A practical guide to establishing the regulatory framework for a national esports federation

Published 25 March 2019 | Authored by: Péter Rippel-Szabó

This article aims to act as a useful reference guide for establishing the regulatory framework for a national esports federation. Following a general introduction on how and why an esports federation is established, it aims to:

  1. introduce a pragmatic structure for regulations that an esports federation can adopt regardless of where it is incorporated or its scope of territorial activity;

  2. explore key legal and business issues that are likely to be encountered from the perspective of the esports federations; and

  3. provide guidance and solutions by sharing the author’s experience in advising an esports federation in Hungary on its legal and business structure, its regulations, and the organisation of tournaments.

The framework of an esports federation - from the initial idea to a possible regulatory structure to dealing with publishers

There are many reasons which lead someone to undertake the great adventure of building something unique and unprecedented. In the author’s experience, the key ingredients of starting to ponder the brave idea of establishing an “esports federation” are the following:

  1. there is a passionate gamer who understands how the gaming industry works and has made a name for himself/herself in the gaming community;

  2. there is a business organization that embraces that passion and sees its potential, and has the necessary resources, experience and network in the broader media industry, including broadcasting of esports tournaments; and (last but not least)

  3. there is a team of lawyers who is familiar with the traditional sports industry and understands the specific legal issues of esports. Once these ingredients are put in place the foundation of a new sport can start.1

The first step is simply for two legal entities that are engaged in esports to adopt the statutes of the federation and register the federation.2 The trickier part may be persuading the body that decides on the registration of federations to register it as a sports federation (and not a “simple” federation), and then to deal with any enquiries of the state attorney if such body has supervisory powers over civil organizations.

If the federation is successfully registered as a sports federation, it will operate as a classic sports federation under the relevant local laws under, which in Hungry is the Hungarian Sports Act.3 It is worth noting that if an esports federation has been established it does not prevent anyone from establishing another esports federation. Nonetheless, the principle of one national governing body for one sport applies in Hungary. So, the federation which fulfils the statutory requirements of the Hungarian Sports Act first will be recognized as the sole national governing body of esports in Hungary, and as a result it may exercise specific regulatory rights in esports.4

The basic set up of the federation is the same pyramidal structure as in traditional sports. The federation is composed of clubs as its members. Clubs, which are not necessarily exclusively involved in esports (in fact this is an exception now), have players as their members, or have a contractual relationship with their players. The federation is then authorized to exploit the rights of the tournaments it organizes, but it must distribute the revenue generated among the clubs and players – and by doing so the federation must consider certain additional aspects as discussed below.5

The regulations

Once a federation has been legally established, the next step is for it to implement a basic structure for governing esports. Its regulations are the cornerstone in this endeavour, primarily for two reasons:

  1. Prospective clubs and players, sponsors, event promoters, publishers and other rights holders need to clearly understand the system by which the sport is governed and regulated, and thereby see the benefits of becoming a member or player, as well as of establishing a business relationship with the federation.

  2. The regulations must properly address all the differences esports have compared to traditional sports.

A suggested structure of the regulations is as follows (not in order of importance):

  1. Statutes

  2. Regulations on the status, registration and transfer of players

  3. Regulations on the general rules of competitions

  4. Regulations on the exploitation of sports rights

  5. Data protection regulations

  6. Disciplinary regulations

  7. Anti-doping regulations

  8. Ethics code and child protection, including rules on integrity issues (gambling, match-fixing and other forms of corruption) and safeguarding of players

  9. Regulations on the organisational requirements of tournaments

  10. Specific tournament rules varying game by game6

The inspiration for the structure of the regulations comes from traditional sports. From a simple reading, it seems that there is not much difference compared to the regulations of traditional sports, which is true in a number of areas. However, the devil is in the details, and some rules can be significantly different and esports-specific as elaborated further below.

On the one hand, the regulations listed under points (a)-(i) above should provide an appropriate framework for the general operation and integrity of a federation. On the other hand, they should leave sufficient room to ensure that federations have flexibility to adopt the features of the underlying game in the tournament rules (listed under point (j) above). So, the federation can and should be able to adopt a set of regulations which are sufficiently flexible to accommodate different games. This means that the tournament rules are the specific regulations for certain genres, but there are general rules (i.e. the regulations listed under points (a)–(i) above) which govern the federation as in traditional sports (e.g. the IAAF, FINA or FIA). At a later stage of the federation’s development the regulations listed under points (a) –(i) above will likely become more detailed and contain certain separate rules for separate games (i.e. not only will the tournament rules be game-specific).

Interacting with games publishers from the federation’s perspective

Currently, there are only a few esports federations worldwide with what would be regarded as a comprehensive set of regulations. It may in practice be appealing to games publishers that there are organizations that have adopted a straightforward structure and are therefore able to reach out to an appropriate audience in the near and mid-term future. In this sense the regulations should make it possible to comply with the requirements of the rights holders of the games and the broader legal/commercial reality in which the federation operates. For example, in certain instances it might be that a federation puts in place its own regulations in each of the above areas, whereas in others it might elect to incorporate third party, cross-industry rules that are acceptable to rights holders on areas such as anti-doping or anti-corruption.

The key point is that federations have the consent or license from the publishers to organize a tournament for the publisher’s game pursuant to the federation’s regulations. In a smaller market and/or at the beginning of the federation’s development, publishers may simply disregard the tournament or, if they give their consent to it, just generally prohibit the federation from using their logos and official signs in connection with it.

Later, when the federation has matured and gained significant exposure and reach, publishers are likely to want to enter into a more complex licencing agreement with the federation. In that case, in addition to other aspects as discussed below, the federation should take care of the licensing requirements from two perspective:

  1. exclusivity - of the license in the country / territory where the federation operates so that no rival tournaments can take place; and

  2. termination - how the publisher may terminate the license, and if it terminates unlawfully, what are the consequences (it could be embarrassing for federations not to be able to organize a tournament or have to abandon it at an advanced stage due to the lack of the publisher’s license.

Timescale of the project

In the author’s experience, setting up the federation itself and getting it registered is a relatively easy exercise as it is very similar to establishing “simple” federations. The one trickier aspect is obtaining the status of a "sports" federation, but aside from that it should not take more time than registering a “simple” federation.

It is crucial to consider the details of the project, especially including the potential number of future players, persuading sponsors and advertisers to come on board, as well as considering the scale of the investment required going into the future. It may take about one year once the final decision is made to actually start the project. Once the decision has been made drafting the regulations and setting up the structure may take months, which requires close cooperation between the federation and its lawyers.

Once the first tournament takes place in accordance with the regulations, it’s often necessary to then undertake some additional “fine-tuning” for practical purposes. Even if such fine-tuning has been carried out then there are still many issues which should be dealt with later, such as:

  • the growing numbers of professional clubs and players,

  • dealing with local umbrella sporting bodies,

  • more sophisticated expectations of publishers and commercial partners, and

  • ongoing changes in the regulatory environment.

In other words, the story of the federation is continually evolving and as such requires constant attention.

Key issues that the regulations should cover and potential solutions

This section discusses the most relevant practical issues an esports federation should consider and properly address in its regulations.7

Status, registration and transfer of players

Main aim of the status, registration and transfer rules

In the absence of unified status, registration and transfer rules, players simply often come and go. Due to the relative uncertainty of games, players may quickly appear then disappear in the same manner. This may lead to contractual instability and cause discomfort both to the structure and organisation of competitions by a federation, as well as to member clubs and sponsors.

With the above in mind the federation should aim to set up a clear and easy-to-handle system from the perspective of players, clubs and the federation's administrative bodies for the status, registration and transfer of players.

The regulations should primarily include rules on the

  1. registration of players in the federation database,

  2. issuance of unified licences to compete as an amateur or professional player in tournaments organised by the federation, and

  3. transfers and transfer windows (both domestic and international).

The starting point of such rules can be the relevant regulations of FIFA and the national football federation concerned as football has the most elaborated and internationally tailored transfer system.

Growing the number of registered players and member clubs

One of the key challenges a federation faces is increasing the number of member clubs and registered players of member clubs. In the case of clubs, especially at the beginning, they may be reluctant to join a federation, and everyday players may simply not even think of becoming a registered player with a federation.

However, there are several options to incentivise clubs and players to join a federation:

  1. Transfer windows, as in case of traditional sports, are also necessary elements in esports. Otherwise the integrity of tournaments would be disrupted, and/or the federation's administrative staff, which is at the beginning naturally only a few individuals learning their duties, may be overloaded with continuous requests for transfers throughout the year. Nonetheless, at the early stages of the federation’s development the first registration of players should not be limited to the transfer window, but could take place at any time (regular transfers should however only take place in a transfer window in order to maintain a reasonable level of competition integrity).

  2. Special attention should be paid to the fact that the vast majority of players are minors or aged in their twenties. Therefore, federations should prepare short and plain language guidelines for prospective players and member clubs on how they can become a registered player or a member club, what this means for them, and how they can participate at the federation’s tournaments. In practice, such guidelines are extremely helpful, especially to avoid any unnecessary back and forth exchanges between the federation and players during the registration process.

  3. In addition to its clubs and registered players, federations may grant non-registered players access to tournaments, who can then Register for just one tournament with a one-off licence to compete. When issuing such one-off licence to compete the federation should ensure that for the duration of the tournament non-registered players are bound by both the tournament rules and the same regulations of the federation as member clubs and registered players.

In this respect federations encounter a difficult balancing act: the more they grant one-off licences to compete the less players may actually be incentivised to become registered players of the federation, which is at odds with the federation’s long-term goals. Therefore, federations should draw a line at a certain point of time of their development when they start to limit the issuance of one-off licences to compete. For example, if a non-registered player has already participated in a certain number of tournaments, or has been ranked at a certain number of occasions, then such players can no longer be granted a one-off licence to compete, but they could become a registered player.

Furthermore, in this context a particular issue arises if a tournament is organised for teams. Whereas member clubs can participate under their own name as legal entities with their registered players who are either members of or have a contractual relationship with the club, a group of non-registered players (such as a clan) is not an independent legal entity itself. One solution could be if the federation provides the non-registered players forming a team with a template team agreement. By signing this agreement non-registered players create a "community" with binding rules among themselves, and this community could then be treated as an independent “group” for the purposes of the tournament.

The template team agreement should be an annex to the tournament rules and based on a plain language guideline issued by the federation. Non-registered players could simply fill in it with their details and, most importantly from their perspective, agree on the possible share of any prize money that their team would win at the tournament. The advantage of the agreement is that upon the team's registration the federation would only inspect whether the team members have completed the agreement properly. In the absence of a template team agreement a team agreement prepared by the players themselves may not comply with the requirements of the law or the federation's regulations and reviewing several different team agreements would create an enormous workload for the federation and therefore simply not work in practice.8

The players’ licence to compete and nicknames

Players play in a game under a nickname, which can be changed during one game, and the same player may have different nicknames in different games. As mentioned above, the federation may vary the games for which it organizes a competition, mostly contingent on the popularity of games and the consent of or licence agreements with rights holders. Also, it is a reasonable practice that the licences to compete for registered players will be issued for a certain period (for one calendar year at least) as in traditional sports.

Considering that the games and nicknames can vary during the validity of a player’s licence to compete, it is not advisable to issue the licence to compete for a given nickname, but only for the player's real name. The player should then give his/her nickname under which he/she will participate at the tournament during tournament registration, which cannot be changed throughout the tournament.

Rules for competitions

Most players, including registered players, are amateurs. The number of professional players, as well as clubs which have an appropriate esports specific structure, including experienced coaches and staff, administration, solid financial background, facilities, hardware and software, is very limited (at least in Hungary). Therefore, it may not be worth requiring clubs to comply with certain licensing requirements as in traditional sports (e.g., the licensing rules of UEFA or national football federations prescribed for clubs as a precondition for participating in different football competitions). As a result, the format of the competitions, at least in the early stages of the federation’s development, should be amateur, except that professional players may also participate subject to special conditions.9

If the tournament is hosted by a platform service provider (such as Battlefy or FACEIT) the terms and conditions applied by that provider should be considered for the purposes of the tournament rules10, and the federation should in particular ensure the limitation of its liability towards players which may arise from use of the platform between players and the federation.

If there are online qualifying rounds it is nearly impossible to control whether the player who has registered for the tournament is actually playing the game or somebody else, or if players use any illegal software or performance enhancing drugs. In order to combat such cheating methods federations should actively promote fair play and “incentivise” clubs to control their players. To this end the disciplinary regulations could provide for the rebuttable presumption that the player's club was aware of such cheating methods and must be liable jointly and severally with the player until proven otherwise. Also, federations could provide for certain authentication requirements for players in order to enter the online rounds of the tournament (e.g. by giving certain personal data), in which case the technical and legal background (i.e. data protection) should be adjusted properly.

Exploitation of rights

The most relevant differences in relation to the exploitation of rights compared to traditional sports are as follows:

  1. The games based on which a federation organises its tournaments are subject to copyright and other rights protection (e.g. trademarks) of game publishers (or other rights holders). Therefore, federations should always obtain the necessary consent from or conclude appropriate licence agreements with the game publishers.

  2. As a closely related issue, federations should carefully consider how to exploit rights. First, the agreements with the game publishers should allow the desired exploitation of rights. Second, given that esports are practiced and followed by fans differently in many ways compared to traditional sports, the agreements with broadcasters and sponsors should consider these differences in order to provide the best possible exposure of competitions and optimised revenue deriving from such exploitation.

  3. In addition to obtaining proper consent from the players for the use of their personal rights (e.g. images or names), federations should also consider that the players’ performance might qualify as a performance right, especially in case of strategic games, and therefore obtain consent for use for such performance rights as well.11 Furthermore, federations should ensure that players do not use such nicknames, skins, and gamer tags etc. which can infringe the rights of third parties or be offensive, and if so then liability issues should be addressed properly.

Protecting the value of rights is just as important for esports federations as it is for traditional sports federations. Regulations should state that the federation

  1. is exclusively entitled to make any footage and pictures about offline finals of tournaments and make them available to the public in any manner; and

  2. owns the marketing and media rights to the tournament.

As a result, players cannot commercially exploit these rights without the federation’s permission. In this respect the question at the early stages of the federation’s development is whether the federation is willing to or should enforce its rights in the first place. In case of online qualifying rounds of tournaments, for example, where there is no exclusive signal of the event, the additional exposure of live retransmission of games by players can be beneficial to federations. Alternatively, certain well-known players can have individual sponsors which can be in conflict with the official tournament sponsor. However, it simply would not be worth excluding these players from the tournament. Therefore, federations should ensure that all these issues are dealt with in the respective commercial agreements.

Furthermore, the case of illegal retransmission of offline finals is also a real risk for esports federations (i.e. decoding and then making event signals available online, as well as and locally recording an event and live streaming online). Currently, esports federations have the same means at their disposal as traditional sports federations to combat these methods, such as notice and take down procedures, blocking orders and contractual prohibitions.12

Data protection

Federations process a significant volume of personal data. The most challenging esports-related data protection issues include:

  1. building an internal database on the status, registration and transfer of players; and

  2. organising tournaments involving a large number of players.

The federation’s internal data processing practices should be communicated in a clear and easily accessible form to all persons concerned (including officials and data subjects). Collecting players’ personal data lawfully and transparently projects a professional brand image for the federation, and helps build trust with players. Gathering consents for direct marketing and newsletters benefits federations by producing a high-value channel of communication to esports players, who are mostly young, easy to engage with in the online world, which may therefore have greater value than in the case of athletes of traditional sports.

Online qualification rounds of tournaments are usually held on platforms hosted by third party platform service providers. The following should be carefully considered when choosing a third party platform service provider:

  1. general ability to comply with data subject rights under the General Data Protection Rgulation13;

  2. qualification of the service provider as a joint-controller or as a data processor; and

  3. transfer of the personal data outside the European Economic Arear.

Also, the internal database may be subject to specific local legislation which must then be complied with in practice.

Player safeguarding and education

Many esports players are young (most of them minors) being at an age when experience and emotions often have a significant impact on their mental and physical development. At the same time, esports are often associated with harm to psychological and physical well-being (such as addiction, aggression, bullying or lack of genuine exercise).

Therefore, the federation should adopt measures which promote the positive effects of esports (such as developing logic, cognitive and strategical skills, as well as stamina and reflexes), and create a framework for the effective protection and education of players throughout the federation's structures. Such rules may include

  1. generally expected behaviour of officials, coaches and players;

  2. the prevention, detection and combating of any form of bullying and addiction to games;

  3. the federation’s obligations to support and promote the protection and education of players; and

  4. disciplinary measures in case of violation of the relevant rules.

One particular aspect is the application of age limits. There is no law (at least in Hungary) which would set an age limit for players to become registered players or to compete in an esports tournament. Nonetheless, it is advisable to set a minimum age limit as a precondition to becoming a registered player with the federation.14

The federation may also require players to undergo medical checks regularly and conclude an umbrella insurance policy in order to insure players for relevant health risks.

The legal guardians of minors should always be involved to the extent required (e.g. for signing the player’s application for his/her registration with the federation).

Anti-doping

The use of performance enhancing drugs is a real danger to players’ health and the integrity of competition in esports. The situation in esports is even more complicated for the following reasons:

  1. Players often “train” at home and many tournaments have online qualifying rounds when players participate in the tournament remotely, which makes the actual testing difficult to conduct.

  2. An esports federation, at least in Hungary, is not subject to anti-doping rules until it is recognised as the sole governing body of esports in Hungary. This means that the esports federation is not obliged to comply with the relevant anti-doping laws and the rules of WADA, in which case the specific anti-doping and disciplinary rules apply.

There are several options to address this issue:

  1. Federations could prohibit the use of performance enhancing drugs and methods listed by WADA or the national anti-doping agency. In this sense federations should act carefully and only prohibit the use of such drugs or methods which would really give an unjustified advantage over fellow players. Also, federations should devote time to identifying any further drugs, methods or practices which are not prohibited by WADA or the national anti-doping agency but result in an unjustified advantage in a similar manner.15

  2. The disciplinary regulations of federations could include rules and sanctions for using performance enhancing drugs until the federation becomes subject to the local anti-doping laws and the rules of WADA.

Of course, in the absence of actual testing, pursuant to the WADA rules, the use of a prohibited substance or method may be difficult to detect and later prove in a disciplinary procedure. For the actual enforcement of the federation’s anti-doping rules, federations could enter into an agreement with the national anti-doping agency for testing at tournaments. Unfortunately, federations could barely afford the costs of testing without state funds (which are granted in the case of traditional sports in Hungary), and it is also questionable whether the often overloaded national anti-doping agencies would be open for cooperation with esports federations.

Summary

Esports are in many ways similar and at the same time different compared to traditional sports. Building a legal structure on which a new sport and vision is based is always a real and exciting challenge, both for federations and the lawyers advising them.

This article aimed to provide a snapshot of some of the most pressing key issues esports federations are likely face in their day-to-day operations. Nonetheless, it is important to emphasise that the precise model a federation will implement will need to be adapted to fit the legal and business circumstances in which it is operating.16

For lawyers this presents an exciting opportunity to be involved in such a complex and unique project. In the pitching phase it is up to lawyers to convince the potential client that the vision can also be implemented from a legal perspective, as well as demonstrate that they are the proper legal advisor for the project even if they have not advised on such matter before (because no lawyer has yet). During the actual work it is also the lawyer who should steer the ship of the federation in the right direction when required as a trusted advisor.

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About the Author

Péter Rippel-Szabó

Péter Rippel-Szabó

Attorney at Law, Bird & Bird

Péter is a Hungarian attorney-at-law and associate at Bird & Bird in Budapest, specializing in commercial and sports matters.

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