Disruptions
Online e-sports tournaments do not suffer from typical disruptions like bad weather and issues with venues such as availability, health and safety, ticketing, and licensing. However, they can suffer other disruptions, in particular technological disruptions, especially when e-sports athletes compete from the comfort of their own homes. Online e-sports tournaments require high bandwidth and low latency Internet connections. Any fluctuation in speed or connection interruption (even if for milliseconds) can cause significant disruptions for athletes. Recently, current Formula 1 champion Max Verstappen quit an online e-sports tournament after repeated connection issues, complaining that he would have better odds of winning in a casino.
However, these disruptions can be mitigated with careful planning. While it is impractical for organizers to invoke contractual assurances and legal obligations to resolve urgent disputes during live gameplay, organizers should ensure that appropriate service levels are imposed on service providers, as well as implementing backup procedures and continuity plans. Organizers should also draft clear tournament rules to ensure that disruptions will be handled in a fair and reasonable manner.
Intellectual property protection/licensing
- Events. Online e-sports tournaments can generate licensing revenues if the associated intellectual property (IP) is well protected and duly monetized. E-sports IP persists in an extensive range of digital and physical items and content, ranging from virtual avatars to physical tournament merchandise. However, the IP rights will likely be owned or controlled by a number of different stakeholders (e.g., game studios, teams, online brands, etc.). Organizers using third-party IP must ensure that they have obtained the necessary licenses to use and monetize such IP from the relevant stakeholders. Organizers developing their own IP (for example, tournament title, logo, format, artwork, website, narrative, etc.) should conduct an IP audit, maintain the resulting IP asset list, and consider exploitation strategies such as sub-licensing such IP or operating a franchise model to expand into new regions.
- Registration. Key IP owners should consider expanding protection of existing IP to cover new uses in e-sports. For example, trademark holders can apply for new trademark classes that cover e-sports and their related activities. Our recent alert provides an overview of how trademark protection can be applied to NFTs and virtual goods and services in the UK (and potentially elsewhere).
- UGC. With the growth of fan-made and user-generated content (UGC), e-sports organizers, broadcasters, and game studios should consider whether to embrace such UGC or use only official content in tournaments. Licensing UGC may open up new engagement and sales opportunities, but also comes with its own legal nuances. For instance, use of UGC without permission may subject e-sports organizers to legal liability under various privacy and copyright laws. Further, use of video game content in UGC could be expressly prohibited by the publisher of the relevant video game or by the provider of hosting or streaming services to which the UGC is posted.
- Athletes. E-sports teams should ensure that they are granted sufficient rights to enter into agreements and commitments on behalf of their athletes and should also consider inserting noncompete and confidentiality clauses in their athlete contracts. This will help teams maximize their ability to monetize the team brand, retain talent, and protect team secrets from tournament rivals amid heated competition.
- Broadcast and streaming rights. Selling or licensing broadcast and streaming rights for popular online e-sports competitions can provide lucrative revenue streams for event organizers. Organizers must carefully consider the strategy for exploitation of such rights. First, organizers should ensure that they own, control, or have the relevant licenses in place from the publisher(s) and other rights holders with respect to the game(s) that will be played during the online e-sports event. Then, broadcast and streaming rights can be sold or licensed directly or via a competitive bidding or auction process. Organizers should also consider whether a revenue share model is appropriate, as such models can act as strong incentives for prominent e-sports players and teams to prioritize specific online e-sports events in their competitive calendars.
Personal data protection
Since many e-sports tournaments accept entrants from many different countries and stream their events globally, organizers must take note of differing personal data protection regulations around the world. Organizers must ensure that personal data is collected in compliance with local regulations and protected from inadvertent disclosure or transfer out of certain countries. Some organizers choose to comply with the strictest regulations among those countries as a matter of good practice, but this approach will have its limitations, especially if e-sports organizers want to have broad capabilities to use personal data to enhance their business.
Gambling
The gambling market contributes significantly to e-sports tournaments’ bottom line. It is yet to be seen whether e-sports teams and players will follow the lead of conventional sports leagues like the Premier League and seek to restrict the prominence of gambling sponsorship in the e-sports industry. Organizers must ensure that entry fees and prizes (if any) for online e-sports tournaments do not contravene applicable gambling regulations. Online e-sports tournaments that require payment of an entry fee, offer prizes, or permit gambling sponsorship and advertisements must should comply with local gambling regulations, such as notification and licensing obligations and age and advertising restrictions. Organizers must implement robust measures to prevent match-fixing as in conventional sports, with anti-cheat measures now becoming industry standard. Compliance with regulations is critical to secure long-term support from investors and sponsors as well as to build trust with fans.
Sponsorship
Sponsorship investment has added to an ever-widening set of interests that e-sports stakeholders must balance. Tournament organizers should be wary of onerous exclusivity deals and make sure these deals do not have conflicting obligations with other deals. For example, some sponsors may not wish to have their logos displayed alongside violent content or with competing brands. Organizers should aim to negotiate early and address potential conflicts, such as conflicting venues and event sponsors. Sponsors may also have certain expectations of e-sports athletes (e.g., professional behavior, no doping, etc.), and tournament organizers should consider reflecting these expectations in their terms and conditions of entry for e-sports teams.
Our recognized entertainment and media lawyers are experienced and highly familiar with the sector’s latest developments. If you wish to discuss any aspects of this alert, please reach out to our team below or to your usual Reed Smith contact.
Reed Smith LLP is licensed to operate as a foreign law practice in Singapore, under the name and style Reed Smith Pte Ltd (collectively, “Reed Smith”). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith’s Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.
Client Alert 2023-129
