Issues in Esports Law

Issues in Esports Law

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1000 648 David Hoppe

What is “Esports Law”?

“Esports law” encompasses a number of substantive legal areas, including those relating to intellectual property and licensing, advertising and endorsements, rights of publicity, live events, gambling regulation, privacy law, and many others.  The battles taking place on-screen and in arenas around the globe are founded upon what is often complex support from legal professionals experienced in these areas as applied to esports.

Typical areas requiring support from esports lawyers include team and player endorsement and sponsorship deals, player/team agreements, team agreements with leagues and tournament operators, license agreements from game publishers to tournament operators, broadcast agreements with online and offline media channels, player visas, development and interpretation of tournament rules, cheating and community management — not to mention investment transactions and M&A that may involve any of these parties..

While many of these legal areas may seem familiar, their application in the still-young and rapidly-evolving esports industry is often not. Moreover, esports law constantly changes and evolves apace with the evolution of esports itself. 

Intellectual Property

Video games are essentially bundles of intellectual property, often encompassing millions of lines of code, complex stories and characters, likenesses of real-life individuals (including celebrities), proprietary branding, and third-party products and trademarks. As such, intellectual property protection is critical for protecting the investments and potential returns. What’s more, mid-tier games are often developed with investments of tens of millions of dollars, while AAA games can run into hundreds of millions. The massive levels of investments that go into high profile video games raise the stakes for intellectual property protection.

While some major video game publishers sponsor and run their own leagues, tournaments, and even teams, the most common practice is for game publishers to license their games to tournament operators, who then promote and hold events in locations such as Las Vegas, Los Angeles, London, Dubai and elsewhere. Licensing agreements governing such events must cover everything from the tournament format and schedule to rules of play, how the game marks and characters are used in event advertising, broadcast rights, payments and guarantees to the license holder, to name but a few key points. 

Copyright and Trademark Law

Copyright and trademark are fundamental to esports law. Whereas copyright protects the game itself, as well as any characters and other content created by or for teams or players, trademark applies to aspects such as the game titles and branding, team names, and player branding. See the relevant section in our ‘What is Video Games Law’ for more details on the distinctions between the two.

Endorsements and Sponsorships

Apart from broadcast rights, the principal sources of revenue into the esports ecosystem are sponsorships, advertising and endorsements.  Sponsorship deals may involve “endemic” brands (products or services that have a connection to esports, like computer hardware) and “non-endemic” brands (those with no connection to esports, like energy drinks and snack foods).  Sponsorships may involve these companies paying millions or even tens of millions of dollars to game publishers, tournament organizers, team organizations, individual players and influencers.  

Endorsement and sponsorship agreements should be prepared by an esports lawyer with experience in advertising and licensing law.

For Teams, Players and Influencers
Endorsements and sponsorship deals with teams typically involve the players displaying the sponsor’s branding on team jerseys and team collateral and using the sponsor’s products in tournaments or other public settings.  Particularly successful players may also be able to negotiate their own endorsement agreements.  However, players are typically restricted by their team agreements from displaying branding of companies other than the team’s sponsors. 

The most lucrative endorsements and sponsorships go to the players who have “graduated” from teams and achieved the status of influencers, with hundreds of thousands or millions of followers on social media (though many of the most successful influencers reached their positions just on the basis of their charisma and stage presence, not their skills, and may never have played professionally).

All of these parties must be mindful of the long-term impact of these agreements and should consult with an esports lawyer.  Often there are restrictions applying to competing products (for example, game controllers), which if breached could result not just in lost sponsorship payments but liability for damages.  In addition, long-term agreements could prevent teams and players from stepping up to higher-value sponsorships as they become more successful and build their followings.

For Brands
Perhaps more so than in other industries, companies entering into sponsorship or endorsement deals with teams or players are well-advised to conduct thorough due diligence prior to signing.  Team owners and players often have long social media trails that may well include commentary that could back to haunt the brand once an individual becomes its public face in esports.

And of course any endorsement agreement should include a morals clause, under which the company can terminate the relationship if the team or player commits or is associated with objectionable conduct or statements.

Publicity Rights
Rights of publicity define an individual’s right to control commercial use of their name, likeness or other personal attributes.  In esports law, rights of publicity needs to be considered in the case of any individual performing at a live event (including MCs and commentators) as well as in online events.  If rights of publicity are not properly waived, it’s possible that a single individual could prevent broadcast and other exploitation of the content from these events.

Player Contracts and Compensation

Professional esports players typically are part of teams, which pay them a salary of some amount (often with substantial bonuses payable from tournament winnings) and provide training resources and opportunities for tournament participation.  The most successful teams are “organizations,” fielding teams in multiple games, with their own dedicated facilities and training staff. 

A major current concern in esports law is the imbalance of negotiating power between players and teams, and alleged unfair terms in player agreements.  Players are often young and inexperienced with legal matters, and may not have an esports lawyer or an agent to support them in the process and be sure their rights are protected.  Some players have found themselves in situations where they are committed to a team for an extended period with limited committed compensation and a share of winnings and endorsement income that increasingly may seem too small as they develop their skills and their own fan base. 

Esports teams need to be aware of the risk of misclassifying players as contractors rather than employees, which can include significant financial penalties.  Whether or a player is an employee depends on a number of factors, but in most cases employment status would apply.

Cheating

Not surprisingly, cheating in professional esports is a serious offense and can result in a range of consequences. Penalties depend on the policies and practices of the league and potentially even local law. Repercussions from cheating may include automatic forfeit, bans from participation, fines, and, in rare cases, criminal prosecution. Esports lawyers may be required to opine on whether particular actions constituted cheating under the applicable rules or applicable law.

Boosting

Boosting is a common type of cheating where a skilled user will sign into another player’s profile in a game and attempt to win matches in order to “boost” the account’s ranking.  While it’s a common form of cheating, boosting has serious consequences in some countries. For example, in 2018, South Korea passed a law that punishes the practice with either a two-year jail sentence or a fine of some $18,000.  South Korea has one of the largest esports markets in the world in terms of per capita participation, so the government is very involved in regulation of the sport.

While technology continues to create new ways for players to cheat, we can assume that at least the same level of attention and regulation will be applied to cheating in esports as it is in professional athletic sports. Furthermore, because esports are played online, additional layers of regulation against cheating will also be applied.

Gambling Regulation; Betting

Esports competitions that involve an entry fee are considered gambling and subject to restrictions or prohibited in some states.  In most states, however, esports would be considered “games of skill” and exempt from gambling regulation.

Betting on esports is regulated just as betting on athletic sports or other events.  Currently, betting on esports is permitted in only a few states, and is subject to licensing and regulation.  

International Issues and Immigration 

Esports law often involves the laws of various countries, as online tournaments and live events that bring leagues, teams, players, and spectators together from throughout the world. The international aspect of esports brings a  host of logistical challenges. For example, players travelling for tournaments in other countries often need visas, and local immigration authorities may not know what esports is, or consider it to be covered by the visa categories available to participants in athletic sports, and every country has its own laws relating to betting, tax implications, and more. 

Tournaments will be subject to the laws of the countries in which they take place, as well as local tax regimes, either of  which may result in unexpected issues if the guidance of an esports lawyer with international experience is not sought.

Investment and M&A in Esports

As the esports industry continues to grow at a dramatic pace, competition to invest in team organizations has resulted in valuations reaching levels that many believe to be unsustainable.  M&A involving team organizations, esports platforms and esports-related businesses will continue to grow as the industry matures.  Consolidation is already happening in the industry, with esports leagues, teams, and companies joining forces to maximize their viability, marketing reach, and economic growth. Stakeholders are buying teams, and some leagues are allowing teams to sell their spots within their league.  Esports lawyers work with specialist finance and M&A lawyers to be sure that parties’ interests are protected.

Conclusion

Esports lawyers are called upon to advise clients on a wide variety of legal areas, often on a daily basis.  With the rapid development of the esports business, esports law is as dynamic as the games themselves. 

Esports Law Articles

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Plaintiffs in Riot Games Discrimination Case Get New Lawyers, Settlement Falls Through

These Four States Are on Track to Legalize Esports Betting

Could this Be the Turning Point for Japanese Esports?

Activision Serves Reddit a Subpoena to Find “Battle Royale Leaker”

For more articles, visit Gamma Law’s Esports Blog.

Gamma Law is a San Francisco-based firm supporting select clients in cutting-edge business sectors. We provide our clients with the support required to succeed in complex and dynamic business environments, to push the boundaries of innovation, and to achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs. 

 

Author

David Hoppe

All stories by: David Hoppe