Esports Law Continues to Evolve
Esports differ from other professional sports in several significant ways, but one of the most notable from a legal point of view is that the games have owners. No one can claim the right to control who plays traditional sports. You or I could go outside right now and play a game of touch football or 1-on-1 basketball without any particular permission or rules other than we decide. But athletes, teams, game developers, sponsors, investors, and fans all must conform to the conditions of the rights holder of the game if they want to be involved in the business or professional side of esports.
That distinction gives the owners of video game intellectual property – the publishers – a lot of power over who plays their games and how they are played. They can decide whether and to whom to issue a license, demand tournaments be organized and operated in particular ways, and allow or forbid gambling on tournaments using their games.
Enforcing those intellectual property rights and negotiating terms for relinquishing or transferring them constitutes a large portion of esports law. Copyright shields video games and gameplay from being copied or misused. For game publishers, this means anyone wishing to use their characters, plot, or code must obtain (and pay for) a license. In the esports world, this applies to tournament organizers, leagues, and depending on the end-user agreement, even to players. Complicating legal matters, copyright protection also can extend to players and their gameplay. Similar to a singer’s rendition of a popular song, an esports personality’s streaming of his or her gameplay could be considered a creative performance as it generates code that has never existed before.
Trademarks, on the other hand, protect brands, making it unlawful for unlicensed entities to use logos or images without authorization. A plumber could not use Mario to promote his business, for example. Esports players also can trademark their brands. Gamertags that symbolize particular players can be considered common law trademarks when they’re associated with products or services. Depending on the applicable country law, teams and players may register their trademarks.
Publishers can go to great lengths to protect the integrity and reputation of their games. Riot Games eschews using an external agency and hosts its own League of Legends tournaments, but game publishers more commonly license their games to tournament operators. License agreements detail factors such as how the tournaments can promote the events, how the competition will be formatted, the game schedule, rules, and, of course, how much the organizer will pay for the license. They also cover who owns the media, merchandising, and broadcast rights.
Esports’ skyrocketing popularity of esports has created a huge platform for advertisers and additional revenue streams for athletes, teams, media companies, and tournament managers.Brand sponsorships are responsible for 40 percent of the income generated by esports, making it the industry’s biggest revenue stream. Companies, whether operating in the video game space or otherwise, collectively spend billions on sponsoring leagues, tournaments, teams, and individual players to expose their products to esports audiences.
Companies should take steps to protect their brands and their reputations when entering into these agreements. Contracts should stipulate not only financial terms and duration but also whether partners are allowed to use or endorse competing brands, causes for termination, etc. Rights holders also should conduct due diligence on potential partners to avoid potential issues such as negative statements from esports athletes who are notoriously outspoken.
Both players and sponsors need to be transparent about their relationship, disclosing any potentially conflicting financial arrangements or interests. Gamers with large followings can monetize their influencer status, but they must disclose any consideration they receive in exchange for trying or endorsing a product or service, including: direct monetary payment or compensation; free products (even if there is no guarantee of a positive review), discounts, gifts, free contest and sweepstakes entries, employment relationships, etc.
Esports players whose gameplay, personalities, and appearance qualify them as influencers may make more money from endorsements than from tournaments. A rights holder to a brand pays a player for the use of his or her photo, likeness, name, and/or words in association with their product or service. Players and their lawyers should ensure endorsement contracts explicitly state how much and when payment will be made, in which countries the endorsement will be used, and for how long the brand may use it. They should also indicate what will be required of the athlete: recording audio or video speaking positively of the product, appearing at company events, wearing branded apparel, whether use of the rights holders products is exclusive, etc. Players usually must adhere to the terms of their team’s endorsement contracts and refrain from entering into deals that might conflict with them. Players for a team sponsored by Coke, for instance, would not be allowed to endorse Pepsi.
The rising interest in esports fandom has created a demand for the broadcasting of particularly high-profile tournaments. Various media, from internet streams to over-the-top television, and even cable networks like ESPN and WarnerMedia compete for the rights to show these events and reap the advertising revenue they can generate. For this, they need permission from both the tournament organizer and the holder of the intellectual property rights to the game.
Depending on the jurisdiction, the event, and other factors, any players featured in the airing of the tournament may be required to waive their rights to publicity as a condition for competing. This waiver allows the tournament organizer to promote the event on the basis that a famous gamer will participate. The waiver likely would extend to the media outlets broadcasting the event itself. Endorsements and rights of publicity often overlap. These types of legal issues are at the forefront when we hear of top esports athletes signing multi-million-dollar deals to stream exclusively on Twitch or a competing platform.
Top esports athletes usually compete on behalf of team organizations that pay them salaries and performance bonuses. Like other employers, teams provide on-the-job training and additional benefits that may include meals and free or subsidized housing. These arrangements must conform to all federal and state labor laws. Teams may find it beneficial to classify players as independent contractors rather than employers, but doing so brings restrictions on the demands they can make of their “workers.”
In contrast to professional traditional sports, team owners in esports currently hold significant leverage over the professional gamers who play for them and are usually young, inexperienced, and unaware of the benefits a dedicated esports attorney can provide. Aggressive team owners may take advantage by imposing contractual terms that heavily favor the team, such as long-term pay arrangements based on a player’s current – but not potential – market value. Up-and-coming players may prefer short-term contracts to allow them the flexibility to become free agents and put their talents up for bid as they win more tournaments and grow their fan bases.
• Immigration – Esports are a truly international business, with teams based and tournaments held in countries around the world. Teams can help their players obtain visas for travel as well as green cards and other documentation required for living and working internationally if required.
• Work Permits – Foreign members wishing to join US teams, may qualify for Q-1A status (for people with extraordinary abilities or achievements), EB-1A (for permanent residence), or P-1A (for professional and amateur athletes). The latter permit allows players to stay in the country for up to five years while competing for wages and prize money.
Esports have become big business and growth shows no signs of slowing down. They have garnered the interest of venture capitalists and other investors who are lured by potentially lucrative deals in advertising, media, event management, game development, and a host of other related niches. The industry is dynamically evolving, with promising startups, mega-mergers, and acquisitions driving and new developments.
- Investment – Esports attorneys with strong financial acumen and extensive experience with the unique challenges, opportunities, and circumstances entailed in esports can advise potential investors about how to position themselves to maximize opportunities for return. Team ownership and sponsorship, media, merchandising, player representation, branding, event management, game and platform technology, game development, and publishing are just a few of the areas generating opportunities through growth and consolidation.
Huya recently agreed to buy fellow Chinese game-streamer DouYu International Holdings in an all-share deal, creating a mega-company with a market value of more than $11 billion. Tencent Holdings will hold about two-thirds of the merged business’s voting shares, similar to Amazon’s role in Twitch. Demand in M&A is driving up prices and valuations at a pace some observers believe is unsustainable. There is a possibility that, like the US housing market in 2007 and the 17th-century Dutch tulip craze, the bubble may burst. While that probably won’t happen anytime soon, team owners, advertisers, game company backers, and others should not take such risks lightly. With new vehicles developed every day, anyone interested in getting involved in the promotional and other non-playing opportunities presented by esports should avail themselves of professional service providers such as accountants, lawyers, and consultants. Educating yourself about risks and rewards, regulations, and potential pitfalls will put you in position to know what to expect and how to invest wisely.
Huge interest from players, promoters, and spectators has given arena operators a new revenue stream, spurred other spaces to renovate to accommodate esports events, and driven others to build new venues specifically for conducting and broadcasting esports competitions. Texas’s Esports Stadium Arlington, the largest dedicated esports facility in North America, is 100,000 square feet and can hold 2,500 fans. The soon-to-be-built Fusion Arena in Philadelphia will hold 3,500. Other, smaller arcade-like spaces are opening in malls, casinos, and college campuses as increasing numbers of colleges and universities are offering scholarships to esports athletes.
Ongoing expansion is bringing esports into contact with even more legal areas. Entrepreneurs operating playing, tournament, and broadcast facilities required legal support on issues that include landlord and tenant relations, COVID-19 capacity and hygiene rules, construction law, liability, zoning, and more. If location-based entertainment venues serve food or alcohol, they are required to meet food handling guidelines and age-restrictions. With laws and regulations continuing to evolve, esports administrators must keep up with and apply rules that are legally required to maintain the sports’ integrity and fairness. Even some of the most respected leagues struggle with these issues, so it is little wonder that smaller organizations with fewer resources need support with monitoring and due diligence.
• Cheating – Leagues, teams, and tournaments should apply a zero-tolerance policy toward cheating, particularly with matches that involve prize money. Hacking and collusion can be difficult to detect, and the chance of getting away with cheating may entice some players. Authorities can implement automatic bans from future tournaments, civil action, and even criminal prosecution to make cheating as unrewarding as possible. Earlier this year, Formula E racing discovered that the instant improvement by one of its drivers, Daniel Abt, was a result of a professional sim racer, Lorenz Hoerzing, driving Abt’s e-car in his place. Other competitors suspected from early on that Abt was not behind the wheel, and the clumsy scheme was quickly uncovered.
• Gambling – Where there are sports, there is gambling. Players and teams essentially gamble on their own abilities when they pay entry fees with the possibility of winning greater amounts for top finishes. Spectators become more involved when they stand to gain or lose money depending on the outcome. With federal bans on sports gambling now lifted, companies in several states are installing betting kiosks and sportsbooks at locations such as racetracks, casinos, and sports bars. Online services offer season-long and daily fantasy leagues and contests. Gambling can act as a significant driver of cheating and are an area of significant potential liability for tournament organizers. Ensuring compliance with local and federal laws and fair play are some areas that specialzed legal counsel can help all esports stakeholders minimize risk and avoid issues pertaining to gambling in esports.
• PEDs – Tournaments and leagues should provide specific rules and steps regarding performance-enhancing substances and drug testing. some esports athletes rely on natural minerals and supplements to increase their concentration and reflexes, but the use prescription or illegal drugs is usually strictly prohibited in tournaments. Lawyers can help organizers determine which substances players can ingest, which will be considered rules violations, how testing should be conducted, establish punishments for non-compliance, how players can appeal, and other thorny issues.
Esports currently has a worldwide audience of 500 million people and generates more than $1 billion in revenue annually and these numbers are forecast to multiplying over the next decade. With this much money at stake in an industry that influences and is influenced by dozens of other issues and technologies, it is no wonder that esports is a hotbed of current and emerging legal questions and issues. Esports law is a complex and important area that anyone participating in the industry should be aware of and ready to seek qualified support when required.
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