The Rise of eSports

Published in Daily Tribune on August 21, 2020
by: Alfred H. Campañano

Once regarded as a passing fad, competitive video gaming or eSports has suddenly become a fast-growing industry. Prior to the pandemic, international tournaments had already surfaced with prizes as high as $30 Million. This would explain why basketball superstars Stephen Curry, Shaquille O’Neal and Michael Jordan and other high-profile athletes and celebrities are investing in eSports. Despite the pandemic, the industry remains unfazed.

eSports is gaining traction in the country. As avid eSports enthusiasts, some members of our law firm have been closely following and preparing for this development. It is surprising that few businesses in the Philippines have ventured forming eSports teams especially since the country has a considerable following in various eSports. Businesses will soon see the value of eSports and, whether you are knee-deep in the industry or are about to invest, you will need adequate legal assistance in investing in eSports. It is crucial in starting the business, strategically planning its operations (e.g. tax schemes, corporate structuring), and in dealing with players. It is also pivotal to promote and protect eSports careers and investments (which is shockingly lacking even globally).

As investors scout talents, sign them and package their skills as a marketable commodity, potential players are excited in building a career as professionals. Unfortunately, the road to success can be fraught with pitfalls if one is not careful. In 2019, Call of Duty Pro Team — Excelerate Gaming allegedly underpaid its players by paying 11 percent of their $2000 salaries. In 2016, DOTA 2 Pro Team — Team Secret allegedly took a 10 percent share from $1.13 million winnings without informing players and promised hardware were never received.

There is also the issue of underground betting and match fixing. In 2016, South Korea prosecuted Lee Seung-Hyun (StartCraft II Pro Player) for throwing matches. He was sentenced to 18 months in prison. Skin gambling (betting of virtual items in-game) remains unregulated and is an underground economy valued at an estimated $5 Billion in 2016. As the Gaming and Amusement Board (GAB) and Bureau of Internal Revenue arrive at rules and regulations, investors should expect to face lawsuits on these said issues.

Moreover, with the recognition of eSports by GAB as a legitimate sport, regulatory frameworks for the industry are forthcoming — athlete licenses, immigration visas for tournaments, drug testing, GAB fees and shares, etc. — all of which must be considered in drafting contracts for employment, advertising or endorsements.

Teams are like businesses in that, depending on how good they are, mergers and acquisitions or partnerships of teams may occur e.g. the partnership of Paris Saint Germain Football Club with eSport Team LGD Gaming for games like DOTA 2, Brawl Stars, and FIFA. Imagine the behind-the-scenes negotiations that took place in brokering this partnership on capital and profit sharing, athlete contracts and the like.

There are also important legal issues that need ironing out in hosting eSports tournaments because video games are protected by intellectual property laws. Leagues and live-streamers must be able to secure licensing rights to host and stream these events in various media platforms. Moreover, current league trends in various eSports may give rise to trademarking concerns from commentator’s signature quotes to player handles, and team logos and names.

The rapid growth of eSports presents excellent investment opportunities not only for companies like Activision–StarCraft and Electronic Arts–NBA2K but for individuals as well. In 2019, the global revenue of the eSports industry reached a whopping $950.6 million, and is projected to reach $1.1 billion in 2020! As it grows, legal advice in regulatory compliance, player representation, intellectual property, negotiations, and contracts becomes essential. The stakeholders in this industry will need competent legal counsel who not only understands the law but also appreciates the dynamics of the games and the intricacies of this market.