"The rise and rise of eSports - World wide & Australia"
(link to full article can be found at the end of this of extract)
Australia June 5 2017
A briefing on eSports and associated legal issues
2017 has seen eSports continue to grow in Australia and throughout the world. Hardly a week goes by without a new development: from new eSports events to lucrative sponsorships of, or acquisitions of interests in, eSports teams and even suggestions that eSports should become an Olympic event.
This article provides a brief introduction to the eSports industry and identifies and discusses some of the important commercial and legal issues which arise in the industry.
The eSports Industry
Competitive computer gaming has a history as long as video games themselves, going back to the early 1970s. However, it is only more recently that eSports have emerged into mainstream consciousness.
The growing popularity of eSports has been brought about largely by advances in internet technology. Faster bandwidth has not only enabled more complex and strategic games to evolve but it has, through digital streaming platforms such as Twitch, allowed fans to observe and engage with their favourite eSports. In particular, Twitch, which is now owned by Amazon, is said to have ‘democratized the live broadcasting and consumption of gaming’.1
eSports are very popular, with participation and viewing levels that would be the envy of many traditional sports. It was reported that in 2016 36 million unique viewers watched the League of Legends world finals take place live in Berlin; which was more than the viewing audience for the NBA Finals between the Cleveland Cavaliers and Golden State Warriors.2 In 2017 the total viewing audience for eSports is expected to be close to 400 million.3
The large participation rates and fan base creates many commercial opportunities. In 2017 revenues from eSports are estimated to reach US$696 million, with that figure expected to double by 2020.4
Is eSports actually a sport?
Whether or not eSports is a sport is, in some respects, irrelevant. The reality is that eSports is now part of the multi-billion dollar entertainment industry and is being treated as such by persons and organisations with significant influence. Streaming sites, such as Twitch, have incredible viewer numbers and traditional broadcasters and multinational companies looking for sponsorships are also starting to show an increased interest in eSports.
In fact, sporting club and leagues are themselves now investing in eSports and eSports teams. Some of these investments are in sports simulation games, such as the NBA’s creation of the NBA2k eLeague,10 while others, such as Paris St-Germain football club’s venture into League of Legends, are focussed on non-sport simulation games.11 Some recent investors in the industry include former New York Yankee Alex Rodriguez, former LA Lakers centre Shaquille O’Neal and NBA cult figure Jeremy Lin.12
eSports in Australia
eSports enjoys its highest levels of popularity in parts of Asia, North America and Europe. In Australia, a combination of a smaller number of professional competitions and historically slower internet speeds have meant the uptake of eSports has been comparatively slow. Many talented players are said to have left the country for the promise of better sponsorship deals, prize money and development opportunities.13
While Australia may have been slower to adopt eSports, its popularity is now steadily growing. A high-profile eSports event, the Intel Extreme Masters, was held in Sydney in May 2017 and a number of ‘gaming houses’; intensive training bases where professional teammates eat, sleep, train and live together, have sprung up in capital cities. The Northern Territory Racing Commission now lists eSports as a declared sporting event14 and in late 2016 online video game company, eSports Mogul Asia Pacific Ltd successfully listed on the Australian Securities Exchange.15
As in other parts of the world, Australian sporting teams and leagues are also taking an active interest in eSports. The Adelaide Crows football team recently agreed to buy the Australian based eSports team Legacy, which competes in League of Legends,16 whilst the AFL is currently exploring possible ways to enter the eSports industry.17
Intellectual property
Intellectual property rights can subsist in the underlying eSports video games.18 The owners of the intellectual property rights to the individual games are usually the game developers and publishers. These persons can control how these rights are exploited, giving them a significant level of power. This level of intellectual property protection does not exist with traditional sports, where the intellectual property to the sporting activity itself is not usually protected.
Some IP owners, such as Valve (the publisher of CS:GO and DOTA 2), allow others to take their games and develop an eSport around that game. However, others, such as Riot (the publisher of League of Legends), seek to control every aspect of the eSport, not only running leagues and events but also employing the players and teams. The different level of control exerted by developers may reflect their differing objectives; some see eSports as a marketing expense in the pursuit of further sales of their game and in-game purchases whereas others see it as an opportunity for an alternative, and lucrative, revenue stream in its own right.
Given the ownership and value of intellectual property rights in the individual eSports, the licensing of these rights is important. Licensing arrangements need to be carefully drafted to protect these rights. Disputes have arisen and will continue to arise, around ownership and exploitation of intellectual property rights in the eSports industry and the level of registrable protection afforded to these rights. For example, Valve sued its publisher for breach of contract and copyright infringement, alleging that the publisher had distributed Valve’s games outside the scope of the licence which Valve had granted to it.19 Further, Blizzard Entertainment had a dispute with Korean cable television stations regarding the unauthorised broadcast of Blizzard’s StarCraft game.20
Sponsorship and merchandising
Sponsorship of eSports players, teams, leagues, competitions and events presents a good opportunity for organisations wishing to associate their brands with the industry. The demographic which eSports attracts, largely males aged 18 – 35 with relatively high disposable income, is a key market for many of these sponsors.
In recent years various large corporations have invested in sponsoring eSports. Audi and Visa have sponsored teams30 while ExxonMobil has been a prominent sponsor of the Rocket League Championship Series.31
In crafting sponsorship arrangements both sponsors and sponsored parties need to consider similar matters to those that arise with traditional sponsorships, such as clearly identifying the benefits and deliverables and ensuring that the interests of the parties are adequately protected in the instance of damage to reputation.
The large fan base for eSports also lends itself to merchandising opportunities. These opportunities arise at different levels. The IP owners in the game will own not only the intellectual property associated with the game itself but also the intellectual property in the characters and other merchandisable aspects of the games. Teams also have the opportunity to merchandise their brands and players while players may have the opportunity to merchandise their image and likeliness (if they have not already contractually licensed away these rights).
In order to make the most of merchandising opportunities, any registrable intellectual property, such as trade marks, needs to be registered, and effective licensing and manufacturing agreements entered into with the relevant parties.
Event organisation
Live events have become an increasingly important part of the eSports industry. Events have been held in traditional sports stadium and venues, with some of these large venues selling out. As well as providing another source of revenue, live events and tournaments help legitimatise eSports as a credible competition, build fan engagement and a sense of community.
Event organisers and venue operators will need to enter into venue hire agreements in order to stage these events. Such agreements must address the unique elements of an eSports event, such as access to the latest audio and visual equipment, large bandwidth capability, and large and multiple screens for spectators.
Playing contracts
Teams wishing to engage the services of a player will seek to enter into contracts binding a player to a team or IP owner, often exclusively. These contracts will often involve the team or IP owner seeking rights to use the player’s image, voice and likeness.
Depending on the nature of the arrangement, the playing contract may constitute an employment agreement which will mean that the team, as an employer, has certain legal duties to the player.
There is significant potential for playing contracts to be one-sided: existing arrangements have been criticised for leaving players with limited earning rights.
For eSports which are controlled by the game developer, players can also be faced with little bargaining power. As a result, players can often make the majority of their eSports income through sponsorships, endorsements and deals to stream their games online, rather than through their playing contracts.
When entering into playing contracts, participants and teams need to ensure that any agreement includes enforceable and realistic provisions and addresses any specific eSports issues (such as the integrity issues identified above and conditions under which the player will live at any team house).
Investments
As eSports grow, more money will flow into the industry. There have been numerous instances of teams being sold and of consolidation within the industry. As the frequency and size of these investments increase, the need for proper legal counsel relating to all aspects of the transaction, such as due diligence, structuring and documentation, becomes increasingly important to ensure that parties are properly advised and their investments protected and divestments realised.
Conclusion
The online technology used for eSports enables games, players, teams, league and events to gain incredible levels of popularity, supported by online viewing, social media and other forms of interaction. However there is a somewhat fragmented state-of-play in the eSports industry where game owners, streaming services, sponsors, players, team owners and managers and event organisers all contribute to, and in some instances compete for, influence over rights, regulation and commercial opportunities.
eSports operate in a very different landscape to traditional sports and sporting organisations. The nature of eSports creates operational, commercial and legal challenges, and participants in this growing industry need to ensure they appropriately regulate their activities and protect their legal and commercial interests so that they can best exploit any opportunities that may arise.
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