Valve faces lawsuit from New York Attorney General over illegal gambling promotion

Abi Bray

26 February 2026 at 6:02am UTC-5

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Video game developer Valve Corporation is facing a lawsuit from New York Attorney General Letitia James, claiming the company illegally promoted gambling through its video games.

Its games, including Counter-Strike 2, Team Fortress 2, and Dota 2, which are popular among children and teenagers, were found to enable gambling, as users could pay to take a chance at winning virtual items that could have significant monetary value, according to an investigation from the Office of the Attorney General.

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The investigation found that in the company’s most popular game, the process of winning items resembles slot machines, with a spinning wheel that stops on an item. It allows users to purchase ‘loot boxes’ which have virtual skins, accessories, and weapons for characters.

While the items do not have in-game functionality, they can be sold online, with one report stating that an item had been sold for over US$1 million.

The lawsuit alleges that the company has prompted its users to engage in gambling, including children and teenagers, as they attempt to win virtual items that they can sell online, and has made billions of dollars as a result.

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James said, “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.”

Earlier this month, the New York State Gaming Commission began considering restrictions on player prop bets due to concerns over betting integrity.

Abi Bray brings strong researching skills to the forefront of all of her writing, whether it’s the newest slots, industry trends or the ever changing legislation across the U.S, Asia and Australia, she maintains a keen eye for detail and a passion for reporting.

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The Backstory

Why New York is taking aim at game-linked gambling

New York’s suit against Valve did not emerge in a vacuum. Attorney General Letitia James has been escalating actions against digital gambling products she argues are illegal or insufficiently regulated, especially those accessible to minors. Last year, her office sent cease-and-desist letters to dozens of unlicensed websites masquerading as sweepstakes casinos, a campaign detailed in our report on how New York halted 26 sweepstakes operations. The sweepstakes model relies on virtual coins that can be bought with real money and redeemed for cash prizes, a structure that state officials say effectively replicates casino gambling without a license or consumer protections. State Sen. Joseph Addabbo followed with a bill, S5935A, to explicitly ban such platforms.

Against that backdrop, James’ complaint against the maker of Counter-Strike, Dota 2 and Team Fortress 2 frames loot boxes and tradable skins as gambling mechanics that lure young users into risking money in pursuit of items with real-world value. Her office has already posted the filing, which alleges illegal promotion of gambling and deceptive practices, on its website; the complaint is available here. The suit follows a pattern: the attorney general has consistently argued that products enabling real-money risk for prizes of monetary value violate state law absent licensure.

James has also paired enforcement with public messaging. In announcing the sweepstakes crackdown, she said unregulated gambling “can seriously ruin people’s finances,” a theme that recurs in the Valve filing, which describes addictive mechanics and off-platform marketplaces that convert virtual goods into cash. Her office’s broader focus on consumer protection and youth exposure helps explain why a gaming company best known for popular titles is now in the crosshairs.

Gray areas are shrinking across states

New York is not alone. Attorneys general in other large markets have moved to close perceived loopholes in the rapidly evolving online gambling ecosystem. In Massachusetts, Attorney General Andrea Joy Campbell sued prediction market Kalshi, saying it unlawfully offered sports betting without a state license by repackaging wagers as event contracts. Our coverage on how the Massachusetts attorney general sued Kalshi explains the complaint’s core argument: moneyline, point spread and over-under contracts are substantively indistinguishable from sportsbook bets. The state’s detailed filing, which seeks to force Kalshi to halt sports wagers in Massachusetts, is posted here.

Campbell has supplemented litigation with prevention initiatives. In March she launched a public-private effort to mitigate harms from youth gambling on sports, as outlined in the attorney general’s announcement. The combination of enforcement and education mirrors New York’s approach and signals a coordinated emphasis on consumer safeguards, age limits and responsible play standards.

Elsewhere, Illinois Attorney General Kwame Raoul has leaned into consumer guidance during marquee betting windows, urging vigilance around licensed operators during March Madness. His reminders, captured in our piece on how the Illinois attorney general urged bettors to be responsible, reflect a softer touch than lawsuits but the same throughline: keep wagering within the channel of licensed, regulated platforms or risk exposure to fraud and loss.

California redraws the line on fantasy contests

The most dramatic shift has come from California, where Attorney General Rob Bonta issued a formal opinion that daily fantasy sports are illegal sports wagering under state law if offered to players in California. Before the opinion, operators braced for impact as multiple outlets reported a ruling was imminent; we reported on the looming determination that fantasy platforms are illegal. Local coverage underscored the stakes for DraftKings and others that have courted California users for more than a decade, including early reporting by KCRA 3.

After Bonta’s opinion posted in early July, he followed with a warning that enforcement would follow if operators did not exit the state. Our story detailing how the California attorney general said action is imminent captures the shift from legal analysis to potential prosecution. Bonta told KCRA that his office is obligated to respond when asked for formal opinions, then left little ambiguity about next steps. Meanwhile, fantasy operators like PrizePicks and Underdog continued offering contests, and larger brands maintained their fantasy products, putting pressure on California regulators and law enforcement to clarify timing and scope of any crackdown. KCRA followed with the attorney general’s warning that legal action awaits noncompliant fantasy operators.

California’s turn has national implications. A prohibition in the country’s largest state upends long-standing industry assumptions that daily fantasy is distinct from sports betting. It also gives cover to other attorneys general who argue that pay-to-enter fantasy contests are chance-based and thus illegal gambling absent enabling legislation and licensure.

From loot boxes to lines and props, regulators push for clarity

What ties these developments together is a narrowing tolerance for products that look like gambling, even if they are branded as games, sweeps or markets. New York’s pursuit of a video game publisher extends that logic into the heart of the gaming industry. The state’s complaint argues that slot machine-like mechanics and real-money secondary markets transform virtual items into de facto wagers. Massachusetts claims prediction markets are operating sportsbooks by another name. California says fantasy lineups with entry fees and cash prizes amount to betting on sports outcomes.

In each case, officials point to the same gaps: no state license, no age-gating at 21 where required, and scant responsible gaming tools such as deposit caps and problem gambling resources. Campbell’s lawsuit against Kalshi specifically flags 18-to-20-year-old access and missing consumer protections, themes amplified in her youth gambling initiative. James’ sweepstakes crackdown similarly stressed unregulated operators skirting oversight while enabling cash conversions that mirror casinos. The cumulative effect is a multi-state, multi-pronged effort to standardize enforcement around function over form.

What’s at stake for platforms, players and policy

For companies, the risk is revenue and access. If courts accept New York’s theory that tradable in-game items and randomized rewards constitute illegal gambling, publishers may be forced to overhaul monetization models built on loot boxes and skins economies. Fantasy firms may have to exit California or lobby for new legislation. Prediction markets could be pushed to wall off sports entirely, seek sports wagering licenses or fight on preemption grounds against state regulators.

For players and parents, the changes could reduce exposure to high-risk mechanics that blur entertainment and wagering, while also limiting access to popular products. And for policymakers, these cases test how far consumer protection laws can stretch into fast-evolving digital ecosystems. New York has shown a willingness to treat virtual goods with real-world resale value as money-like instruments. Massachusetts is stressing parity between lookalike products regardless of federal oversight by the Commodity Futures Trading Commission. California is using long-standing anti-bookmaking statutes to sweep daily fantasy into the gambling bucket.

The throughline is clear: as money and minors mingle in digital spaces, state attorneys general are moving first, drawing brighter lines, then daring courts and legislatures to redraw them. Whether Valve, fantasy platforms or prediction markets ultimately prevail, the regulatory perimeter around gaming-adjacent products is tightening.