On Wednesday, New York State Attorney General Letitia James announced that the state is suing Valve, alleging that games like Counter-Strike, Team Fortress, and Dota “enable gambling by enticing users to pay for the chance to win a rare virtual item of significant monetary value.” The state is seeking to “permanently stop Valve from promoting gambling features in its games, disgorge all ill-gotten gains, and pay fines for violating New York’s laws.”
Most forms of gambling are banned in New York State outside of certain exceptions (such as, depressingly, sports betting). The state’s lawsuit alleges that “Valve has knowingly engaged in a variety of conduct that materially aids gambling activity, including creating and establishing loot boxes, maintaining systems that enable users to open loot boxes, and soliciting and inducing users to open loot boxes. Valve also has knowingly profited from gambling activity through the sale of keys and loot boxes pursuant to an agreement or understanding whereby Valve participates in the proceeds of gambling.”
The lawsuit spends a lot of time explaining exactly how loot boxes in Valve games work, highlighting their design (“The spinning display and the accompanying sound that plays when a user opens a Valve loot box are examples of gameplay experiences similar to those employed by slot machines”) and the way this presentation can encourage players to keep opening loot boxes. The AG’s office is particularly concerned about the ways this could entice young people–whom it claims make up a large portion of the user base for the games in question–to gamble, with potentially harmful results.
“Loot boxes, like other forms of gambling, can lead to addiction and result in real harm. But Valve’s loot boxes are particularly pernicious because they are popular among children and adolescents, who are lured into opening loot boxes by the prospect of winning expensive virtual items that convey status in the gaming world,” the suit reads.
The AG’s office also notes the ecosystem of creators on Twitch and YouTube who make videos devoted solely to opening Valve loot boxes, with the suit reading that “Opening loot boxes has become a subject of interest, distinct from playing Valve’s games… [S]ome well-known streamers have created videos and channels dedicated solely to opening Counter-Strike weapons cases.”
The suit details the various ways Valve makes money off of loot boxes. This includes Valve selling keys for loot boxes themselves, earning commissions on skin sales on Valve’s Steam Community Market, and by Valve designing “the Steam platform to facilitate the purchase and sale of virtual items on third-party marketplaces,” with the suit alleging that “Valve has long understood that third-party marketplaces are important to the economy of the virtual items it has created. By providing a means for users to sell their virtual items for cash, these marketplaces motivate users to purchase keys from Valve in the hopes of opening a loot box and winning a high-value item they can cash in. More loot box openings also means more virtual items will be sold, which drives transactions and Valve commissions on the Steam platform itself.”
The suit alleges that players also make money selling skins on Valve’s and third-party marketplaces, as well as through this delightful tidbit:
Steam users also can readily convert virtual items to cash by purchasing Steam hardware and then reselling it off platform. Indeed, an OAG investigator did so, converting a Counter-Strike skin called a “Stiletto Knife” to $180 by: (a) selling the skin on the Steam Community Market for Steam Wallet funds, (b) using the Steam Wallet funds received from the sale of the skin to purchase a Steam Deck, and (c) selling the Steam Deck for $180 in cash at a store that buys and sells electronics.
While the games themselves “have proven to be remarkably lucrative for Valve, even though the games have been free to play for years,” the suit reads, “Valve has managed this feat by pioneering an alternative model for monetizing its games: gambling.”
Loot boxes have long fallen out of favor in most games, with many games having previously transitioned to more transparent battle passes in the last decade, following controversy such as the boxes in Star Wars Battlefront II and global changes to laws governing them. (Brazil most recently banned their sale to people under 18.) However, some games are also experimenting with them again, with Fortnite introducing a version of them to some in-game islands, alongside rules governing their availability and presentation.
“Illegal gambling can be harmful and lead to serious addiction problems, especially for our young people,” James is quoted as saying in the suit’s press release. “Valve has made billions of dollars by letting children and adults alike illegally gamble for the chance to win valuable virtual prizes. These features are addictive, harmful, and illegal, and my office is suing to stop Valve’s illegal conduct and protect New Yorkers.”
