Esports Legal Issues – Five Things You Should KnowWednesday, June 26, 2019
Esports is a global phenomenon comprised of organized, multiplayer video game competitions among professional players and teams. With a rapidly expanding worldwide fan base, the global esports market is expected to generate $1.1 billion in revenue in 2019. As this industry continues to take shape, participants in the sector should bear in mind the routine and complex legal issues that arise.
Below are five primary legal issues in the esports industry that you should know about.
The increasing number of people streaming and viewing esports events or following esports personalities on social media has created a prime opportunity for sponsors to create and develop partnerships with participants in the space.
In drafting sponsorship agreements governing these partnerships, particular attention should be paid to the type of category exclusivity offered to the sponsor, such as beverages or apparel. As the industry continues to define and redefine itself, participants will want to categorize sponsorships narrowly in order to maximize potential sponsorship dollars. Sponsors, on the other hand, will look to broadly categorize their sponsorship in an effort to grow and develop their brand.
As with traditional sports, an upsurge in the fan base typically coincides with an increase in advertising. Contracts that allow for companies to use a player’s or team’s image, name, and likeness in connection with advertising certain products or services are considered endorsements. Similar to sponsorship agreements, players and teams should pay close attention to the content of endorsement contracts. Players should be aware that their ability to engage and participate in advertisements or endorsements may be limited by exclusivity terms found in franchising agreements or player contracts. Game publishers, leagues and teams tend to reserve these rights for themselves, which results in players having limited endorsement opportunities. That being said, endorsements in esports are still in development. As an example, the first Nike endorsement deal was signed in 2018 with Jian “Uzi” Zi-Hao, a well-known Chinese League of Legends player, to promote Nike’s “Dribble &” marketing campaign with LeBron James.
In negotiating endorsement contracts, players and teams should consider bargaining for approval or consultation rights, as certain characteristics and identifying features of players may be used by the brand for a variety of purposes. Additionally, moral clauses that limit behaviour and activities of a player and allow for companies to suspend or terminate an agreement are customary in endorsement contracts and should be reviewed carefully. This is particularly important in the context of esports, as younger players and audiences may have different tolerances for what is considered “inappropriate behaviour” when compared to more conservative brands.
Franchise systems are proving to be critical to the esports industry as they provide investment opportunities and new revenue streams. In 2018, franchising within esports underwent a major development with changes to Blizzard Entertainment’s Overwatch League, Riot Games’ North American League of Legends Championship Series, and the NBA 2K League (a joint venture between the National Basketball Association and Take-Two Interactive). The development of franchising systems within the industry is intended to promote stability and longevity, as the organizations spending millions of dollars on team rights are essentially betting that the associated league will exist long enough in order to recoup the investment.
Franchising has the potential to generate a broad range of revenue streams such as sponsorships, advertising, ticket sales, merchandising (including selling in-game “skins”), media rights fees and tournament winnings. However, franchising contracts may impose limitations on the future actions of teams and players. For example, the Toronto Esports Club was forced to remove the word “Toronto” from their “Toronto Uprising” team name despite having branded the team name in Blizzard Entertainment’s Overwatch Contenders league (a minor league to the Overwatch League). This was due to a new team, which had received franchising rights to the Overwatch League, having purchased the exclusive naming rights for “Toronto”.
For participants seeking to join a professional esports league (either by purchasing a franchise or otherwise getting involved with an existing franchise), there are a variety of legal documents to navigate. League charters and other governing documents will dictate how franchises are structured and how they can and must conduct themselves. The leagues (and other franchise owners) will also have a say in many of the decisions to be made by a franchise.
4. Player Contracts
As the industry continues to develop in tandem with the popularity of individual players, contracts between esports athletes and franchises are facing increasing scrutiny. Professional players are given a large platform and represent valuable, brand-name franchises. In 2018, the franchises participating in the NBA 2K League signed contracts with players entitling players to housing, relocation fees, insurance and guaranteed salaries.
While signing these contracts can be exciting for young players, legal review of these documents is critical. Player contracts will cover, among other things, intellectual property ownership rights, bonus entitlements and expense reimbursements. Many esports players (both professional and amateur) create content through streaming, videos and interviews, and some of these individuals grow into online personalities that attract fans from around the world. Teams and franchises may try to capitalize on this valuable intellectual property by claiming rights to the player’s brand and likeness by way of the player’s contract. Elements such as trademark rights, “gamer tags”, phrases or expressions associated with a player, ownership of social media accounts, and other content created in the past need to be included and adequately addressed in these types of contracts.
Sponsorship and endorsement provisions, and specifically those dealing with exclusivity, also need to be addressed within player agreements. The significance of these clauses is highlighted in the recent legal dispute between Turner “Tfue” Tenney, a famous streamer and Fortnite (Epic Games) player, and his employer Faze Clan, a well-known esports organization. The dispute is centred around claims that the player’s organization is taking a significant portion of the revenue generated from his sponsorship deals, while at the same time denying him other potential offers. As esports is a growing and developing sector, these types of disputes will impact the evolution of industry standards relating to player rights.
While the general trend in immigration law in Canada and the U.S. is towards higher scrutiny, there has also been an expansion of certain immigration categories to meet the needs of the modern world. Amongst these noted expansions are the inclusion of esports players and teams as “Athletes” for immigration purposes in both Canada and the U.S.
Most recently, Canada has now specifically included “gamer – video games” under the National Occupational Classification (“NOC”) Code 5251 for “Athletes.” This means that those traveling to Canada to compete in esports events likely qualify for immigration purposes. The specific details of each player’s travel to Canada, including the level of competition and whether the player is part of a team outside Canada, will determine the specific authorization required from Canadian immigration authorities.
As early as 2013, U.S. Citizenship and Immigration Services (USCIS) began recognizing esports players for various nonimmigrant visa categories, including situations where athletes are able to travel to the U.S. as a B-1, Business Visitor, and for the more substantive P-1 nonimmigrant visa category for internationally recognized athletes.
Although both U.S. and Canadian immigration laws have become more inclusive of esports players and teams, it is important that players apply for the appropriate immigration authorizations and follow the specific laws applicable to their travels.
If you have any questions with respect to the matters discussed above, please contact Amir Torabi (firstname.lastname@example.org), Ryan Trimble (email@example.com), Geoffrey Cher (firstname.lastname@example.org), Michael Rennie (email@example.com) or R. Oliver Branch (firstname.lastname@example.org). Special thanks to articling student Nickolas Robelek for his contributions to this update.
This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.
If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.