By Vincenzo Giuffrè and Lara Mastrangelo

The growth of revenues generated by the esports industry is leading to new legal issues that are likely to be addressed with different solutions in 2020.

1. Esports monetization will be driven by pay-per-view streaming

The esports sector has traditionally drawn its revenues from sponsorships, media rights, and advertising. However, with the cost of tournaments and prize money rising yearly, organizers are looking for new ways to increase revenues. Many esports operators and tournament organizers are moving away from free streaming of content to running their events, with tickets to attend said events and fans buying the right to stream them on their own.

2019 has already experienced good results with value-added services and contents in streaming platforms that are dedicated to subscribers who pay a fee.

These services are not intended to replace existing free offerings on the market, but to grant a higher level of experience to fans who are willing to pay for them.

The pay-per-view streaming model looks attractive to esports tournament organizers, but if abused, it may damage the industry. Indeed, esports revenues continue to grow year after year, and the current advertisement model and fan base have proven to be resistant to change, particularly in relation to the consumption of esports content. In this regard, it is important to keep in mind that:

• disputes can arise with game publishers over whether their content can be monetized in this; and
• fans may access the material illegally.

In any case, the results obtained in 2019 were substantially more positive than expected, with fans asking for pay-per-view services to be introduced for other esports mainstays. Therefore, in 2020 the premium add-ons will potentially be the next step in esports monetization.

2. Esports tournaments will run away from prize promotion and gambling regulations with ad hoc rules

As competitive gaming transforms from an exciting niche to a booming industry, esports tournaments are currently stuck within regulations not designed for their specific needs. The Italian regulatory framework addressing esports is quite complicated and confused, providing two different sets of rules: gambling regulations and prize promotions regulations. Yet, both regimes appear inadequate to boost the development and the long-term growth of the esports sector in Italy if directed to non-professional players.

Any esports tournament that involves the offering of a reward and requires players to pay a participation fee may trigger the applicability of gambling rules. E-tournaments falling under gambling regulations may need a gambling license if run online. Failure to comply with this requirement can be sanctioned under criminal laws.

On the contrary, in the event players are not charged to participate in the tournament, the regime set forth by prize competition regulations might apply, regardless of whether tournaments are considered games of chance or based on skills. Yet, the applicability of prize competition regulations entails that the promoter shall comply with several formalities, among which the setting up of a performance or an insurance bond. Furthermore, prize promotion regulations state that all the players shall be located in Italy (with the result that it would not be possible to run an international esports tournament) and that the tournament can provide only prizes in kind, while cash prizes are banned.

There are anyhow some exceptions to the regime provided by prize promotion regulations that are applicable in some cases, but the current regime needs to be improved. The current regulatory framework does not fit the needs of the growing esports industry. Therefore, in 2020 the legislator will be called to take action to avoid the risk of hindering potential investors in the national market.

We expect that the legislator will reach the conclusion that the world of video gaming tournaments is so different from any other sector and that the best choice is to issue a sui generis regime, tailored to esports, as already occurred in France, where a simple notification system has been implemented.

In other words, we expect that in 2020 the legislator will bring the Italian approach to esports tournaments up to date by removing – at least partially – unnecessary burdens and redundant bureaucracy. Failure to do so might result in a severe loss of opportunities in a field that will be a crucial form of entertainment in the near future.

3. Contracting esports players will lead to their greater protection and recognition of higher revenues

Esports contracts shall contain players’ working conditions, duties and salary amount. From a labor law perspective, no specific laws are yet in place in the esports field, and esports are deemed to be an amateur discipline. In this regard, esports teams operate in a highly task-based environment. While for casual players, the main goal might be having fun, the competitive nature of most games makes winning an essential component and priority of the overall gaming experience. For professional teams, the aim of winning becomes even more crucial when the prize pool represents the sole income they may obtain.

The trend in the esports industry has been to include provisions in players’ contracts that expressly provide that players are “independent contractors” rather than employees of the organizations for which they play, even if teams “pay for their rights“. In this regard, establishing an esports team in a traditional sports club might offer a social identity for individual esports players. In some countries, lawsuits from notable players have led to scrutiny of esports player contracts. Thus, it has appeared that teams should not be entitled to rule over players’ intellectual property rights, but players are negotiating the exploitation of such rights. Indeed, esports players typically allow teams or tournament organizers to control their sponsorships. This circumstance occurs because they are in a better position to negotiate increased compensation for their performance.

In practice, teams handle such intellectual property rights to reach a scale that is attractive to sponsors and develop players’ capabilities to sell those sponsorships. Such a situation is reflected in the agreements between players and teams/organizers given that:

1. sponsors work with teams and organizers;
2. esports players do not have access to many of the significant revenue streams available to their traditional sports counterparts;
3. teams share revenues with the players by paying salaries, covering costs, and everything else the player would need at a basic level.

In 2020 we expect that players’ communities will develop a better understanding of the fast-growing industry and players will negotiate such contracts with the intent to prioritize flexibility in their sponsorships and secure more remunerative deals.

If you would like to know more about this topic, and esports law in general, please contact vincenzo.giuffre@dlapiper.com and @lara.mastrangelo@dlapiper.com.