Canada: Growing Pains: Issues Affecting eSports Stakeholders

Once nascent, the eSports industry is in the midst of explosive growth and experiencing the growing pains of unchecked progress.

eSports are organized video game competitions, played at professional level. Players from different teams, organizations, and leagues will compete in video games popular with at-home gamers, such as League of Legends, Dota 2, Overwatch, Fortnite, and Counter Strike. These events are watched by millions of fans around the world, either live and in-person, or by tuning in on TV or online. Relative to traditional sports, the eSports ecosystem is comprised of many stakeholders. These include eSports players, teams and organizations, as well as video game publishers.

eSports players compete in leagues and tournaments with the hopes of winning a percentage of the allotted prize pool. Players typically enter into contracts with organizations and compete professionally under their banner in exchange for a fixed salary, a percentage of tournament winnings, and other incentives. These organizations (colloquially referred to as "Orgs") form teams, sign players, and populate tournaments. Orgs typically have several teams that specialize in a respective video game, but operate under the same name – just as the NCAA's Michigan State has uniformly branded "Spartans" teams compete in hockey, football, and basketball alike. Finally, video game publishers represent the core difference between eSports, and traditional sports. Publishers hold an influential position in the eSports ecosystem – dictating where, how, and who can play their games, via their terms of service. Through this selective authorization of rights, publishers play a disproportionate role in shaping the exposure and popularity of teams in any given eSport. They often do this in part by licensing the use of their games to tournament and league organizers for a fee, who can then host eSports events in accordance with the terms of this license.

This article outlines some of the key legal and business challenges that eSports (1) players, (2) teams/organizations, and (3) publishers face in the industry.

(1) Issues Facing eSports Players

There is a power imbalance between eSports players, and the teams they are contracted to. This dynamic is driven primarily by the fact that players generally represent a young and disadvantaged demographic, and there is surplus of players who are willing and able to play eSports professionally.

Such a power imbalance has had some unfortunate implications. For example, in July 2019 Turner "Tfue" Tenney,a popular Fortnite player launched a suit against his team, FaZe Clan, for grossly unfavourable and restrictive contract terms 1. In doing so, Tfue broke his non-disclosure obligations, and released his player contract publically. Some of the more onerous provisions included an 80/20 earnings split between Tfue and FaZe (with 80% going to the team), and highly restrictive sponsorship-sourcing terms. FaZe would launch a counter-suit in August 2019, attempting to collect on nearly $20M USD of Tfue's undeclared earnings made while under contract with the team 2. The countersuit is currently scheduled to be in heard by the Southern District of New York, which, if heard, could break ground in eSports jurisprudence.  

The rise of eSports-related influencers (like Tfue) has shifted some power back in favour of players. If incidents like Tfue's continue to surface, there may be an increase in players seeking formal designation as "employees". Players are currently classified as "contractors", which statutorily prohibits them from protection under provincial employment standards acts. Accordingly, the legal designation as "employees" would give players the ability to benefit from certain statutory protections (e.g. minimum wage guarantees, vacation days, and formal routes of appeal and enforcement). Other subsequent benefits to players include the ability to form a players union and collectively bargain for their rights. 

(2) Issues Facing eSports Teams & Organizations

eSports has become an increasingly global space – attracting players and audiences from all over the world. Although this has been instrumental for the industry's growth, it also presents a number of immigration and visa issues for teams housing players, and competing in tournaments, in a number of different regions. In an effort to facilitate eSports player mobility, Riot Games successfully lobbied United States Citizenship and Immigration Services, in 2014 to recognize professional League of Legends ("LoL") players as "athletes" for the purpose of obtaining P-1A working visas in the United States 3.

Although LoL players now enjoy certain mobility rights, many players competing in less well-recognized eSports remain unable to consistently receive the requisite visas to participate in foreign competitions, or train in foreign facilities.  For example, in 2017 Russian professional Overwatch player Denis "Tonic" Rolyov was denied entry into the US just a week prior to Overwatch Contender's playoffs 4. In 2019, an entire Russian Dota 2 team, Gambit eSports, was denied entry to the Ukraine to compete in a qualifying competition 5.

Unfortunately, situations like Tonic's and Gambit's are commonplace in eSports; teams need to be diligent in their lobbying efforts, gaining the support of publishers. Additionally, they need to be well-versed in immigration requirements of prospective host countries, and ensure visa applications are made in a timely and compliant fashion.

(3) Issues Facing eSports Video Game Publishers

Although eSports has become a point of emphasis for most video game publishers, it still remains only a part of their business. Accordingly, some publishers opt to devote more of their time and resources to developing the eSports scene around their video game titles, while others allow third-parties to take on a bigger role in shaping its growth. Detailed below are each publisher's eSports operating model.

Riot Games (Most Control)

Of the major North American publishers, Riot Games has taken the most hands-on approach – pushing for complete vertical integration with their premier eSports title LoL. The LoL Championship Series ("LCS") is entirely owned, and operated by Riot. The publisher is very selective with licensing any LoL content, but will occasionally defer to third-party coordinators with international or Pro-Am tournaments (such as the KeSPA Cup).

This model has afforded Riot almost complete autonomy in pushing the direction of the LoL eSports scene, making it the most followed title in the world. Such autonomy, however, comes at a cost. First, the highly selective licensing of tournament broadcast rights prohibits the inclusion of third-party or ancillary events. This results in limited opportunities for innovative, or grassroots events, which could hamstring the long-term viability of the eSport. Second, Riot's high level of oversight is both capital and resource intensive. Meaning, less of the publishers reserves can be devoted to developing and promoting other video game titles. Ultimately, Riot's success, or failure, hinges almost entirely on the health of their LoL eSports scene.

Activision Blizzard (Low Control)

In contrast to Riot, Activision sees themselves as a video game creator first, and an eSports promoter second. Activision licenses their leading eSports title, Overwatch, using a franchise-based model. Meaning, for a multi-million dollar fee, bidders can purchase a slot in the professional Overwatch League ("OWL"), and run their franchise almost autonomously from Activision. They employ a similar model with Call of Duty, selling franchise slots in their Call of Duty World League for a reported $25M USD fee 6. Additionally, in 2018 Activision entered into a 2-year agreement with Twitch (the world's largest eSports media and streaming platform), granting them the right to stream OWL matches through 2020 7.

This franchise-based model has proven useful for Activision in attracting traditional sports investors (such as the New England Patriots' Robert Kraft, or the New York Mets' Jeff Wilpon) as it is familiar to them 8.Akin to traditional sports , it builds local fandom around teams and cities, while creating natural rivalries. –. However, granting franchises such autonomy limits Activision's ability to control the strategic direction of their Overwatch and Call of Duty leagues. Furthermore, this model precludes Activision from certain revenue streams in the form of merchandise, concessions, and ancillary sponsorship, which is captured by the select franchises.

Valve (Laissez Fair)

Finally, of the North American publishers, Valve takes the most laissez fair approach to eSports. Valve allows third parties to freely organize Dota 2 events as they see fit, with the exception of The International – the eSport's marquee event. However, even The International's prize pool relies on crowdfunding, sponsored in large part by casual Dota 2 players' in-game purchases and donations 9.

In deferring Dota 2's marketing and operations to third-parties, Valve has empowered a flourishing eSports community, with deep grassroots. This has culminated in Dota 2 being one of the world's most followed titles, and boasting the highest prize pools year-over-year of any eSport. However, for all of Dota 2's success, Valve's narrow control has hampered their ability to steer the direction of the eSports ecosystem. Accordingly, Dota 2 eSports (and The International in particular) are perceived as tremendously authentic, but also more enigmatic for non-endemic brands.  Having third-parties largely responsible for broadcasting and promoting Dota 2 content raises a number of intellectual property concerns. In 2017, Valve released a statement that "anyone should be able to broadcast a match from [Dota 2's spectating feature] for their audience" 10. However, they also cautioned that such broadcasts cannot have a commercial purpose, or risk competing with the main tournament organizer's stream. The boundaries of this capability have yet to be defined.

Ultimately, eSports' tremendous growth also presents unique legal and business challenges.

Responding to the needs of the gaming industry and capitalizing on today's opportunities requires guidance from a multidisciplinary team of experts to provide holistic solutions, insight and knowledge to navigate the complex and evolving legal and operational landscape.

Footnotes

1 Turner Tenney pka Tfue vs FaZe Clan Inc, Superior Court of the State of California, County of Los Angeles, Central District Case 19STCV17341

2 FaZe Clan Inc v Turner Tenney pka Tfue, United States District Court, Southern District of New York

3 Yannick Lejacq, NBC News: Score! Professional Video Gamers Awarded Athletic VisasI <https://www.nbcnews.com/technolog/score-professional-video-gamers-awarded-athletic-visas-6C10679998>

4 Ferguson Mitchell, The eSports Observer: Russian Overwatch Player's US Visa Denied a Week Before Contenders in Los Angeles < https://esportsobserver.com/russian-overwatch-players-u-s-visa-denied-a-week-before-contenders-in-los-angeles/ >

>5 Chelsea Jack, Hotspawn: Russian Players Denied Entry to Ukraine Ahead of StarLadder ImbaTV< https://www.hotspawn.com/russian-players-denied-entry-to-ukraine-ahead-of-starladder-imbatv/ >

6 Adam Fitch, eSports Insider: Call of Duty Franchise Sports Reportedly Going for $25 Million < https://esportsinsider.com/2019/03/call-of-duty-franchising-25-million/ >

7 Jacob Wold, ESPN: Overwatch League to be Streamed on Twitch.tv in Two-Year, $90 Million Deal < https://www.espn.com/esports/story/_/id/22015103/overwatch-league-broadcast-twitchtv-two-year-90-million-deal >

8 Darren Heitner, Forbes: Robert Kraft and Jeff Wilpon Among Franchise Owners in New Overwatch League

9 Mike Stubbs, Forbes: The International 9 Dota 2 Tournament Prize Pool Breaks $30 Million < https://www.forbes.com/sites/mikestubbs/2019/07/27/the-international-9-dota-2-tournament-prize-pool-breaks-30-million/#21686ce62c07 >

10 Valve statement re: Dota 2 broadcast rights: <http://blog.dota2.com/2017/10/broadcasting-dota-2/>

To view the original article click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions