New York AG Sues Valve, Says Loot Boxes Generated Billions Through Illegal Gambling

New York Attorney General Letitia James filed a lawsuit against Valve Corporation on Wednesday, claiming that its loot box system constitutes illegal gambling under the state’s Constitution and Penal Law.

James said in an X post that the company has “made billions of dollars by letting children and adults illegally gamble for the chance to win valuable virtual prizes.” In the lawsuit, the state alleges that Valve “pioneer[ed] an alternative model for monetizing its games: gambling.”

She argues that these features are “addictive and harmful,” which is why she is suing Valve to stop it from targeting New Yorkers.

Valve is the creator of popular games like Counter-Strike and Dota 2 and offers loot boxes in many of its titles. Players spend real money to open virtual containers that include randomly selected cosmetic items, such as weapon skins.

Items vary in rarity, and users buy and sell them on Steam’s Community Market and third-party marketplaces.

The Attorney General argues that these items hold real-world monetary value. Some have sold for as much as $1 million. The state claims that when Valve charges users for a chance to obtain something of value determined by chance, that constitutes gambling under New York law.

Loot Boxes Are Big Business

The state argues that loot boxes use casino-style mechanics. Developers design them with slot-machine-like animations and “near miss” effects. They also use psychological techniques, such as variable-reinforcement schedules.

Because players face a low chance of winning high-value items worth hundreds or thousands of dollars, the system encourages repeat spending.

The complaint states that the “allure of such a windfall is central to the excitement of opening a loot box.” It cites a March 2025 Bloomberg report estimating that the Counter-Strike skins market exceeded $4.3 billion.

The state also argues that minors face particular harm. Teenage boys make up a core audience for first-person shooter games like Counter-Strike. Many top esports players are under 18.

The lawsuit cites research linking loot boxes to problem gambling, particularly among adolescents. It alleges that Valve fails to properly verify user age, even though it prohibits accounts for children under 13. Users simply click a checkbox confirming they are at least 13.

The lawsuit alleges explicit violations of Article I, Section 9 of the New York Constitution — which broadly prohibits gambling except for limited authorized exceptions — as well as Penal Law §§ 225.05 and 225.10, which criminalize promoting gambling.

The Attorney General brings the case under Executive Law § 63(12), which allows the state to seek injunctive relief, restitution, damages, and disgorgement for repeated illegal conduct.

New York seeks a permanent injunction banning loot boxes. The state also seeks restitution, consumer damages, and disgorgement of profits.

A Counter-Strike Economy

Valve earns revenue from loot boxes in two main ways. It charges $2.49 plus sales tax for each key used to open a loot box. It also collects a 15% commission on virtual items sold through the Steam Community Market.

The Attorney General believes that Valve has sold billions of dollars’ worth of keys, including tens of millions to New York residents.

The complaint also mentions “skins gambling.” Some platforms allow users to gamble using Counter-Strike skins and other virtual items. Players initially used skins as stakes for esports betting. Over time, operators introduced games of chance similar to loot box mechanics.

One high-profile case involved YouTube personalities and streamers Tom “Syndicate” Cassell and Trevor “TmarTn” Martin. They promoted the skin gambling site CSGO Lotto without disclosing their ownership of it.

Class action lawsuits accused them and Valve of racketeering and facilitating illegal gambling, but courts ultimately dismissed those claims.

Valve’s Defense and Legal Hurdles

Valve consistently denies that its loot boxes violate gambling laws. The company states that its Steam Subscriber Agreement bans off-platform skin sales and says it takes action against sites that attempt to facilitate them.

In a response to the Danish Gambling Authority, Valve described enforcement as “a game of cat and mouse,” noting that users often transfer items through gifting while accepting payment via PayPal.

Social media users questioned why regulators singled out Valve instead of other companies offering similar products. Others argued that trading card packs, such as Pokémon cards, follow a similar randomized model and asked whether regulators should treat them as gambling.

The lawsuit may test how courts distinguish loot boxes from these products. New York argues that Valve designed and operates an integrated marketplace that enables continuous resale and price discovery, reinforcing the items’ economic value.

Valve does not stand alone in offering loot boxes. Blizzard, Epic Games, and Electronic Arts also use similar mechanics in major titles such as EA Sports FC, Clash Royale, and Magic: The Gathering Arena.

Action Against Loot Boxes Elsewhere

New York does not mark the first regulatory action against loot boxes. Belgium classified loot boxes as gambling in 2018 and now permits only free loot boxes.

The Netherlands fined Electronic Arts €10 million ($11.8 million) in 2020 after determining that Ultimate Team violated Dutch gambling law. An appeals court overturned that decision in 2022. The Dutch Minister of Economic Affairs now plans to propose an EU-wide ban.

The U.K. government considered legislative reform but chose a self-regulation model instead. Companies must now clearly display loot box odds and obtain parental consent before minors can purchase them.

South Korea adopted one of the most aggressive regulatory approaches. After concluding that self-regulation had failed, authorities required companies, starting in March 2024, to disclose the probabilities of loot box rewards.

Regulators fined Nexon ₩11.6 billion ($8.1 million) after finding that it changed item acquisition odds in Bubble Fighter and MapleStory without informing players.

China enforces some of the world’s strictest loot box rules. Authorities treat loot boxes as a form of gambling and require companies to publish odds for the previous 90 days. They also cap the number of boxes a player can open per day at 30.

Regulators proposed even stricter measures in December 2023, which erased billions from the share prices of NetEase and Tencent. They ultimately did not implement a ban on luck-based mechanics.

US Regulatory Context

The United States lacks a federal framework specifically regulating loot boxes. Senator Josh Hawley introduced the “Protecting Children from Abusive Games Act” in 2019, which sought to ban loot boxes for minors, but the bill failed to advance.

Lawmakers in Washington, Minnesota, Hawaii, and California have also introduced unsuccessful legislation.

Courts have generally ruled that in-game virtual items do not qualify as “something of value.” Still, New York’s complaint emphasizes Valve’s built-in resale infrastructure and commission-based marketplace, which the state argues transforms purely digital cosmetics into monetizable assets.

The Federal Trade Commission (FTC) took action in January 2025, fining Cognosphere, the creator of Genshin Impact, $20 million for violating children’s privacy laws and misleading consumers about loot box odds. The settlement now requires parental consent for players under 16 and mandates clear disclosure of real-money costs and odds.

Apple’s iOS App Store and Google Play Store also require developers to disclose loot box odds, even though no federal law mandates that disclosure.

If New York succeeds, the case could ripple far beyond Valve. A ruling that loot boxes qualify as illegal gambling under state law could force major publishers to reassess one of gaming’s most profitable monetization models and may invite similar lawsuits in other states.