrounding companies and people. In fact, it does. You, in addition to all the other people that decided to stay in because of this spontaneous rain in sunny California, would be reducing your contribution to the GDP and the economic growth in general. Different climates make consumer behavior change.

Weather plays a substantial role in the health of certain markets and therefore influencing the economy. Weather relates to the condition of the atmosphere with respect to temperature, humidity, etc. Different temperatures call for different demands, like the need for winter clothes and the popularity of comfort foods increases when winter is around the corner. Different humidity conditions affect the growth of certain crops, the sales of personal care products, and tourism revenue. In regions where the weather changes drastically, the revenue in many businesses may thrive or cripple. Seasonal businesses can include fresh produce, clothing, tourism, etc.

Blueberries grow in the summer season, “typically grown in humid and northern climates that have winter chills, mild summers, and low-pH or acidic soils.” These conditions limit the places where blueberries can grow. In cases of natural disasters and global warming, the value of the crop can be changed.  

For example, in September 2017, Hurricane Irma destroyed more than 50% of orange crop in Florida. With less supply and now more demand, fresh squeezed orange juice spiked in price. With a reduced harvest, alternatives, such as frozen concentrated orange juice, became more expensive, as well. Based on USA Today, “orange juice drinkers pay as much as $2.30 more for a gallon of orange juice as a result of the broad swatch that Irma cut through Florida’s citrus crop.”

Based on Everyday Health, individuals eat more in the winter, which would yield to an increased demand for food. During the winter time, there is an apparent rise in sales for comfort foods, such as meatballs, lasagna, cookies, and pork chops. 

https://www.washingtonpost.com/news/wonk/wp/2015/11/25/the-hidden-ways-weather-determines-what-you-buy/?noredirect=on&utm_term=.cbabc329b7cc

Due to the influence weather has on economic activity, technology has found a way to monitor weather in efforts to capitalize on marketing and advertising. McDonald’s, a fast food chain, promotes coffee sales in cold areas and McFlurry sales in sunny areas. With access to current weather, companies can adjust campaigns to gain more impressions and attention. 

 

Economic indicators such as unemployment rates, the U6 number and the consumer price index are key insights into analyzing the economy. Experts are constantly studying what is going on in both the global economy and economies of specific countries in order to understand current economic states. This allows individuals to make educated predictions about the future of these economies. Often the most important indicators to look at are not those providing data of what is happening now or the spending that is taking place currently, but rather indicators that forecast future trends. These indicators are called leading indicators – one being consumer confidence.

Consumer confidence measures how optimistic consumers are feeling about the current state of the economy, as well as their own personal financial situation. The index is based on a monthly survey of thousands of United States households. The survey is put on by The Conference Board and consists of five questions surrounding topics like current business conditions, business conditions for the next six months, current employment conditions, employment conditions for the next six months and total family income for the next six months. Opinion on current conditions makes up around 40 percent of the index and expectation about the future makes up around 60 percent. The primary focus on the future is what categorizes consumer confidence as a leading indicator, as opposed to a trailing indicator like retail sales.

While this economic indicator specifies consumer sentiment, it has the powerful ability predict consumer spending. Consumer confidence will directly point to whether individuals are likely to go to the mall on the weekend to do some leisurely shopping, or if they will only be focusing on fulfilling only their basic needs. In turn, it aids experts and other consumers in understanding where the general population feels the economy is going – arguably the most important insight into a nation.

Normality of consumer confidence is measured at 100. In August 2018, consumer confidence in the United States was the lowest in almost a year, falling from 97.9 in July to 95.3. A graph tracking consumer confidence in the U.S. over the last year is shown below:

Experts are estimating the low reading is mainly due to less favorable perceptions of market prices. Additionally, consumers reported viewing vehicle and home-buying conditions as less favorable. There is evidence that consumers have become very sensitive to even low inflation rates, as they were anticipating a 2.9 % inflation rate ahead of August.

This fall in consumer confidence will likely reflect in next month’s retail sales and personal spending numbers. Aware of the effect of this economic indicator, corporations as well as politicians utilize consumer confidence to anticipate whether people will be likely spending more or saving more in upcoming months. Businesses are able to adjust operational plans as a result of the indicator, either increasing or decreasing volume production of their product. Additionally, the government can adjust their expected tax revenue based on consumer spending.

It is essential to pay attention to consumer confidence. It allows consumers and experts in economics to make proactive decisions regarding the economy. The economic indicator also provides valuable insight into the certainty citizen’s feel about their nation.

Despite a previously rocky relationship between the Mexican government and the Trump administration, new trading deals have been discussed that seem to satisfy both countries. Trump has had a difficult relationship with Mexican President Enrique Peña Nieto due to Trump’s demands that Mexico pay for a border wall, yet it appears that negotiations have been made to continue a cordial trade relationship with Mexico. 

President Trump has been openly opposed to the North American Free Trade Agreement (NAFTA) and so he is determined to create new trade deals during his presidency. In an effort to achieve this goal, he has negotiated a new trade agreement with Mexico and is in the process of negotiating with Canada. Due to the complicated and difficult relationship between the United States and Mexico, Canada has been waiting for the issues between the two countries to be sorted out before getting involved in the new trade agreement.

In this new trade agreement, Trump has addressed his fear for loss of American manufacturing jobs. According to Charles Wallace, in Forbes, “the agreement provides that 85 percent of parts in the car must be made in North America to be considered for tariff-free imports. The Trump Administration has been concerned that car parts from Europe and Asia, especially china, were being assembled in car in Mexico and then imported for sale in the United States.” This new trade agreement gives Mexico an incentive to use America car parts because it saves them money on tariffs. 

President Trump is always very confident about his decisions, yet some of his plans for this new trade agreement may not be possible. Trump wants to get rid of NAFTA completely and create his new trade agreement as the sole agreement between the US, Canada, and Mexico. However, it is unclear whether this form of action can be implemented or will be allowed by Congress. He also feels so strongly about the trade agreement with Mexico that he has contemplated the idea of following through with the agreement even if Canada does not get involved. This is not a mind set that is agreed on by all members involved, though. Mexico has made it clear that the trade agreement must involve Canada and the US Congress has backed this opinion. Because of this, the trade agreement will not be complete until negotiations have successfully been made with Canada. There is, additionally, a time limit for the final negotiations to be made because López Obrador will likely attempt to make changes if the treaty is not completed before he assumes the presidency.

Currently, both the United States and Mexico stand to benefit from this trade agreement and the ability to negotiate between the two countries is a success in itself. However, there are still uncertainties about the future of the agreement and its success.  

Last week, the Turkish lira tumbled to an all time low post-2008, losing a third of its value and is, at present, around six lira to the US dollar. The ripples were felt in several emerging markets. In Argentina, for instance, as the peso slumped to a record low, the nation’s central bank raised its interest rate to a staggering 45%. The currencies of South Africa, Brazil and Mexico were also affected.

In an article in Forbes, Jesse Colombo wrote that since 2002,“Turkey’s economy nearly quadrupled in size on the back of an epic boom in consumption and construction that led to the building of countless malls, skyscrapers, and ambitious infrastructure projects. Like many emerging economies in the past decade, Turkey’s economy continued to grow virtually unabated through the Global Financial Crisis, while most Western economies stagnated.”

Taking advantage of the low interest rates after the global recession of 2008, Turkish banks and firms drew on massive foreign loans to fund a relentless drive towards economic growth. Turkey’s real GDP grew by more than 34% in the last five years – only slightly less than China and India.

Things were looking up for quite some time: the labor force participation rate steadily increased, youth unemployment rate dropped, and the inflation rate was mostly steady. But there had always been indicators of the impending collapse that would burst the bubble.

 

Turkey’s growth has been so dependent on financing from foreign investors that the nation’s total gross external debt reached around $466657 million in the first quarter of this year. Turkish banks had borrowed money at low rates from European and American banks right after the recession so that they could, in turn, loan the money out to Turkish companies. But as the value of the lira plummets, it seems more likely that the companies would be unable to pay back the loans, therefore also affecting Europe and the United States.

While the country’s inflation rate had more-or-less steadied itself between 2010 to 2016, it started spiraling upwards from the middle of 2016 and sky-rocketed in the past two months. The Central Bank of the Republic of Turkey was prevented from making the necessary interest rate adjustments to fix the crisis.

President Erdoğan is a believer of the idea that interest-based banking is “prohibited by Islam” and has also claimed that increasing the rate of interest is “treason”. Throughout his tenure as president, he has gradually stripped power and independence of financial institutions. After acquiring sweeping executive powers after his re-election in June, he resisted the bank’s calls to increase the interest rate. Perhaps in an effort to assert greater control of his country’s economy, Erdoğan appointed Berat Albayrak, his son-in-law to the office of Treasure and Finance Minister last month.

 

What can Turkey’s implosion teach other countries?

While the collapse of the Turkish economy would obviously affect the countries that invested the most in it, the indicators that should have ideally served as warnings of an impending collapse, can also teach something to other emerging markets. Several developing countries weathered the global recession and, like Turkey, used foreign investments to fund staggering levels of growth. Two examples are India and South Africa.

While the India’s external debt has steadily increased in the last ten years, it has so far managed tokeep inflation under controlwhile at the same time reporting high GDP growth rates. While India dealt with the global recession much better than most other states, in recent months, the Indian currency has taken a hit, perhaps indicating that the world’s second most populous country is walking an economic tight-rope.

South Africa on the other hand is on the exact same trajectory as Turkey. Its external debt has rapidly risen and while the inflation rate was under control for some time, it has shown a steady increase and is set to increase again. The labor force participation rate of the country has also been steadily falling over the last few months.

 

How politics burst the Turkish bubble

Besides purely financial factors, the rule of law too has an effect on a nation’s economy. Among other things, politics was also responsible in causing a decline in Turkish fortunes. Local businesses got caught up in the government crackdown of dissenters post the failed coup d’étata couple of years back. It has often reached ludicrous levels. According to a report by NPR, for instance, a certain brand of carpet stopped selling because the factory that manufactures it had been raided by the police for alleged links toFethullah Gülen, the United States-based cleric whom President Erdoğan accuses of orchestrating the coup.

Internationally, the relationship between the United States, a major investor, and Turkey have recently worsened over a variety of issues ranging from Turkey’s continued detention of Andrew Brunson, an American pastor allegedly linked with the coup, the nation’s handling of the Syrian crisis, and its cozying up to Russia. The financial crisis was in-part accelerated by President Trump’s decision to double steel and aluminum tariffs on Turkey.

While the crisis in Turkey could affect the United States, Europe, and some emerging markets of developing countries, it could further destabilize the economies of neighboring Iraq and Syria, further destabilizing a region already torn apart by war.

Following a trend of progressive change throughout the country, California recently passed the legalization of recreational marijuana. Going into effect starting in 2018, any person over the age of 21 can legally buy marijuana. The $7 billion industry is expected to generate over $1 billion in state tax revenue.

However, per the federal government, marijuana remains a schedule 1 narcotic (the same level as heroin). Since the federal government is responsible for regulating banks and interstate commerce, there is a significant barrier to banking services for people in the cannabis industry. It is considered a crime to handle the financial proceeds from marijuana sales—banks can lose accreditation or even face money laundering charges.

There are obvious implications that stem from the lack of safe financial structures for the cannabis industry in states where the sale is legal. The irony of this industry is that it is essentially the only business that is begging to be regulated, as regulation will create safety for everyone involved in the transaction.

• Dangerous
  • With hundreds of thousands of dollars in cash being mulled around in duffel bags and cars presents a high risk for crime and theft. Armored vehicles and security guards are a necessity.
• Inefficient
• The laborious counting of stacks of cash for paying taxes is slow and inefficient—it requires the tax collectors to use more time and people bring backpacks full of cash to bank and takes time
• With a cash-only system, it is difficult to pay employees and write checks

John Chiang & the Cannabis Banking Working Group

To brainstorm solutions to this problem, California State Treasurer John Chiang created a task force coalition, the Cannabis Banking Working Group (CBWG), with representatives from law enforcement, banks, regulators, and local governments. The goal is “to ensure a safe a smooth transition for the public, businesses and financial institutions” in the “unchartered waters” of legal recreational marijuana. The coalition has met several times in the past year and recently published a report on possible solutions to marijuana and banking in California.

Solution 1: State Courier Service

Under this plan, “the money would come to the state and the would be the party that would interact with the banks”. Armored vehicles would pick up cash from marijuana businesses and then transport those tax dollars to a secure counting facility. The cash would then be taken to either a federal reserve facility or a financial institution willing to “accept the cash as deposits to state accounts.”

Solution 2: Adhere to lenient existing laws

 Support and expand the few small banks that followed strict compliance guidelines that allowed for business with the marijuana industry under Obama’s U.S. Deputy Attorney General.

Solution 3: Public Bank

The creation of a publicly owned bank or state-supported financial institution. Public banks are independent of the federal reserve, and are insured by the state. This idea, that has been gaining popularity since public dissatisfaction with Wall Street and big banks, may also reap other benefits. Such a bank could expand banking to underserved groups beyond the cannabis industry. However, the obstacles are formidable:

• Difficulty of getting deposit insurance
• Unknown start-up costs
• Investment likely to measure in the billions of dollars
• Probability of losses for several years or more that taxpayers would have to cover
• In addition, a public cannabis institution might have trouble obtaining federal regulatory approval and access to Federal Reserve money transfer systems.

Solution 4:  Lofty Federal Goals

1. Provide legal safe harbor to financial institutions, by prohibiting federal prosecutors or regulators from penalizing them for serving cannabis customers that comply with state law.
2. Legalize cannabis by taking it off the list of Schedule I controlled substances.
3. Prohibit federal officials from prosecuting cannabis consumers or businesses in states that have approved medical or adult recreational use.

 

 

In early 1930s, Home Owners’ Loan Corporation (HOLC) was created as part of Roosevelt’s New Deal to reduce the down payment required to buy a house in hopes of promoting homeownership. The Congress then created the Federal Housing Administration, which sets standards for construction and underwriting and insures loans made by banks and other private lenders for home building, as well as insuring private mortgages. HOLC developed a system of maps that rated neighborhoods according to their perceived stability. On the maps, the areas rated “A” were marked in green areas. According to Ta-Nehisi Coates’ article in The Atlantic by, these areas were considered “in demand” neighborhoods that, as one appraiser put it, lacked “a single foreigner or Negro”. These neighborhoods were considered excellent prospects for insurance. Contrastively, neighborhoods where black people and other immigrants lived were rated “D” and were usually colored in red. This is where the term “redlining” comes from. Usually, these “D” neighborhoods were considered ineligible for FHA backing. FHA selectively granted loans to white neighborhoods and forbid the sale of properties in these green areas to anyone other than whites. The mortgage industry as a whole adopted these practices, and turned the maps into self-fulfilling prophesies. The inability to access capital in these “hazardous” redlined neighborhoods, lead to disrepair and the decline of these communities’ housing value, which in turn reinforced the redline designation. The deterioration of these neighborhoods also most likely also fed white flight and rising racial segregation. The federal government eventually retreated from the practice, and it was outlawed by the Fair Housing Act in 1968. Nevertheless, redlining left long-lasting, truly horrific consequences for black people, black families, and black neighborhoods.

The Mapping Inequality project allows online access to the national collection of “security maps” and area descriptions produced by HOLC between 1935 and 1940. By looking at where the differently rated zones falls on the map, it becomes clear how present differences in the level of racial segregation, home-ownership rates, home values and credit scores reflects the old redlining boundaries. Today, these same communities still face predatory lending, or “retail redlining”, which inversely the proportion of Black residents to grocery stores, non-fast food restaurants, and other retail resources important for promoting and maintain health. According to a Pew Research project led by NYU Sociology professor Patrick Sharkey, to this day, Black people with upper-middle-class incomes do not generally live in upper-middle-class neighborhoods. Sharkey’s research shows that black families making $100,000 typically live in the kinds of neighborhoods inhabited by white families making $30,000. “Blacks and whites inhabit such different neighborhoods,” Sharkey writes, “that it is not possible to compare the economic outcomes of black and white children.

Sources:

New York Times

Washington Post

Are U.S. banks too big to fail, or are they simply too big to break up?

The economic crisis in 2008 revealed how financially unstable big banks can hold the entire global economy hostage. The concept of these banks being “Too Big To Fail,” meaning a business has become so large that a government will provide assistance to prevent its failure to avoid a disastrous residual ripple effect throughout the economy, was integral during this time. The U.S. government disbursed over $700 billion to save companies like AIG that were on the verge of financial failure.

 

The tremendous monetary support that was necessary during 2008 increased government regulation of Wall Street significantly and set out to decrease the mammoth of preexisting too big to fail institutions. However, while increased regulation has been realized over the past decade since the crisis, too big to fail banks have not been cut down to size. Rather, the system has gotten even bigger. According to SNL Financial, JPMorgan Chase, the top performing bank in total assets, has seen its base increase to more than $2.5 trillion. Since the end of 2008, JPMorgan’s deposit base alone has grown by over 29 percent. With such promising numbers, JPMorgan is considered to sit atop a list of banks that could threaten global stability.

 

JPMorgan, Wells Fargo, Citigroup and Bank of America, the so-called “Big Four” institutions, all show this same upward trend since 2008, with over $8.2 trillion in total assets, which is 154 percent more than re rest of the top 50 banks combined.

 

To avoid another round of unfavorable bailouts, financial watchdogs have been calling too big to fail banks to make themselves less risky by dividing up and adding significant capital to safeguard against losses. However, amid demands to break into smaller entities, top Goldman Sachs analyst Richard Ramsden claimed that the government’s call to divide JPMorgan into two or four parts would greatly diminish value for shareholders.

 

According to an S&P Global Market Intelligence report, “if and when another crisis hits, the biggest players will be far larger than they were in the last crash.” Still, approximately 75 percent of the 30 largest too big to fail banks are significantly bigger than a decade ago.

 

Conversely, government experts find the increase in banks’ total assets promising. In her announcement resigning from the U.S. central bank, Janet Yellen wrote, “I am gratified that the financial system is much stronger than a decade ago, better able to withstand future bouts of instability.”

 

This past June, the Treasury Department published several recommended changes to regulation intended to prevent “taxpayer-funded bailouts.” The paper called for “eliminating regulation that fosters the creation… of too big to fail institutions” but offered to suggestions on how to alter those already present.

 

Only time will tell whether the maintained presence of too big to fail institutions will hurt or benefit the U.S. and global economy.

Every Tuesday and Thursday morning I would, without fail, purchase a large cup of iced coffee from the Annenberg cafe before heading to class. Personally, caffeine is not a necessity, but more for comfort as I often need that little push to get through the mornings. However, to many people elsewhere in the world, coffee is something they cannot get out of bed without. And this year, these caffeine addicts have all the reasons to get slightly worried as a “Little Girl” returns for another visit.

(Image of author’s favorite morning drink)

I am of course referring to the La Niña (Spanish for “Little Girl”) weather phenomenon. It is the opposite of the El Niño weather, which turns global climate a bit hotter. La Niña is when unusually cool water surfaces in the Pacific and causes global temperature to change as a result. It would mean that this year, the world would feel a little cooler, which may be a good thing for those who do not like hot weathers. However, it is a devastating news for farmers and manufacturers whose products rely upon a hot weather.

In a Guardian article, Sarah Butler introduces this dilemma global coffee enthusiasts are potentially facing. Coffee beans are a tropical produce, and they do not tend to react that well in face of a cooler climate. La Niña can, for example, bring in “severe droughts in key growing areas including the US midwest devastated crops while excessive rains in Columbia led to the spreading of a deadly coffee fungus”, which was what had happened in its last cycle 5 years ago. When the production of coffee beans is directly and negatively impacted, it is inevitable that the coffee price would surge upwards as a result, since by simple supply-and-demand economics we know that a reduction in supply would cause the market price to go upwards.

Of course, while the simple fact is that our coffee would become more expensive, global climate change can have more devastating effects. Floods and droughts can destroy cities and their economies, all the while taking lives of hundreds of thousands. This year, the United States had suffered from three major tropical storms and hurricanes, and the affected areas are only beginning to recover. With La Niña coming in and making weather patterns more unfavorable, the recovery efforts can be hindered.

Then, the economic damage would not just be a few extra cents on my iced cappucino.

The United States’ economy continues to grow, and the possibility of a recession in the near future looks very slim. That’s a promising forecast for a country that had been rocked by economic collapse about a decade ago.

The question still remains; when the economy is booming, how do you prevent too much inflation that can stir markets for the worse?

The Federal Reserve aims to address this issue, keeping the booming economy in check by enlarging interest rates, as Goldman Sachs projected massive market swells and a strikingly low unemployment rate in 2018. Economists of Goldman Sachs also noted that there could be four Federal Reserve interest rates hikes in the next year, and that the United States unemployment rate, which hit 4.1 percent in October, could reach its lowest point since the 1960’s by the end of 2019.

“With robust growth momentum and no striking imbalances in the economy, near-term recession risk still looks fairly limited,” said Goldman’s chief economist Jan Hatzius, via CNBC. “But the strength is becoming ‘too much of a good thing’ and containing further overheating will become a more urgent priority in 2018 and beyond.”

The overall upswing of the United States economy is accompanied by a similar trend in overall global economic health, when viewed in terms of GDP growth. Germany, for example, displayed GDP growth of 3.3 percent in the third quarter, while the UK’s GDP grew 1.6 percent. Germany’s stock market index, Dax, is up 13 percent, per Express.

Marking the beginning of the United States’ recovery from the major 21st century recession at June 2009, the graph below details that the economy has been growing at a very similar rate for some time now.

But if this rate accelerates too much, over inflation is very possible, and therefore, like Hatzius said, the economy becomes ‘too much of a good thing.’ We witnessed the economy swell to unimaginable highs with risky subprime mortgages, a perfect example of an entity falsely fueling the economy while risk was wrongly assumed to be low.

Actually, a disinflationary trend—that is, a reduction in the rate of inflation—seemed to exist earlier in the year and was worrisome until the U.S. consumer prices, through the lens of core consumer price index (CPI), increased in October. Disinflationary trends lingering over longer periods of time concern Fed officials due to the potential to disrupt interest rate anticipations.

“The Fed has struggled this year in determining if the slowdown in core inflation has been due to a confluence of one-offs or more persistent disinflationary forces,” said Sarah House, an economist at Wells Fargo Securities, courtesy of Reuters. “The pickup clears the way for a December rate hike and supports the case for continued tightening in the year ahead.”

It seems to me like the Fed wants to appear more cautious than it has in the past, considering the financial struggles from ten years ago displayed a lack of governmental regulation as one of many undoings of the economy.

It’s no new, news that video games and their accompanying systems are cheaper than ever. A case study by IGN found that when accounting for inflation, video games in the modern era are certainly more cheaper than in the past. A $50 PS2 game in 2005 is worth $60 today and more drastically a $70 Nintendo 64 cartridge is worth approximately $100. However, while games can be seen as significantly cheaper in today’s era, the expenses for creating video games has certainly gone up.

A leaked development contract for 2014’s Destiny outlined budgetary payments of $140 million dollars.

The above represents just one game of dozens that are released throughout the year. When looking at the 2017 release calendar, at least two AAA games were released between January and December, all of them carrying comparable budgets.

While games have become undeniably cheaper when accounting for inflation, publishers still find themselves in need of money past the initial $60 entry fee.

Several years ago publishers began to offer content post-launch to increase longevity. Much of the content amounted to scrapped ideas for maps, weapons, and characters. Simply not purchasing the content carried no negative results.

In the years following publisher tactics have become more aggressive. Season passes as they are titled simply aren’t profitable given the nature of multiple releases a month. Console games have since taken on an approach seen in mobile gaming in which in-game purchases are encouraged to receive immediate benefits.

Much of these micro-transactions involve in-game currency which can be used to purchase items such as collectibles or cosmetics. Scaling from as low as a few bucks to as much as over $100 real dollars, these transactions aren’t necessary and can be completely ignored. For publishers, they are a lucrative opportunity to generate serious cash-flow. For example, Take-Two Interactive which is responsible for the Grand Theft Auto series reported in August nearly $500 million in profits from their in-game currency in just three months time.

Electronic Arts which became the exclusive publisher for Star Wars video games after Disney acquired the Star Wars IP for the paltry sum of just over $4 billion has released two titles in the years since.

In 2015 to coincide with the release of The Force Awakens, EA released Star Wars: Battlefront, a reimagining of the popular series on the Playstation 2 era of consoles. The game was reviewed well, however, sorely lacked content. Many maps and characters were held from release and were bundled part of the Season Pass which retailed at a whopping $50, nearly 90% of the cost of the base game.

Many fans at the onset of the release felt slighted. Eventually, EA discounted the base game within weeks of release to bring up the total cost to around what the base game originally was selling for. The game was reported to have sold-through 14 million copies in one year’s time.

Two year’s later and EA has released its sequel. It has more maps, more modes, and more characters. Downloadable content was even revealed to be free.

In place of a customary season pass, the game instead launched rife with mobile-esque micro-transactions transactions, however, unlike other games that offer pure cosmetics, these micro-transactions offered actual statistical advantages for players who chose to put down real money.

The problem runs much deeper than that. These in-game advantages are tied behind loot boxes. These boxes are entirely random and purchasing one does not have any guarantees. While they do carry the possibility of obtaining an in-game advantage item, it is entirely possible that a player receives purely cosmetic bonuses such as emotes.

Granted, these boxes also vary in cost with the most expensive of the bunch all but ensuring some sort of advantage. Those who wish not to participate in such practices are essentially left behind. More so, those do participate can come up empty handed much like real-life gambling.

The ensuing backlash from fans over their predatory nature and construction of an uneven playing ground forced EA to remove them for the time being, however, since then many have wondered whether such boxes should be made available at all.

In the time since then the Belgium Gaming Commission announced that it has opened a case in regards to these boxes and their slot machine like nature. Because players are unaware of what is inside, many are linking it to gambling. When spinning a slot machine, it is unknown what you’ll win if anything. In Belgium, companies involved with gambling are required to have a license in order to operate. More so, minors and those suffering from addiction are forbidden to play.

In China steps have already been taken in response to these practices. In March, developers of games featuring random loot boxes are required to reveal the odds of players receiving specific items. In one instance a rare item in free-to-play title Dota 2 has a mere 2% chance of appearing when players pay for one such box.

It has been reported, however, that it is only required for the Chinese version of the game to release such odds and it’s entirely possible that developers could boost drop rates in China in order to save face. Still, it is the first actual step in an effort to make consumers aware of what lies inside these boxes and potentially put these practices away for good.

In the time since this fiasco, EA’s stock has dropped 2,5% as of Friday, the release date of Battlefront II. In the entire month of November, it has seen its stock dip by 7% overall.

It remains to be seen where the company goes from here. They are stuck in a terrible predicament. The development of Battlefront II required three entirely different studios to complete the game which certainly wasn’t cheap. Throw in an aggressive marketing campaign and other costs and the game rivals the financial commitment of its movie brethren.

Star Wars itself is a large IP and while it would be easy to offer pure cosmetic bonuses in place of in-game advantages, that simply cannot be allowed. Each cosmetic variation would have to be approved by Disney and Lucasfilm and because Darth Vader has already been established to look a certain way, it is almost impossible to imagine some variation being allowed. As with such to help recoup costs from such an expensive development, this is almost the only logical way to do so, however, at the expense of players.

With the game releasing so close to another mainline Star Wars film, these boxes will have to be on hold for the time being. Disney won’t allow negative press to impact the release of The Last Jedi. In the time following the release, players will move past the game and the money that could have been made will be for naught. At that point the studio finds themselves at a loss, and potentially losing a huge IP.

Not only does this tale have future implications on the Star Wars video game franchise, but on gaming as a whole. If said boxes are considered gambling, than other huge franchises such as Call of Duty will find themselves in a similar predicament. At that point will games leave behind their cheap nature in favor of a higher upfront cost? All of this will be seen in the coming months and years.

References:

http://www.gameinformer.com/b/news/archive/2016/10/10/2017-video-game-release-schedule.aspx

https://kotaku.com/how-much-does-it-cost-to-make-a-big-video-game-1501413649

http://www.ign.com/articles/2013/10/15/the-real-cost-of-gaming-inflation-time-and-purchasing-power

http://www.ign.com/articles/2016/05/10/star-wars-battlefront-sales-top-14-million

https://www.theverge.com/2015/10/12/9512397/star-wars-battlefront-dlc-season-pass

https://www.gamespot.com/articles/gta-5s-online-mode-has-generated-half-a-billion-do/1100-6438765/

https://www.engadget.com/2017/08/03/gta-online-take-two-earnings/

https://www.theverge.com/2017/5/2/15517962/china-new-law-dota-league-of-legends-odds-loot-box-random

https://www.pcgamesn.com/dota-2/dota-2-treasures-china

http://money.cnn.com/2017/11/16/technology/battlefront-ii-star-wars-game-ea-costs/index.html

https://www.gamespot.com/articles/ea-stock-price-drops-after-star-wars-battlefront-2/1100-6455080/