Written by: Peter Davie
In 1972, the world’s first esport tournament was held at Stanford university, with the winner receiving an annual subscription to the rolling stones magazine. Fast forward 50 years, it would be fair to say esports has evolved from these humble beginnings; by the end of 2020 the industry is projected to surpass $1 billion in revenue and have a global audience of 495 million1.
Esports can be defined as professional video gaming, and typically involves game titles including League of Legends, Call of Duty and FIFA. Whilst many people still consider gaming to be a hobby, the industry is gaining official recognition; in Asia esports are scheduled to be part of the 2022 Asian games and America now classifies esports players as professional athletes. The exorbitant rate at which the industry had developed, and the consequent flurry of commercial activity, means there are a multitude of opportunities available to lawyers who understand this new and exciting market.
As COVID-19 brought society to a standstill in March, one consequence was the indefinite postponement of all professional sport. These were unchartered waters for many in the industry, whose business models are reliant upon matchday income related to sponsorship, broadcasting rights and ticket sales. With clubs desperate for fresh content for their fans, as well as new lines of revenue, esports took the centre stage. John Clarke, chief executive of ‘Gfinity’, neatly summarised the impact of COVID-19, ‘one of the biggest barriers to gaming going mainstream has been the reluctance of broadcasters to put it on air. COVID-19 and the lockdown blew this sentiment out of the water’. However, although the pandemic may have propelled esports into the mainstream, it is part of a wider cultural shift in how younger consumers choose to interact with different forms of entertainment. Traditional teams aren’t as popular as they used to be, and audiences are ageing. According to F1, only 14 percent of its fans are under the age of 25, with another 30 per cent coming from the 25-34 bracket2. Getting involved in esports can help to attract a younger audience into the wider sports ecosystem.
One commercial opportunity in esports that is increasingly being recognised by companies is sponsorship. For decades companies have sought to affiliate their brand with winning sports teams to gain exposure to consumers and increase sales. Esports popularity is booming and brands are seizing opportunities. Leading Czech Republic esports organisation ‘Entropiq’ is sponsored both by PUMA and McDonalds. Another quite shocking example is the US Air Force sponsoring the Counter-Strike team (a multiplayer first-person shooter game) Cloud9. Major Ross McKnight stated that Cloud9’s Counter-Strike players had the ‘same level of discipline, rigor, and achievement’ they value in members of the US Air Force.3 The reason why these partnerships are so valued is because esport’s audience is an advertisers dream; it is by far the most concentrated composition of Gen Z and millennials that brands currently target. These sponsorship deals require the services of commercial lawyers who draft contractual agreements between the parties that set out the nature of their partnership.
The infancy of the esports ecosystem meant as it grew, there was no regulatory framework in place that sought to safeguard the interests of players. This ‘wild-west’ setting meant many young players entered into contractual agreements without sound legal advice and thus without an understanding of the nature of their agreements. The lawsuit filed by one of the world’s top Fortnite streamers ‘Tfeu’ claiming esports organisation ‘Faze Clan’ was financially exploiting him, is a high-profile example of this situation. Tfeu’s lawsuit alleged that Faze Clan’s contract demanded 80% of his earnings, this was strongly denied by Faze Clan, who in response countersued Tfeu for a violation of contract. More than a year later (you can imagine some lawyers did very well out of this year long dispute) the lawsuit was privately settled between the two parties4. Andrew Gordon, an attorney who specialises in esports, describes how it’s easy for players to be taken advantage of ‘they’re being presented with 30 page contracts…its a life changing event and they are under pressure to sign in 12 hours’5.
Data Protection/Intellectual Property
Finally, a consideration that is sure to have many in the legal profession ready to offer their services, is that of data protection and intellectual property in esports. The Court of Justice of the European Union has described video games as a ‘complex matter comprising not only a computer program but also graphic and sound elements, which…have a unique creative value which cannot be reduced to that encryption’6. Thus, the level of complexity in the code and software of the video games played in esports means there are huge copyright and data protection issues.
Esports organisations can gain popularity and attract fans to their websites through the hosting of tournaments and competitions. Hosting an esports competition requires the organiser to obtain consent from the rights holders to the game, including the game developer. If an organiser wanted to host a tournament that went beyond these provisions, an individual agreement would need to be made. Equally, if a tournament was hosted without the required consents, there would almost certainly be a claim from the developer for intellectual property infringement. A report by Deloitte offers a neat summary, ‘protecting intellectual property rights is one of the most important challenges in the industry’. That is where the opportunities for commercial lawyers arise, in protecting these rights, whether that is through drafting agreements between tournament hosts and game developers or deciding on the correct action when rights have been violated.
In summary, as cultural shifts continue and younger consumers lose interest in traditional sports, the esports industry is sure to boom in popularity. Commercial lawyers need to be ready to adapt their current services to such a dynamic and exciting market which is brimming with potential work.