An Australian perspective on the esports industry and its core legal issues
Published 10 July 2018 By: Mark Lebbon
2018 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.
LawInSport has published a number of articles to help demystify the esports ecosystem and its core legal and commercial issues. Continuing in this theme, this article offers an Australian perspective on the industry, examining:
Background to the industry
Esports as an umbrella term
Is esports actually a sport?
Esports in Australia
Key legal issues
Sponsorship and merchandising
Background to the 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 2017 60 million unique viewers watched the League of Legends world finals take place live in Beijing, up from 43 million in the previous year.2 In 2018 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 2018 revenues from esports are estimated to reach US$905.6 million and US$1.4 billion by 2020.4
Esports as an umbrella term
"Esports" is an umbrella term given to competitive video gaming in an organised format. In essence, esports is video gaming where players compete, either individually or in teams, against other players in a specific video game.
Just like the term "sports" encompasses numerous games or competitions, esports should be seen as a collective of different individual video games rather than a single identifiable competition. These games cover different genres such as Multiplayer Online Battle Area (MOBA), Real-Time Strategy (RTS), First Person Shooters (FPS), Fighting, and Sports Simulation. While sports simulation games such as FIFA and NBA2k are popular, it is other video games such as League of Legends (LoL), Dota 2, Overwatch and Counter-Strike: Global Offensive (CS:GO) which are among the most popular esport game titles.5
Is esports actually a sport?
Whether esports is actually a sport is open to debate.
Many esports have similar characteristics to a traditional sport: competition, high-stakes winning, barriers to competition requiring skills and training, fans, and technological infrastructure.6
In 2014 John Skipper, the president of ESPN, stated that esports are "not a sport - it’s a competition … I’m interested in doing real sports".7 However, in a sign of how quickly perceptions of esports are changing, a section of ESPN’s website is now dedicated to esports and in November 2017, the International Olympic Committee recognised esports as a sport.8 In the US esports players have, in certain cases, been recognised as professional athletes for the purpose of obtaining a P-1 visa.9 This enables them to enter the US to attend competitive esports events as though they were a professional athlete.
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 investing in esports and esports teams. At last count, at least 228 professional sporting teams had directly invested in esports.10 Some of these investments are in sports simulation games, such as the NBA’s creation of the NBA2k eLeague,11 while others, such as Paris St-Germain football club’s venture into Dota 2, are focussed on non-sport simulation games.12 Recently the Golden State Warriors, the Houston Rockets, the Cleveland Cavaliers and Wes Eden (owner of the Milwaukee Bucks) all invested in teams in the restructured North American League of Legend Championship Series (NALCS).13
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.14
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 again in May 2018, 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 event15 and Hoyts in February announced a partnership with esports league Gfinity Australia to create esports arenas in cinemas around Australia.16
As in other parts of the world, Australian sporting teams and leagues are also taking an active interest in esports. At the start of 2017 the Adelaide Football Club bought the Australian based esports team Legacy, which competes in League of Legends,17 with the Essendon Football Club following suit a few months later when they acquired Abyss, which also competes in League of Legends.18 Football Federation Australia (the governing body of soccer in Australia), held its first E-League competition during 2018. The competition involved each of the traditional A-League clubs fielding competition against one another in the popular FIFA sports simulation video game, with the games broadcast on subscription television and also Twitch.19
More recently, the Australian Football League (the governing body of Australian rules football) announced it had entered into an arrangement with Australian subsidiary of Riot Games, Inc (Riot) to run and commercialise a State of origin style "League of Origins" event, which will be hosted in Melbourne.20 The arrangements will also lead to a dedicated esports venue being established in Melbourne and complements the investments made by the Adelaide and Essendon clubs.
Key legal issues associated with esports
The operation, governance and commercialisation of esports bring into play some important legal concepts and issues. Some of these legal issues are comparable to those arising with traditional sports and events; while others are unique, reflecting the rapid rate of development of the esports industry and the ever changing technological environment in which the industry operates.
Set out below is a high level summary of some of the more important legal concepts participants in the esports industry should be mindful of.
Intellectual property rights can subsist in the underlying esports video games and, more specifically, under Australian copyright laws, computer programs are considered to be a "literary work" and are afforded copyright protection.21 The owners, or authors, 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 Corporation (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.22 Further, Blizzard Entertainment had a dispute with Korean cable television stations regarding the unauthorised broadcast of Blizzard’s StarCraft game.23
In respect of sports simulation games, there may be a need for the game developer to enter into licensing agreements with the relevant sport’s governing body or a player union in order to obtain the right to use logos and athlete image rights as part of the video game.
Governance of any sport or competition is important. Implementation and enforcement of rules, competitive integrity and disciplinary procedures are hallmarks of successful sports.
Governance of esports is still in its infancy. Just as there is no single governing body for all sports, there is no governing body for esports as a whole. The rules of competitions, leagues and events are likely to vary depending on the nature of the relevant video game.
To a large extent, how an individual esport is governed depends on how the IP owners decide to exploit and allow others to exploit the rights in their game. As noted above, some developers take a relatively hands-off approach to the organisation and governance of esports in connection with their games whereas others seek to closely control the game and, in effect, seek to become the governing body. As the effective governing body of League of Legends, Riot has been able to standardise playing contracts and introduce a consistent set of rules and, where necessary, take disciplinary action for breach of these rules. Last year Riot undertook a restructure of the NALCS to encourage long-term investments by having teams as "permanent partners", introduce revenue sharing and form a player’s association.24
Control over an esport may be more difficult to achieve when the IP owner for a game licences the rights to hold leagues and events to a number of different persons who seek to implement their own sets of rules. For example, a player who is banned from the competitions of one event organiser may nevertheless still be able to compete in events of another. This type of fractured governance model can make it difficult to deal with disciplinary matters.
The governance of some esports activities has been criticised for taking an autocratic approach to decision making which lacks transparency and procedural fairness. For example, Riot was criticised for the manner in which it banned the Renegades team from the League of Legends Championship Series in 2016. Riot was said to have effectively sat as investigator, prosecutor and judge without any recourse for appeal by the owners of the Renegades team.25 In Australia, Riot’s involvement in trying to resolve alleged mistreatment by the Tainted Minds team of its resulted in accusations of bias and conflicts of interest being made against Riot.26 This raises questions about whether independent third parties should have a role in leagues and competitions, at a competition regulatory and disciplinary level.
There have been attempts to create international regulatory bodies. In 2008, the International esports Federation (IeSF) was formed by nine national esport member associations. The IeSF seeks to promote esports as a sport and to establish standards for certification, referees, competitions and the management of players. The IeSF is the official esport signatory of the World Anti-Doping Agency. The Australian member of the IeSF is the Australian Esports Association.
More recently, the ESL (formerly the Electronic Sports League) which organises esports competitions around the world, has helped establish the World esports Association (WESA) and also the Esports Integrity Coalition (ESIC). WESA was formed to "support and amplify sustainable growth of esports, based on the shared values of fairness, transparency, and integrity and sharing that growth between the players, teams and leagues."27 WESA hopes to become the benchmark for industry-wide standards, beginning with the ESL Pro League for CS:GO. ESIC was established to deal with integrity issues of common interest amongst its key stakeholders, in particular, the threat from match manipulation, betting fraud and other integrity issues.28
However, given each video game is in and of itself a separate esport, these governing bodies only have limited reach. The extent to which these organisations will play a role in the esports industry remains to be seen and will depend on the level of cooperation and engagement from key stakeholders, notably the IP owners and event organisers.
The esports industry faces a number of integrity challenges as it continues to grow, including:
match-fixing / betting;
the use of software cheats, applications and server attacks; and
Some of these issues are familiar to traditional sports whilst others present unique challenges to esports.
Betting is big business in esports and, for some bookmakers, is more lucrative than more established sports such as golf and rugby.29 Whilst betting can be a source of fan engagement, it also raises a number of integrity issues.
Given the number of young people who compete and watch esports, there are concerns around the normalisation of gambling and the role video games may play in conditioning young people to become more frequent gamblers. In particular, "skins betting", which is facilitated by certain video games allowing players to make in-game purchases for virtual items such as skins, or digital designs, is one way in which young persons may be introduced to softer forms of betting and gambling. Secondary markets have arisen in the trading of skins with a real market value attributed to the skins allowing them to be used as currency to bet on esports.
In Australia, the frequency and timing of gambling promotional content (which could include both advertising and the promotion of betting odds) being broadcast on television during sporting events and the influence this has on young people, has been the subject of much debate. Recent legislation has resulted in increased restrictions being placed on when gambling promotional content can be broadcast on television during the coverage of sporting events, with similar measures now being introduced for online content. Interestingly, the draft Online Content Service Provider Rules 2018 proposed under Schedule 8 of the Broadcasting Services Act 1992 (Cth) specifically include "an electronic games competition" as a sporting event. If these rules come into effect in the proposed form, it will restrict how online content service providers can use gambling promotional content during streaming of esports competitions. There are some exemptions in the proposed Online Content Services rules that may apply to services streaming electronic games, including whether the service meets the criteria for a "small online content service provider".
Betting also raises serious integrity issues by tempting players to fix matches and competitions. This can be a particular problem for players who are not earning decent money from their esports activities. There has been a number of match fixing scandals involving esports, such as Alex Berezin who was found to be betting against his own team and losing on purpose when playing Dota 2.30 In 2015 Valve banned seven players who were linked to fixing CS:GO games.31 This match fixing involved not only bets placed on matches but also the exchange of several high value skins and other in-game items, highlighting the additional risk that in-game economies pose to the integrity of esports. Valve has since taken steps to ban all skins gambling on its platform,32 and was also subject to a class action in relation to skins gambling, although the case was ultimately dismissed.33
The use of software cheats, applications and server attacks are unique integrity issues for esports. These cheats generally work in one of four ways; they let the computer automate actions (such as automatic aiming or triggering of actions), they allow a player to see through objects (such as walls, structures and storage containers), they allow a player to acquire additional powers (such as the ability to fly, gain strength, immunity to weaknesses, or being alerted to things before they actually occur), or, in the case of online qualifiers, they attack the server host of the opposing team, causing them to "lag" heavily and be unable to play the game.
Most software cheats are external tools or applications. These cheats have become more advanced, faster and accurate as technology has developed. One of the difficulties with trying to police this form of cheating is that it can often go undetected because it is inherently hard to identify without close analysis of gameplay or special software. ESIC banned a CS:GO competitor for two years for using a cheat which had gone undetected by Valve’s anti-cheat software (VAC).34
Anti-cheat software, such as VAC, which seeks to identify the source code of cheat software is one way in which this form of cheating can be addressed. Technology is also being developed which directly tracks the movements of a player’s keyboard and mouse to ensure these movements reflect what actually plays out on the screen. Some competition organisers are taking more extreme measures, such as requiring professional players to maintain unopened equipment to ensure cheat software cannot be installed prior to the commencement of the competition.
Just like drugs can assist athletes to build and improve their physical performance, drugs can also assist the minds of professional gamers to perform at a higher and more efficient level. Drugs, such as Adderall, Ritalin and Selegiline, have been used to assist players in a number of ways including by increasing concentration, calming nerves, reducing fatigue and boosting reaction times.
The use of drugs in esports had, until recently, been largely ignored. Very little consideration had been given to incidence of drug use and the potential damage it could do to esports. However, esports leagues and competition organisers are now starting to take a more pro-active approach. As noted above, IeSF is an official signatory of the World Anti-Doping Agency and work continues to be done in identifying and determining drugs which may be considered performance enhancing, developing rules and policies to make the use of those drugs illegal, and putting in place procedures for, and the carrying out of, testing. Traditional sports have shown that trying to regulate performance enhancing drugs is necessary in order to help ensure the integrity of the sport.
As esports grows, it will need to ensure that regulation of doping, and other threats to integrity, continue to become more sophisticated and effective. Lawyers have a role to play in assisting to draft rules and regulations, as well as having an increasing prominence and involvement in the investigations and disciplinary hearings relating to alleged contraventions.
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 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.
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.
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).
The esports labour market is relatively disorganised and unregulated. There are no fixed working conditions and generally no standard playing contracts. If they exist, player agreements can be basic, and players have sought to move to other teams notwithstanding they may have an existing contract in place. Participation of teams in leagues and events is not assured. Teams come and go depending on their performance which can quickly leave even the best players without exposure to top level competition (although changes to the NALCS made in 2018 provides for certain tenure for teams37).
In this environment, player welfare may not always be seen as a priority. Recent controversies in this area highlight the need for increased controls and checks to ensure that player welfare is taken seriously, particularly in under-developed competitive regions.38
Players also often have to deal with online abuse via chat functions on streaming platforms, which allow fans to publish comments in real time to the rest of the participants and viewers. Awareness of and attention to the welfare of participants will become increasingly important. In traditional sports, welfare issues have been addressed by player associations, who sought to advocate collectively on behalf of players. Player associations are now starting to be established, with Riot providing players with the resources to set up a Players’ Association for the NALCS.39
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.
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.
This article was originally published by Hall & Wilcox. The original is available to view here.
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- Esports uncovered – Part 1: an overview of the ecosystem
- The continued rise of eSport – Efforts to combat match fixing and improve integrity