For years now, Valve fans have been making jokes about the company’s slow transition from game maker to glorified digital hat and knife paint marketplace. This week, though, a lawsuit brought by the state of New York argues that Valve’s in-game loot box sales amount to an illegal gambling outfit worth tens of billions of dollars.
Lawyers who have looked into the particulars of the case tell Ars that the state faces an uphill battle in convincing courts that this portion of Valve’s business legally constitutes gambling. That said, there are a few elements of the case that might make Valve legally vulnerable to the state’s arguments.
What is gambling, anyway?
For a game to legally be counted as “gambling” in most jurisdictions, it has to pass a three-part test: a player has to pay money (1) for an outcome that’s materially determined by chance (2) in the hopes of receiving something of value (3). While buying a key to a loot box in a Valve game easily passes those first two tests, New York’s legal case will likely hinge on whether the random cosmetic items players get from those loot boxes constitute “something of value” for statutory purposes.
Even though loot box purchasers don’t know what item they’ll get, the fact that they know they’re getting something for their money could matter legally. “Gambling traditionally means risking money and possibly getting nothing,” Foundation Law Group Counsel Jonathan Loiterman told Ars. “Here, buyers can’t lose their stake in the traditional gambling sense; they always receive an item. That looks more like buying a randomized product than placing a bet.”
In this way, Valve’s loot boxes are more akin to physical “blind box” toy sales or collectible card packs than a game like blackjack or roulette. In the real world, these kinds of randomized sales “are not considered gambling because the stated value of what you receive is unchanging,” Hoeg Law Firm attorney Richard Hoeg told Ars. “You pay for a pack of cards, you get a pack of cards.”
That “stated value” logic can sometimes be even stronger in the digital realm, where the randomized items you get from a loot box are locked to your account and can’t easily be resold. “Digital sellers usually try to get around this by stating that everything sold has zero cash value, so you are always getting ‘nothing,’” as Hoeg put it.
Come to our Marketplace
Where Valve might have some unique legal exposure, lawyers tell Ars, is in its operation of the Steam Marketplace, where players can trade in-game items for Steam Wallet funds. Operating that kind of official exchange for players to extract value from items won “starts to look a lot more like gambling,” Hoeg said.
“The problem here is 100% the ability to resell the items from the loot boxes,” attorney and video game law expert Mark Methenitis tells Ars. “A loot box/gacha mechanic is fine when you can’t turn around and resell the items because you’re not getting something of value. When Valve is also providing a marketplace for those items, they’ve added the third element.”
Still, Loiterman said that the existence of the Steam Marketplace resale market “matters, but it’s not decisive” in this case. While taking a commission on digital item sales “strengthens the argument that these items have economic value,” that fact alone “doesn’t transform a randomized purchase into gambling,” he added.
Part of the problem for New York’s argument is that the Steam Wallet funds players receive for selling their items can only be spent on the Steam platform, putting them a few steps away from cold, hard cash or even casino chips. And while New York’s lawsuit argues that players can get cash out of their Steam Wallets by buying and reselling Steam Deck hardware in the real world, that argument is not a legal slam dunk.
“Calling it gambling because a user could, through several indirect steps, convert an item into cash risks stretching gambling law beyond its traditional limits,” Loiterman said. “If New York’s theory wins, it raises uncomfortable questions about things like Pokémon cards or promotional games (e.g. McDonald’s Monopoly). Courts will be cautious about going that far.”
New York also argues that Valve tacitly endorses third-party services that allow players to easily “cash out” their Steam inventories for real money. Whether Valve is culpable for the existence of those services is still an unsettled question in the law, Methenitis said, as it has been at least since he wrote about the legal implications of World of Warcraft‘s third-party gold resellers nearly two decades ago.
“I think companies have a pretty strong [legal] argument if they make some attempts to police [third-party resellers]—they obviously can’t fully control what people do outside their platform,” Methenitis said. “But if they turn a blind eye to it and allow it, I think they could be found liable.” Loiterman agreed that Valve “providing the tools that enable those [third-party] markets and tolerating them creates some degree of responsibility.”
“Judges tend to be cautious…”
In the end, the lawyers Ars spoke to were generally skeptical that courts would determine that Valve’s loot box system constitutes illegal gambling. Cases making similar arguments about other loot box systems have failed in other jurisdictions, “in part because gambling laws were drafted with casinos and lotteries in mind,” Loiterman said. “Judges tend to be cautious about breaking from an emerging consensus.”
Hoeg agreed that “the entire question [in this case] is novel, and… the courts are (small-‘c’) conservative institutions, not generally wanting to adopt novel arguments without direction from the legislative branches.” Even if Valve’s loot box system “may start to smell a bit like gambling,” Hoeg said he would “honestly be surprised if the courts went along with the characterization without a new law aimed at it.”
“I view it as a weak case offered primarily for political grandstanding/coverage over real legal effect,” Hoeg concluded. “We shall see, though.”
