Esports Law Continues To Evolve – Media, Telecoms, IT, Entertainment


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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.

Intellectual Property

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.

Promotion

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.

Media

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.

People

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.

Finance

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.

Event Management

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 specialized 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.

Conclusion

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.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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