Thursday, Nov. 5, 2020 2:00 PM – 3:00 PM

Session 301 | WFH Made Me An Esports Player Lawyer: Emerging Legal and Policy Issues in the World of Esports

Many have speculated that Esports is the new social square or "social media." Indeed, it has seen explosive growth (even with the COVID-19 pandemic, which has accelerated video game revenues worldwide), with related revenue reaching north of $1 billion in recent years. This growth has corresponded with the immense popularity of video games such as Fortnite, which reached millions of active users in a little over a year, far outpacing other social media giants such as Twitter during the same time frame. All told, Esports has become the world's fastest growing sport, with revenue coming from sources such as sponsorships, media rights, advertisements, merchandise, and publisher fees. Consequently, a multitude of legal and policy issues have arisen, such as governance questions, questions regarding abuse, IP protections, and amateur vs. professional distinctions. Come learn about these cutting edge issues with practitioners who are on the front lines of these legal and policy issues.

Moderator: Peter S. Hyun, Partner, Wiley

Speakers: Mary Tuck, Vice President, Legal, Activision Blizzard Vyte Danileviciute, Principal Counsel, Riot Games Bill Chang, Author of “Video Game Law in a Nutshell”, Senior Director of Compliance, Riot Games Esports: Emerging Legal and Policy Issues

Peter S. Hyun, Wiley November 5, 2020

The information in these slides relates to an oral presentation and should not be relied upon as legal advice. Copyright © 2020 Wiley Rein LLP Introduction

• Esports Background • Governance and Regulatory Framework • Advertising, Merchandising, and Sponsorship • IP Protections and Online Streaming Rights • Esports Contracts • Collegiate and Amateur Esports • Policy/Regulatory Risk Areas

2 Esports Background Esports Ecosystem

4 Gaming and Esports

• Esports – competitive gaming -- has been likened to the “new social media” . Explosive growth – related revenue reached $1 billion ($345 million in North America) in 2018 . Fortnite reached 200 million users in 1+ year; 80 mm monthly active users. Compare Twitter, which took 5 years for 100 million monthly active users

5 Impact of Pandemic on Gaming

• Video game usage in the U.S. has skyrocketed during the pandemic . Attracting huge investment interest. • 244 million Americans, ¾ of the population, play video games - 32 million more than in 2018, according to 2020 Gamer Segmentation Report, the most recent study from The NPD Group. • NPD also found that the people who are gaming are spending on average 14 hours a week doing so, up from 12 hours a week in June 2018. • The pandemic's role - people who say they are playing video games more now specifically due to the pandemic is up 46% in the U.S. since late March, according to Nielsen Video Game Tracking (VGT). • Video game streaming is also up, as is viewership of esports, or competitive gaming.

6 Impact of COVID-19 Pandemic on Video Games

7 Impact of COVID-19 Pandemic on Esports

• Cancellation of global events . League of Legends . Worlds in Shanghai ‒ Because with “Ping-Based” games, there an importance of eliminating latency, players cannot play remotely . Activision Blizzard • Player Safety Adjustments • New and Creative Outlets . Partnerships with Universities

8 Impact of COVID-19 Pandemic on Video Games

9 Governance and Regulatory Framework Governance and Regulatory Framework

• Key considerations in establishing a governance structure for Esports tournaments/games . Typically, individual publishers control IP  control style of play  control rules and regulations . Variety of games – sports (Madden), massive multiplayer online games (MMOs), role playing games (RPGs), first person shooter (FPS), etc. • Short term vs. Long Term goals • How to Establish Rules to Prevent Foul Play • Consequences of lack of uniform bodies . Rules enforcement . Gambling

11 Governance and Regulatory Framework

• International e-Sports Federation (IeSf) . Founded in 2008 to promote standardization in Esports, HR training. • Esports Integrity Coalition (ESIC) . Nonprofit established in 2015 with key stakeholders . Created to address integrity challenges posed to esports . Code of conduct, ethics, anti-corruption, anti-doping • World Esports Association (WESA) . Founded in 2016 by ESL, along with multiple Esports teams, to set rules and regulations for Esports

12 Advertisement, Merchandise, and Sponsorships Advertisement, Merchandise, and Sponsorships • Esports Stakeholders . What makes the ideal investor? ‒ From Team Perspective ‒ From Player Perspective ‒ From League Perspective . What makes the ideal sponsor? ‒ From Team Perspective ‒ From Player Perspective ‒ From League Perspective . Vetting and Enforcement ‒ Concern over counterfeit merchandise through online marketplaces . Perspectives ‒ LoL North American League Championship new franchise model ‒ The Overwatch League

14 Advertisements and the Federal Trade Commission Under FTC Act, advertisements must be: • Truthful • Not misleading . Ad is deceptive if it is likely to mislead a consumer in a way that affects a consumer’s conduct or decision with regard to the product . Claims or omissions can make an ad misleading • Substantiated by evidence . FTC can bring action based on unsubstantiated advertising claims . Evidence must be competent and reliable and depends on the nature of the claim (e.g., science-based claims)

15 FTC Regulation of Advertising/Marketing

What is a covered advertisement? • Advertising = all types of communication to third parties in connection with products • Goes beyond traditional advertising • Including: ‒ Social Media ‒ Sponsored Media Content and Representations by Influencers ‒ Your Websites and Materials on Third-Party Retail Sites ‒ Press Releases and Technical Bulletins ‒ Sales Talks and Oral Representations by Sales Force

16 Advertising and Merchandise

• Influencers . 2017 Updated FTC social media guidelines: disclose “material connections,” payment, endorsement, charitable donation on behalf of endorser ‒ FTC has sent warning letters to influencers and marketers and signaled that it may take further enforcement action ‒ Some recent cases: oCreaxion (2018): Defendants allegedly paid social media endorsers without disclosure, paid friends for third-party product reviews and ran paid ads disguised as articles oCSGO Lotto (2017): Defendants allegedly endorsed online gambling service but failed to disclose they owned it

17 Drafting Sponsorship Agreements

• Sponsorship of Esports athletes and teams • Sponsorship agreements  significant revenue generator for rights holders . “Endemic” vs. “Non-endemic” Sponsors ‒ Significant provisions o Term limits o Scope and details of the team’s obligations o Sponsor obligations o Exclusivity o IP (more on this later) o How do players fit in to sponsorships?

18 IP Protections and Online Streaming Rights IP Protections

• Esports IP (content, characters, and gameplay) owned by the developer/publisher as the original creator of the game. . IP holders protect copyrights, trademarks, patents, and licensing arrangements. . How are IP rights distributed among publishers, organizers, clubs, broadcasters, and players? • Streaming Rights: Players and streaming personalities with own personal brands. . Threat of DCMA takedown notices; streamers’ end user license agreements. . Domain name high jacking . Typosquatting / Cybersquatting

20 Online Streaming Rights

• Enforcement of IP rights for developers . Common approaches ‒ Inclusion of provisions in the EULA allowing for streaming but also allowing content developers to exercise restrictions over unacceptable content included along with or as part of the stream • Monetization . Decentralization ‒ Creation of streaming platforms  loss of streamers and viewers from more established platforms like may actually harm monetization efforts through advertising due to a smaller user base . Non-endemic advertisers ‒ With the continued increase in popularity of streaming, non-endemic brands are becoming more willing to spend some of their traditional advertising dollars in these fora. As streaming viewership increases, expect this trend to continue.

21 Esports Contracts Player Agreements

• Independent Contractors or Employees? . Visa categories? . Developments in state laws . Litigation update – Esports as Talent Agencies? ‒ FaZe Clan and the Talent Agency Act • Specific Provisions . Forms of consideration ‒ Sponsorship, merchandise, and streaming revenue ‒ Bonuses, playing time . Equipment, Training, and housing . Team promotion and likeness . Exclusivity . Term length of agreements; non-competes

23 Esports Venues and Streams

• Venues . Large venues like and MSG have hosted tournaments, but other venues have also been used . Copper Box Arena (UK), , , Sang-am World Cup Stadium ‒ COVID-19 impact ‒ Criteria for selection • Broadcasting . Twitch . YouTube Gaming . Facebook . Mainstream broadcasters – ESPN, TBS, Disney

24 Major Sports (NFL, NBA, NHL, MLB) Team Ownership

• Heavy interest due to variety of reasons; including co-ownership of venues for events • Heavily tracking sports gambling and the aftermath of PASPA SCOTUS decision and other revenue streams for sports . E.g., Monumental (owners of Wizards/Caps) also owns an Esports organization, which has continued competing during the pandemic, and just opened a sportsbook at in D.C., making it the first pro sports stadium in America with a full-service sports betting operation.

25 Collegiate and Amateur Sports Esports Collegiate and Amateur Sports

• Pac-12 – announced support for esports intercollegiate competitions . NCAA . National Association of Collegiate Esports (NACE) ‒ Created in 2016 ‒ Over 170 Member Schools ‒ More than $16 million in Esports scholarships . American Collegiate Esports League (ACEL) . Electronic Gaming Federation

27 Esports Collegiate and Amateur Sports

• University of Kentucky .March Madness cancellation .Esports campus-wide initiative with a global reach .Virtual tournament using “NBA 2K20” .New esports facility .Revenue and sponsorships

28 Policy / Regulatory Risk D.C. Policymakers and Gaming

• Trump Effect: All institutions are being exposed/undermined. . Growing distrust of institutions all over the country . Judiciary, the media, Hollywood, Congress, state and local government, sports (NFL, MLB, NBA), Wall Street, big pharma, academia, and of course, tech • Tech is seen as a big facilitator of abuse that requires regulation • Lawmakers are grappling with all things tech (i.e. privacy, misinformation, “too big to regulate,” dark web)

30 Congressional and Regulatory Risk

• Why should this concern the gaming industry? • Congressional/Regulatory probes can have dramatic consequences when the politics demand action . E.g. mid-90s – Big Tobacco  $ 206 billion settlement . Microsoft Antitrust concerns in the 90s DOJ Antitrust probe . Probes into 2008 mortgage crisis and mortgage-backed securities  2010 Dodd-Frank Act and reforms

31 Areas of Congressional/Regulatory Risk for Gaming and Esports • Foreign Investment / National Security (CFIUS) • Gambling • Advertisement -- Twitch • Money Laundering – marketplace for dirty money • Use by bad guys (terrorism/propaganda/recruitment) • Cyber bullying/stalking/harassment • Data Privacy

32 Foreign Investment Scrutiny

• Executive Order Prohibiting transactions involving WeChat and TikTok • Heightened scrutiny on data collection policies of American companies linked to foreign companies, particularly in China. . Referrals to the Committee on Foreign Investment in the (“CFIUS”)

33 CFIUS

• CFIUS is a federal interagency committee of 15 departments and agencies authorized to review certain transactions involving foreign investment in the United States to determine the effect of such transactions on U.S. national security.

34 CFIUS Overview

• CFIUS reviews certain foreign investments in U.S. companies (“covered transactions”) and identifies national security concerns . The vast majority clear with no action by CFIUS, though around 30%-40% go to investigation* • CFIUS can negotiate or impose mitigation to address national security concerns . Approximately 10% of notified transactions involve mitigation • CFIUS can recommend that the President prohibit a transaction . Only five have been blocked (per publicly available information) . Dozens have been abandoned *Statistics are approximations because the CFIUS process is confidential unless the President takes action

35 Gambling

• Two major events over the past two years . SCOTUS Opinion in Murphy v. NCAA, which struck down the federal ban on sports gambling (May 2018) ‒ Congressional Reaction: Senators Hatch (Ret. R-UT) and Coons (D-DE) announced they would work on legislation to create a federal framework; states have already begun to adopt their own frameworks . DOJ’s Reinterpretation of The Wire Act. In 2011, DOJ issued an opinion indicating that the Wire Act only prohibited sports gambling online; and not online gambling generally ‒ On Jan. 14, 2019, DOJ issued a new opinion, indicating that the Wire Act generally prohibits all forms of online interstate gambling, carrying criminal penalties ‒ Reaction: Some lawmakers are objecting to this reinterpretation

36 Gambling and Esports

• Sports gambling is now legal and operational in 18 states and D.C. . Arkansas, Colorado, Delaware, Illinois, Indiana, Iowa, Michigan, Mississippi, Montana, Nevada, New Hampshire, New Jersey, New York, New Mexico, Oregon, Pennsylvania, Rhode Island, and West Virginia. • 4 states expected: Virginia, North Carolina, Tennessee, • 12 States failed to enact legislation . Alabama, Alaska, Arizona, California, Connecticut, Florida, Georgia, Kentucky, Maine, Minnesota, Missouri, and Wyoming. • States are moving towards allowing Esports gambling . Need for state revenue due to the pandemic

37 Gambling and Esports

38 Military Recruitment and Twitch?

39 Money Laundering

40 Judiciary and Commerce committee hearings will be coming

• Money laundering legislation (Grassley/Feinstein/Graham/Whitehouse) • Shell companies and beneficial ownership . These topics will come up

41 Terrorism and Video Games

42 Hearings will be coming

• Encryption • ECPA Reform • DOJ /FBI Oversight

43 Cyberbullying

• Harassment and bullying is all over the internet, with the LGBTQ community, religious minorities, racial minorities and women targeted the most . Anti-Defamation League (ADL) finds that the vast majority of people want something to change . "Over 80% of Americans want the government to act by strengthening laws and improving training and resources for police on cyberhate," the ADL noted in its survey release . "67% of Americans want companies to make it easier to report hateful content and behavior“ . "81% want companies to provide more options for people to filter hateful or harassing content“ • Look for dealing with these complicated issues on must-pass bills . VAWA, NDAA

44 Data Privacy – Another big issue

45 Data Security and Privacy

• “Companies that profit from personal information have an extra responsibility to protect and secure that data” - FTC Chairman Joe Simons. • Privacy, security, and data governance are critical issues for every company. . Both the volume and the potential uses of data are expanding rapidly. . Customers are concerned about their data being protected. . Government actors at the federal and state level are engaged. . Expectations can shift quickly.

46 Data Privacy – Another big issue (cont’d)

• Many stakeholders – including CDT, BSA, academics, and states – have weighed in on federal policy pushes in this area • Esports/gaming companies have not been viewed in Washington as big players here, but given growth of industry, this will likely change

47 Questions?

Peter S. Hyun Partner 202.719.4499 [email protected]