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The rise of eSports: legal challenges and opportunities

This article was originally published in Volume: 18 Issue: 1 (January 2016)

eSports, or competitive video gaming, is growing fast and already becoming a serious contender to ‘traditional’ sports for millennials. Jas Purewal of specialist digital entertainment and eSports law firm Purewal & Partners LLP explains what eSports is, the opportunities and the legal challenges it faces.

What is eSports?

eSports is the playing (and, just as importantly, the watching) of competitive video games. Its fundamentals are similar to ‘traditional’ sports: skilled players compete against each other in live events, supported by passionate spectator fans (and sponsors). eSports is growing fast: a recent estimate put current revenue at around $194 million and the fan population at 89 million but due to grow to about $465 million and over 300 million fans in the next two-three years alone1. The prizes are also growing fast: one of the largest eSports tournaments reached in 2015 a prize pot of $18 million2.

In many ways the rise of eSports echoes the growth of the wider video games industry out of which it was born, itself now said to be worth around $85-90 billion and continuing to grow strongly3. As with video games, the eSports audience is much more likely to draw from the younger millennials audience compared to traditional sports and entertainment industries4

Although there is considerable media buzz about it now, eSports is not actually a new phenomenon. There have been at least two previous waves of eSports: the first in the 1990s, built partly around Nintendo tournaments and one of the first great eSports games, StarCraft, and a second wave in the early-mid 2000s, fuelled by a range of factors including the rise of modern PC and console games, the spread of high-speed broadband and of game playing venues and events. But this current, third wave of eSports is by far the largest, most successful and sustainable.

Modern eSports

The modern eSports ecosystem is young, complex and fast-growing but essentially its constituent elements are: spectator fans; skilled players (the athletes of eSports); amateur and professional teams that focus on preferred video game(s); event/league organisers; games publishers (which actually create and distribute the video games that are used in eSports); broadcasters; and finally ancillary players such as advertisers, sponsors and merchandisers.

It is important to bear in mind that ‘eSports’ is an umbrella term for many different games, just like the term ‘sport.’ The popularity of eSports games fluctuates over time and there is no guarantee that the top games of today will remain in place in two, five or ten years. That said, the most popular and/or successful eSports games at present include League of Legends, DOTA 2, Counter-Strike: Global Offensive, StarCraft 2 and Hearthstone. 

eSports is a global industry with significant fan populations in North America, Asia (especially South Korea and China) and the EU (particularly Germany and the UK).

eSports governance

One of the biggest (if not the biggest) questions for eSports at present is how best to build a durable governance structure that fits the unique features and circumstances of eSports. 

At present, this is nascent at best. There is no overarching eSports governance structure and few real national organisations (though that is beginning to change)5, which in turn complicates matters at a regional or international organisational level (although there is an International eSports Federation6). In practice, individual eSports games tend to be regulated by either the publisher (the principal example being the control of League of Legends by its publisher Riot Games) and/or by an interested (but often reluctant) outside body - for example by an event/tournament organiser such as ESL.

There is growing industry consensus that eSports needs to be organised and governed better in the future in order for it to grow on a sustainable and long-term basis. Issues are arising to which the eSports industry does not yet have a good answer. To give a few recent examples, match-fixing has become an increasing concern particularly following a recent press investigation into CS:GO matches7. The potential abuse of performance-enhancing drugs has also raised a number of difficult questions and attracted international mainstream press attention8 (which raises particularly difficult issues given that the anti-doping organisations tend to focus on physical enhancement in traditional sports, not mental enhancement in eSports). Player poaching is a real concern for eSports teams. 

All of these issues require an industry-wide response to build a level playing field, but as yet there is no consensus about how to achieve it. Potential candidates include governance by reference to geography (countries or regions or even internationally), by reference to eSports games (e.g. one set of rules for Hearthstone and another for CS:GO) or even by reference to game leagues or broadcasts (e.g. potentially different sets of rules for the same game, such as Hearthstone, depending on who operates or broadcasts the relevant tournament). Each approach has advantages and disadvantages.

There is no easy answer here, but our own view is that eSports is about to enter into a period of regulatory experimentation. What seems clear is that state and regional self-regulation, which hitherto has been lacking in eSports, will become more prominent, but there are entirely legitimate questions about the utility of that type of regulation in a global industry. The eventual solution may be some kind of meta organisation setting voluntary minimum standards across different eSports, leaving specific matters to individual eSports (whether on a geographical or per-game basis). Time will tell. 

Should there be (e)Sports laws?

Although much of traditional sports is largely governed by internal self-regulation (policed by a combination of self-regulatory enforcement with ultimate recourse to local courts if necessary), around the world there is a substantial body of law governing traditional sports, whether from statute, case law or regulatory action. It is yet to be established how much of this will or should apply to eSports. For example, there are unresolved questions over if and how eSports may qualify for government grants, subsidies, tax reliefs (or even unique taxes) applied to traditional sports in many countries. Could eSports organisations qualify as charities? Could an eSport be admitted as an Olympic sport in the future? And so on.

There is an analogy here to the early days of the video games industry where - for want of a better legislative or judicial alternative - video games were for some time unsatisfactorily treated under existing laws as a type of film or as computer software or both9(indeed, this is how most intellectual property statutes worldwide still view video games). However, in practice the view is fast-growing that video games are separate works in themselves meriting their own legal treatment10. So it will (and should) be with eSports and traditional sports law: there will be common elements for sure, but ultimately they are sufficiently different to be assessed separately. Indeed, on a range of issues such as child protection, age ratings and consumer affairs, it is video games regulation that provides the greatest assistance to eSports.

Commercial issues

Another key challenge and opportunity for the growth of eSports is the evolution of its commercial practices. Historically this was a major stumbling block for eSports and it suffered as a result. Now there is substantially more money flowing into eSports than ever before, but nonetheless there is some way to go by comparison with the heights reached by traditional sports.

Some of the key drivers of revenue for eSports are advertising, sponsorship, merchandise, live event revenues and potentially publisher partnerships. In all of these areas there is relatively little industry consistency on deal structures or terms. In principle broadcast revenues could be a significant revenue driver (as in traditional sports), but in practice there is no meaningful ‘traditional broadcast’ (i.e. to TV) of eSports, all broadcasts to date being effectively via digital platforms such as Twitch where generally the broadcast itself has been viewable for free by default. eSports broadcasting is beginning to undergo a period of change and competition11, but it is too early to tell yet what impact this may have from a commercial perspective.

There is a link here between eSports governance and the growth of eSports commercial opportunities: a frequently stated concern from existing and prospective eSports commercial partners (including big global brands) is that there needs to be a sufficient degree of commercial sophistication, intellectual property protection and reputation management before they are willing to make substantial investments into eSports. We have no doubt that this will be resolved, but it will take time and improvements in the applicable eSports business and legal practices.

Labour law

Another key consideration is how players, who of course are a key part of the foundations of eSports, should properly be represented and protected. Historically this has been left to teams to manage (and, with a few notable exceptions12, this remains the case), but eSports has seen several occasions where this has worked to players’ detriment. Our discussions in the industry suggest that an inflection point is approaching: long-term growth can only be achieved if players are sufficiently motivated, supported and remunerated, lest eventually it cause systemic issues for eSports (this applies by the way not only to professional players but also to junior and amateur players). However, opinion is divided as to the solution. One opinion is that this would be dealt with by minimum eSports governance standards. Another is that eSports players should unionise (a view that seems particularly favoured in the US). Yet another is that player professionalisation and education, potentially with the assistance of player agents, would go a long way to alleviating or even solving the problem. The true solution will in our view be a combination of all three, probably with the exact mixture varying from region to region and/or game to game, and even then enforcement mechanisms will be needed to police them. 

Gambling

In principle eSports gambling (including betting and jackpots/lotteries) could be as popular (or at least as lucrative) in eSports as in traditional sports. However, commercial gambling services at scale remains largely untested in the eSports world. That said, a number of operators were established recently to explore the field, including Vulcun, AlphaDraft and Unikrn. There is also already early interest from more established, mainstream gambling operators.

From a legal perspective, eSports gambling services are likely to be approached by gambling regulators as being subject to the same rules as for traditional sports gambling. For example, the restrictions on fantasy sports in many US states and on actual online betting under the US Unlawful Internet Gambling Enforcement Act would in principle apply to eSports gambling services. Similarly, the gambling licensing regime in jurisdictions such as the UK would in principle apply to eSports gambling services. Ultimately real money eSports gambling will almost certainly be regulated much like real money traditional sports gambling13, but again there will be complications arising from the nature of eSports itself. From a more general perspective, some evolution will also be required regarding the display of gambling advertisements in eSports, particularly where children may be concerned.

Closing thoughts

For a whole new generation, eSports is challenging (or even supplanting) traditional sports for viewing hours, long term engagement and monetisation. However, there are a range of legal and business issues where eSports needs a more sophisticated approach. Sometimes this will involve learning lessons from traditional sports and from video games, but in other areas eSports will need to forge its own path. Above all, eSports needs to build its own governance structures if it is truly to realise its potential on a sustainable, long-term basis. 

Jas Purewal Founder

Purewal & Partners LLP, London

jas@purewalandpartners.com

 

1. http://www.gamesindustry.biz/articles/2015-02-17-report-esports-revenues-to-hit-usd465m-in-2017

2. The eSport game in question is DOTA 2 and the competition is The International (see further http://www.eurogamer.net/articles/2015-08-03-dota-2-tournament-offers-usd18m-prize-pool). 

3. http://www.gamesindustry.biz/articles/2015-05-04-games-software-revenues-to-reach-usd110-billion-by-2018-digi-capital

4. http://www.sideqik.com/sideqik-infographics-together-marketing/the-new-1bn-industry-esports

5. Disclosure: the writer is legal counsel to the UK’s eSports association which is presently being formed.

6. http://ie-sf.org/

7. http://www.dailydot.com/esports/match-fixing-counter-strike-ibuypower-netcode-guides/

8. See for example http://www.theguardian.com/technology/2015/jul/23/anti-doping-in-e-sports-worlds-largest-gaming-organization-will-test-for-peds

9. See e.g. the UK’s Copyright, Designs and Patents Act 1988.

10. See Nintendo v. PC Box, Case C 355/12 (CJEU), in particular at para 23.

11. See e.g. Turner Broadcasting, the major US TV network, will broadcast a CS:GO tournament on prime-time US TV: http://variety.com/2015/tv/news/

turner-wme-img-esports-league-tbs-1201600921/

12. For example in September 2015 Riot suspended Australian eSports team Team Immunity for repeatedly failing to issue player contracts: http://oce.loles

ports.com/articles/competition-ruling-team-immunity

13. See further the World Online Gambling Law Report, Vol 14 Iss 8, pg. 9-11, ‘The rise and rise of eSports: the issues and opportunities,’ at http://www.e-comlaw.com/world-online-gambling-law-report/article_template.asp?Contents=Yes&from=woglr&ID=2217




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