Esports is the future after Covid-19 outbreak but shall it become a sport?

Local regulatory limitations and inconsistencies on esports can be removed only qualifying esports as a sport

The coronavirus outbreak is one of the saddest events of our history. But at the same time, it represented an incredible opportunity of growth for the video gaming market and, in particular, for the esports sector. However, only the recognition of esports as a sport can – in my view – lift regulatory restrictions that are currently limiting its global growth and investments.

The video gaming and esports market during the Covid-19 emergency

According to the market research company specialized in the gaming sector, Newzoo, the global video game market is expected to reach $ 159 billion in 2020, which is almost three times music industry revenues that achieved $ 57 billion in 2019.

A separate part of gaming is esports, which refers to organized, multiplayer video game competitions. The value of this sector is limited at the moment since, according to Newzoo, it is expected to reach just over $1 billion in 2020.

The Covid-19 emergency in the short term had a negative impact also on the esports market since it led to the cancelation of several live events, and advertising and broadcasting of these events are the main sources of income for the sector. But, since esports tournaments can also be run remotely, it attracted the attention of major sports leagues worldwide. These leagues did not have any more traditional sports to show due to lockdown rules and were desperate to find new ways of engaging with fans. Indeed, Formula 1 launched its new F1 Esports Virtual Grand Prix series, featuring several current F1 drivers, and NASCAR did the same with one esports event attracting a peak of 1.3 million viewers.

The momentum around esports can attract fans to the sector regularly with potentially millions of new customers for an industry that is already fast-growing. For example, the world championship final of “League of Legends” in 2018 had almost 100 million unique viewers connecting online, which is more than some of the most popular finals of traditional sports. And the trophy of the same event in 2019 was designed by Louis Vuitton, which also created the clothes of the video game characters participating in the final.

Esports is used by brands of any sector to reach customers whose attention they are struggling to achieve. And the Covid-19 outbreak might be filling the gap for worldwide growth of the market.

The popularity achieved during the last months led major sports companies and investors to the conclusion that esports can become a relevant part of their business, which is less impacted by external factors out of their control. But investments in the sector require a clear regulatory framework.

The current status of regulations on esports

DLA Piper published the report Esports Laws of the World that reviews the laws and regulatory obligations applicable to esports in 38 jurisdictions. The findings of the report are that regulations have not been able to catch up with the growth of the market. There is a significant inconsistency in rules applicable to esports among different jurisdictions. Gambling, sports, and prize promotion/advertising rules might apply to esports events, impose restrictions or grant exemptions, depending on how and where they are organized.

There are indeed several variables. Is the esports tournament online or land-based? Is a country recognizing esports as an official sport? Can any type of prize be awarded to participants? What are the technical requirements to be complied with? And what is the actual risk of local penalties?

Even stringent contracts and corporate structures might not be enforceable if in contrast with local laws, endangering the profitability of the entire investment. And the same issues arise in contracting players. These might be players who could become extremely popular in quite a short period also through online streaming platforms and channels of communications that are rapidly changing. As such, the appropriate contracting of their services is paramount to avoid subsequent challenges.

Esports is not formally recognized as a sport in most of the jurisdictions, including countries like the US, the UK or Italy, which do not have any dedicated legal or regulatory regime applicable to esports. This circumstance means that if an esports tournament is not correctly structured, it risks breaching gambling laws that expose event organizers to potential criminal sanctions that apply even if the tournament is online and run from abroad.

There are some solutions aimed at mitigating risks, but these solutions change from a country to another, while the esports business is global. There are still very few countries like France and South Korea that expressly provide rules on esports tournaments.

This circumstance puts the performance of esports tournaments in a gray area where, depending on the position of local authorities, they can be allowed or prohibited. The current situation is a significant contradiction for a business that is, by definition, global. And the adoption of consistent rules across different jurisdictions in the short term would be quite difficult, while the momentum for esports is now.

Esports shall be recognized as a sport to foster its growth

In my view, the sole viable option that would allow esports to be subject to consistent rules worldwide in the short term is their recognition as a sport.

Given the maturity of the sector, of its players that already earn in some cases more than Cristiano Ronaldo, of the leagues that are structured and organize global tournaments and the number of fans worldwide, the esports industry should commit to doing whatever they can to enable the recognition of esports as a sport.

Some regional Olympic councils already announced that esports would be added as a medaling sport in their coming games. Inclusion as a part of such games would put esports one step closer to participation and recognition in the Olympics, something the IOC has been discussing more fervently with the gaming industry in recent years.

However, one of the issues around the global recognition of esports as a sport appears to be the lack of a global regulatory body. Indeed, esports tournaments gravitate around many different leagues that are organized by different companies. This limitation shall be waived if the esports industry wants to become global and attract further investments. Only the recognition of esports as a sport would enable the immediate applicability of a consistent set of rules worldwide, while any local initiative might be time consuming and ineffective. Also, the obligations triggered by the recognition of esports as a sport would not be excessively burdensome for a business that wants to attract global investments. And such recognition would also finally free the sector from any prejudice on its qualification as a practice for just teenagers.

The timing of this change is now, and this significant step ahead might become of the very few positive events deriving from the Covid-19 outbreak.

On a similar topic, you may find interesting “The main legal challenges of global esports online platforms“.

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Giulio Coraggio

I am the head of the Italian Technology sector and the global head of the IoT and Gaming and Gambling groups at the world-leading law firm DLA Piper. IoT and artificial intelligence influencer and FinTech and blockchain expert, finding solutions to what's next for our clients' success.

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