(By You Yunting) In February 2026, the New York State Attorney General sued the well-known game developer Valve Corporation (“Valve”) for illegally promoting gambling through in-game “Loot Box” feature in its video games. In fact, several months before the filing, Valve—likely anticipating regulatory pressure—actively lowered the drop rates for certain rare items in Counter-Strike 2, triggering a flash crash in the global virtual item market and causing heavy losses for speculators. The lawsuit far across the Pacific Ocean has also struck a nerve with China’s gaming community since a large number of Chinese players remain active on Global Steam in China which is on the edge of regulation. Because of the gambling allegations surrounding Valve’s own games, this gray zone now faces unprecedented regulatory risks. We will analyze these legal issues under both U.S. and Chinese legal frameworks.
I. The Alleged Gambling Mechanism in Valve’s Games
According to the complaint filed in New York (“Complaint”), the core conduct at issue involves a slot-machine-like loot box mechanism. Valve distributes loot boxes to players as free in-game drops, and players may obtain these boxes through gameplay activities. However, the boxes cannot be opened directly without purchasing a “key”, typically priced at approximately $2.49. After opening a loot box, players may receive a virtual item for decoration at random. The Complaint alleges that Valve has deliberately designed the unboxing animation to mimic the visual effect of slot machines, thereby inducing purchasing through gambling tricks.
These virtual items are divided into five rarity tiers. In most cases, the items obtained are worth far less than the USD 2.49 cost of a key — sometimes mere cents. However, a very small number of rare items, such as specific knife skins, may sell for thousands or even tens of thousands of dollars. This low-stake, high-reward structure drives players to repeatedly purchase keys and open boxes.
As the game distribution platform operated by Valve, Steam plays a central role in this entire loot-box economy system. The Complaint highlights several aspects in which Steam actually plays a dominant role:
1. Providing official monetization channels for virtual items
Unlike games such as Overwatch, Valve allows players to trade items obtained from loot boxes on the Steam community market, an official virtual item trading platform operated by Valve. Prosecutors argue that the existence of this monetization channel distinguishes Valve’s loot boxes from ordinary in-game purchases and makes them more akin to gambling activities.
Players may sell items obtained from loot boxes on the Steam community market, while other players can purchase them by Steam Wallet balance. Although Steam Wallet balance cannot be directly withdrawn as fiat currency, it can be used to purchase games or hardware (such as the Steam Deck) which may then be sold on second-hand markets. As a result, the Steam community market establishes a clear value reference between virtual items and real currency, with trade prices directly reflecting their market value, so that such virtual items as skins and keys are given attributes comparable to virtual currencies and may function as gambling chips.
2. Facilitating trading outside Steam via APIs
Steam also provides official data services for external platforms via APIs. Third party trading websites are allowed access to players’virtual item data via Steam’s APIs and then able to offer services such as skin trading, item trading, or converting virtual items into real currency.
3. Profiting from transaction fees
The Complaint emphasizes Valve’s dual revenue streams within that ecosystem: first, from sales of keys to open loot boxes, and second, through a 15% transaction fee on every trade. Prosecutors argue that this business model drives Valve to continuously optimize the addictive design of its loot box system to maximize player engagement and transaction volume.
In the author’s view, this mechanism appears to be carefully designed to provide gambling activities in games, leading to a boost in popularity and an increase in revenues, maintain control over the entire chain of item trading, and reduce legal risks. Specifically speaking, Valve owns the game where it can decide the items obtainable from loot boxes and also operates the Steam community market where it can set the trade prices for such items. While the most risky price speculation typically takes place on third-party trading platforms, Valve controls the APIs which they are heavily reliant on.
II. Illegality of Valve’s Conduct Under Chinese Law
In the United States, Valve was sued typically under consumer protection laws, anti-gambling statutes, and rules protecting minors for civil liabilities or regulatory penalties. In China, however, similar conduct could potentially touch the red line of criminal law. In addition to administrative penalties, the company and its responsible individuals may even bear criminal liability.
1. Direct purchase of loot box keys
In games on Valve’s Steam such as Counter-Strike: Global Offensive, Counter-Strike 2, Dota 2, and Team Fortress 2, players can directly purchase keys to open loot boxes. Previously, pursuant to the Notice of the Ministry of Culture on Regulating the Operations of Online Games and Strengthening Interim and Ex Post Regulation, games that provide virtual items by pulls or random selection shall not require users to participate by way of directly investing fiat currency or the virtual currency of the online game. Although the Ministry of Culture is no longer responsible for regulating the online game industry and the above Notice itself has formally lapsed, the underlying principle it has established—a ban on direct investment of fiat currency for users to obtain virtual items by random selection—continues to guide gaming companies.
So when Overwatch entered the Chinese market, Blizzard adjusted its monetization model by allowing players to purchase ordinary in-game items (such as spray or gold) while providing loot boxes as complimentary bonuses. This “buy-one-get-one” strategy was to literally avoid the legal risk of paying directly for loot boxes. In contrast, Valve’s model allows players to pay real currency to purchase keys and then participate in a purely probability-based loot box pull, which resembles the fundamental structure of a gambling operation.
2. Providing or facilitating official monetization channels
Selling keys alone represents a one-way conversion. However, Valve provides players with item trading services and charges transaction fees through the Steam community market, actually closing the loop on a two-way exchange and creating a gambling system, which, under Chinese law, may be interpreted as providing settlement services for gambling activities or facilitating disguised monetization channels. The Notice on Strengthening Administration of Virtual Currency of Online Games, issued by the Ministry of Culture and the Ministry of Commerce, explicitly prohibits distributing virtual currency or items through drawing lots, betting, or random selection by using virtual currency, and also prohibits the same enterprise from simultaneously engaging in both virtual currency issuing and trading services.
3. Fostering third-party gambling ecosystem by APIs
Steam’s open APIs have been widely used by third-party platforms that offer skin gambling and trading services. Under Chinese law, these third-party platforms may be suspected of the crime of operating a gambling venue because they allow players to realize virtual items probabilistically drawn by payment of fiat currency.
According to the Complaint, internal communications at Valve show that its employees are aware of which third-party platforms are monetization websites, so Valve, knowing that its APIs are to be used for gambling and illegal trading, has not implemented effective technical restrictions, but instead profited from Steam community market transaction fees as a core revenue, which, under Chinese criminal law, may potentially be identified as knowingly providing technical support for illegal gambling operations, constituting the crime of operating a gambling venue or assisting in information network criminal activities.
III. Implications for the Regulatory Gray Zone of Global Steam in China
When discussing legal liability, one unavoidable issue is the ambiguous regulatory status of Global Steam in China. Among the games involved in this case, all except Team Fortress 2 have been published in China in compliance with China’s regulatory requirements with Chinese publishing approval (“ISBN approval”, commonly known as banhao). In addition, there is a compliant localized version of Global Steam—Steam China (Zhengqi Pingtai)—operated by Perfect World.
However, the compliance of Steam China does not mean that Global Steam in China without any formal business entity established in China is compliant. In practice, Chinese players can easily access Global Steam by using network accelerators provided by domestic companies and download games which are not required to obtain Chinese Banhao and make in-game purchases or recharges through common payment tools such as Alipay or WeChat Pay. As a result, Valve is actually providing game distribution and operation services through Global Steam directly to Chinese players while avoiding China’s regulatory requirements.
In the author’s view, this regulatory gray zone has objectively created a form of implicit regulatory tolerance and strategic equilibrium. It allows Chinese players to access cutting-edge international PC games, while also providing Chinese developers with a global game distribution platform. For example, China’s first real AAA game, Black Myth: Wukong, achieved over USD 1.5 billion in global sales, with the vast majority coming from Global Steam and more than 70% of sales on Global Steam originating from China, illustrating both the influence of Chinese players on Global Steam and the enormous scale of this regulatory gray zone.
However, the current issue is that Valve’s own games are now facing gambling allegations by the government of its own country. Gambling is a high-risk regulatory red line for China’s gaming industry. If a game operated in China is found to be involved in gambling activities, its responsible individuals shall bear criminal liability. The Complaint also mentions the issue of minors’ exposure to gambling in Valve’s games, which is another area subject to strict regulation in China. Domestic game companies shall be ordered to suspend business even for failing to properly implement anti-addiction systems for minors, let alone exposing minors to gambling. Nevertheless, under the current legal environment, Global Steam is unlikely to face immediate penalties from Chinese regulators due to its status in the gray zone.
However, because Chinese users constitute one of Global Steam’s largest user bases for a long time, the issues exposed in this case may significantly affect Chinese players. Involvement in gambling may encourage speculative trading and lead to substantial financial losses of some players in virtual item markets. The potential exposure of minors to gambling is also highly sensitive. Several questions must be faced with Chinese regulators: How should the losses suffered by these players be addressed? Who should bear responsibility for potential social consequences? Without regulatory oversight, who can ensure that similar problems will not recur? If Valve treats this regulatory gray zone based on compromise among all parties as a safe harbor for avoiding social responsibility, can it continue to exist in the future?
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