New York sues Valve over Counter-Strike loot boxes

Valve is a darling among PC gamers. Steam as a platform is beloved, the Steam Deck created the handheld gaming PC boom. But there’s a darker side of the company, especially when it comes to game monetization. The state of New York says that the way Valve sells loot boxes in games like Counter-Strike is illegal gambling. And the state wants to prove it in court.

Attorney General Letitia James brought the suit (PDF link) against the PC gaming giant yesterday, alleging that Valve has created a market for randomized virtual items that operates as an illegal casino, including secondary markets that give those items tangible, real value, and that they pose an especially potent threat to children. The 47-page filing lays out the company’s history of digital distribution, its network of digital item sales and how they can be traded and even converted into real currency, and how it allegedly designed the process of opening loot boxes to operate “similar to the spin of a slot machine.”

New York claims that 96 percent of Counter-Strike digital items are effectively worth less than the keys purchased to randomly unlock them, making the entire process a digital casino. To demonstrate, it offers up “case openings” on YouTube, where the real-world value of items is displayed as streamers scream in glee. One linked from the filing has 1.5 million views, and a sponsor link to an affiliate site where loot boxes can be bought and sold with regular digital payments.

In laying out how the virtual video game items have real-world, tangible value, the suit says that “Valve designed and built its games and the Steam platform to enable users to sell the virtual items they have won.” Players can trade items through Steam directly via the community market or on third-party sites that organize player-to-player trades, often facilitating cash transfers. Built-in Steam tools, like the Trade URL, allow for easy integration on third-party services. “Unlike the Steam Community Market, which caps transaction amounts,” New York argues, “third-party sites enable users to sell rare virtual items from Counter-Strike, Team Fortress 2, and Dota 2 for tens of thousands of dollars.” This is manifestly true, as high-value Counter-Strike skin sales frequently make headlines.

The market for Counter-Strike skins alone is estimated to be worth multiple billions of dollars, even though selling virtual items for real cash is a violation of the Steam user agreement. New York alleges that Valve has selectively enforced these rules, prosecuting the most blatant “skin casinos” while allowing cash sales to go unchallenged.

State of New York

Steam itself does not allow for transfers of actual cash…but Steam Wallet credit, which can be purchased with real money and used to buy games or hardware like the Steam Deck, is pretty darn close. As the suit says, “These funds have the equivalent purchasing power on the Steam platform as cash.” New York argues that since players can use this credit to buy games, which do have set values, Steam store credit operates the same as actual currency for the purposes of gambling. It even gives an example of an investigator who sold a Counter-Strike knife skin, bought a Steam Deck handheld with the store credit, and then sold the Steam Deck in a store (presumably a pawn shop or game store) to buy other electronics.

New York argues that through ready availability and deliberate gambling mechanics, Valve’s games offer the same risks and perceived rewards as casino gambling, facilitating gambling addiction in the same way. This is especially true for children and teens, the suit says, and “teenagers and children compromise a significant segment of Valve’s users.” The state hopes to “permanently enjoin” Valve from violating New York law, make restitution to consumers, and “disgorge all monies resulting from the illegal practices,” and pay a fine of three times the amount it earned from the allegedly illegal practices.

Equating loot box and gacha game design with gambling has been a hot-button issue for years, though actual prosecution has been rare. Because the items won are virtual and, at least technically, have no direct monetary value, most games get away with it. Austria, the Netherlands, and Belgium have especially harsh laws and interpretations of existing laws that view loot boxes and similar mechanics and gambling, while some countries restrict them from being sold to minors. Various state bills and one national bill in the United States intended to ban or otherwise regulate loot box sales, but none have actually been passed.

The suit makes a strong and convincing opening statement. But even in a relatively liberal state, the New York Attorney General has her work cut out for her. Attempted civil and criminal prosecutions of video game monetization have generally been very difficult, and Steam (and, indeed, Counter-Strike skins) basically prints money for Valve. An army of spawn-camping lawyers could spend years finding ways to define just about anything Valve does as, if not totally legal, then probably not explicitly illegal.