In 2018, the esports industry experienced remarkable growth. Poised to become the next multibillion-dollar industry, the esports industry has become a part of mainstream sports. For example, the League of Legends World Championships attracted almost 100 million unique viewers for the finals. In comparison, the 2018 Super Bowl saw viewership numbers of 103 million. According to a major sports news network, more than 50 colleges now have varsity esports programs. Esports revenue grew to $865 million in 2018, according to Newzoo, a global leader in games and esports analysis, and Newzoo projects that the global esports market will exceed $1.6 billion by 2021.
As with any business that experiences rapid, unprecedented growth, a variety of legal issues have arisen that are specific to the esports industry. The following legal concerns should be considered with esports applications in mind.
The single most important issue in esports transactions is understanding that, unlike traditional sports, the game’s publisher or developer has absolute control—both legal and practical—over the game. Where sports like basketball and baseball exist outside of professional sports leagues, as evidenced by a quick visit to any public park on a sunny summer day, the same is not true for esports.
Esports intellectual property generally involves content, characters, and gameplay owned by the publisher or developer of the game. The intellectual property owners often look to protect their copyrights, trademarks, patents, and licensing arrangements, and such protections can create unique issues for those investing in and around the game, such as team owners, players, and sponsors. Care should be given to understanding and working around the confines of this truly unique legal dynamic with respect to the intellectual property rights in the game.
Also, players often would like to use their own “skins” (a skin is a cosmetic element that can be used to change the appearance of a player’s game character in the video game) during gameplay. If players want to use their own skins they must possess the necessary usage rights to any third-party intellectual property.
Online Streaming Rights
Game content is the intellectual property of the developer, as noted. This can lead to licensing issues when leagues and online streaming platforms use the game at public events. In order to use the game and stream the action for viewers, a license must be obtained from the game developer. Additionally, players routinely develop and monetize their personal brands by creating and publishing videos online. Players must be careful to operate within the confines of the end user license agreements with regard to the material they post online.
Mergers and Acquisitions
As esports grows, investments are flooding in from a variety of sources including celebrities and large corporations. M&A counsel who understand the complexities of the esports industry, from the teams and players to the technological developments impacting esports and more, are invaluable to anyone planning to acquire, sell, or invest in esports.
As in any other professional sport, contract negotiations between players and organizations are paramount for both parties. Contracts should be drafted with specificity, and obligations incurred should be clearly defined. Team owners and players should be aware of both federal and state employment laws to avoid establishing an employment relationship.
Advertising and Merchandise
Esports players and teams generate significant revenue via endorsements and merchandising as brands seek to capitalize on the large following that players and teams attract. Likewise, esports gaming companies have a secondary revenue stream from creating merchandise or licensing their intellectual property for merchandising. Players, teams, and gaming companies must understand the Federal Trade Commission’s endorsement guides and the merchandise manufacturing and licensing business in order fully profit from such opportunities.