Esports: Legal Clues To Understanding Its Success

How To Achieve A Safe Development And The Strengthening Of The Industry?


What Is Happening In the Esports Industry?

Esports started in 1992 at Stanford Universitywith the Spacewar! Olympics, when a player won a magazine subscription. After that, the industry’s ascent has been exponential.

Since 2016, esports has been rapidly increasing to turn into the fastest growing sport. In 2018 esports revenues rose until 865 millions dollars, and by the end of 2019 it will reach 1.1 billion dollars, with a projected market growthof around 2.5 billion dollars by 2025.

Why Esports Industry Is Growing That Faster?

Global online population is estimated around 4.48 billion , the 56% of the overall population. By 2022, there are expected to be almost 300 million frequent viewers of esports worldwide. The part of the population that classifies as viewers are mostly younger Millennials between the ages of 18 to 24 (according to estimates, they accounted for 33 percent of U.S. esports fans in 2017). By 2025, the population of young people aged 15 to 25 will be of around 1.24 billion. There is a really big audience left to catch by the esports, which will benefit from the natural attraction of its digital environment. Likewise, video games have been - since the very first existence - a growing world.

Gamers didn’t need prizes to played the way they did, but still, they got it. The awakening of the esports started with small prizes like subscriptions, merchandising, and small amounts of money. Quickly this became in itself a strong motivation for gamers to play the best they could, and consequently in an entertainment for the rest of viewers.

As the tournaments grew, the sponsors started to be interested. And in a natural way the esports began receiving big money injections, increasing its fan base and economic attraction more and more every year.

Are There Business Opportunities In the Esports Industry?

At the moment, the esports is a fast-growing segment of the entertainment industry, and the evolution is expected to be bigger in the next years. So yes, there are many opportunities in the esports Industry.

According to the 2019 Esports Survey Report the area that accounted for the greatest growth rate was advertising and sponsorship (51% of the revenue’s esports growth). While in-game sales were the next segment with more revenues.

On the other hand, the business segment with the lower revenues was game sales via retail or downloadable games. Which means that video games industry has changed. At this moment, a free-to-play game with in-game purchase options is more profitable than the traditional video games purchase system.

However, this report doesn’t count the professional players’ earnings and teams’ gains. Which is now an important window of opportunity within the esports industry.

Can Traditional Sports Interact With Esports?

¡Desde luego!

Traditional sports are already one of the biggest supporters of the esports industry.For the moment is an investment relationship, but this could change in the future.

Some traditional sports have been included in the video games world successfully. As part of the magnetic pull of esports industry’s recent success, traditional sports’ virtual simulations could turn into an e-sport formal competition, harnessing the former’s growth.

In any event, the esports industry is appealing to traditional sports’ teams, who are responding with big investments.

What Are the Legal Risks In the Esports Industry?

There are two big problems the esports industry is facing right now. First, a small number of game developers control the whole esports business. Second, there are not enough fraud detection systems to control match fixing and cheating.

Even when we say that the esports business started in 1992, esports industry has really begun to develop as late as 2016. It is a young industry, and there is so much to improve.

In addition to the serious sportiness problem that is causing the lack of supervision about match fixing and cheating, the fact that a small number of game developers owned the whole esports business gives to the producers far too much control over the industry direction.

In other words, esports industry needs to be closely monitored from a competition law perspective. This mainly concerns to the potential new esports and gamer developers. Our recommendation is to implement a strong regulatory compliance with antitrust matters.

Further, intellectual property and cybersecurity issues could always pose substantial risks to the esports Industry. IP issues and contract matters increased in comparison with 2018, mainly linked to noncompete and exclusivity agreements, and trademark disputes. The industry insiders are concerned about how IP rights are wrapped up with the developers, and players are concerned about their protection from industry insiders.

These legal risks were showed this May 2019, when Tfue, the most popular Fortnite professional player, brought a lawsuit against his organization over what he and his legal representation believed to be an unfair and illegal contract.

Some of the standard contractual terms present in Tfue’s contract were the following:

  • Bring in sponsorship opportunities for players in exchange for a percentage of the deal.
  • A percentage of sponsorships brought in by the player.
  • The right to deny a sponsorship brought by the player to the team if it conflicts with an existing team sponsor.

This is a peculiarity of the esports industry, in contrast to traditional sports industry where a team can be sponsored by a company, and the superstar on that team can be sponsored by another company, even by a competitor.

But there are a lot more terms to care about, and that’s why is really essential for organizations and players to discuss about it.

At Gowper, we want to give some tips for a Player Agreement:

  • Does the player take a share of the money from team sponsorship deals? Is the player allowed personal sponsors and, if so, does the team take a share of the money of these? Are there any restrictions placed on personal sponsorships?
  • Does the player take a share of the money from merchandise sales?
  • Who collects the money in the first place from a streaming platform? What percentage of streaming revenue do players keep?
  • What do players get if they only play for part of an event?
  • What expenses will players or organizations be reimbursed for?
  • Do players have to produce any content for the organization website?
  • Are players required to attend sponsor / promotional events outside of regular tournaments?
  • Who actually owns the competition equipment (computers, clothing, etc.), and who keeps it once the agreement ends?
  • Does the organization provide any other facilities such as a team house, cleaners, chefs, physio, gym memberships, etc.? When can a player be benched and how does this impact any prize money?
  • Does the contract contain any non-competes?
  • How long does the agreement actually last? Does the agreement automatically renew? When and for what reasons can the organization and/or the player terminate the contract? Is there a buyout clause or an early termination fee?

How Can We Help You?

At Gowper, we are committed to protect our clients’ interests whatever it takes. That’s why we offer IP services and contract services for esports players and actors, such as:

  • Negotiating and drafting of any kind of contracts within the esports industry, including contracts for contents creators.
  • Representation and defense on Intellectual Property disputes, particularly about brand names’ similarity.
  • Legal advice to the esports team and esports organizations’ investments, including counsel on acquisition of esports organizations, player rosters, and franchises in e-sports leagues.

Learn more about our offer of Individualized Solutions Plans (ISPs), especially on our Orange Solutions and Lilac Solutions or about our broad range of Services & Industries.


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