PLAY BY PLAY – AN INTRODUCTION TO ESPORTS, MONETISATION AND IP RIGHTS JUNE 2020 PLAY BY PLAY – AN INTRODUCTION TO ESPORTS, MONETISATION AND IP RIGHTS The Coronavirus pandemic has brought traditional sports across the globe to a standstill. High profile international and domestic leagues and tournaments have been cancelled, suspended or postponed. A void has emerged in which worldwide interest in esports has intensified. This article, which was written for, and first What is esports? published by, LawInSport (the original is There is still no single definition of available to view here), provides an esports. Esports is an umbrella term for introduction to esports, the key an industry covering hundreds of different stakeholders involved and some of the video-games. For the purposes of this challenges facing an industry which had article, we define esports as the playing an estimated global audience exceeding of competitive video-games by 440 million viewers in 2019 and is forecast professional gamers, in an organised to generate revenue between US $1.8 format (a tournament/league) and with a billion and US$3 billion by 2022. In specific goal (a title/prize money). particular, we look at the monetisation of esports, and how intellectual property (IP) Despite esports differing from “gaming”, rights (and the enforcement of such rights) conflating the two is a common will be crucial for the stakeholders involved misconception. Gaming is a far broader and will shape how the industry develops. term, encompassing the playing of video games, whether competitively or non- Esports has not been immune to the competitively, offline or online and consequences of the Coronavirus whether in single player or multiplayer pandemic. However, interest in esports mode. To draw an analogy with football, has increased as traditional sports have gaming lies on a spectrum that turned to the esports environment to encompasses a child practicing “Keepy continue their engagement with fans. Uppies” in their garden, a local football Formula 1 motor racing launched the F1 team playing in a competitive five-a-side Esports Virtual Grand Prix series, with tournament and a football freestyler duo virtual races running in place of every streaming their latest skills and moves postponed Grand Prix; in the U.S. online. Esports is a competitive NASCAR launched the iRacing series, professional league or tournament, with drivers competing digitally through a analogous to the Champions League, simulation platform and the English Bundesliga or the FA Cup. Premier League’s inaugural ePremierLeague Invitational, in which This distinction is also important when celebrities and Premier League players considering the two types of represented their team in a knockout professional gamers: tournament to raise money for charity, attracted 150 million viewers across 1. Competitive professionals – elite platforms including YouTube, Twitch, gamers who participate in esports, Facebook, Twitter and Sky Sports live. It whether as an individual or as a has been suggested by the World member of a team, to win Economic Forum that Coronavirus may tournaments/leagues; and lead to the normalisation of esports, 2. “Lifestyle” gamers – skilled (but not thanks to the “unprecedented (and necessarily elite) gamers who accidental) adoption of esports by broadcast their day-to-day gameplay broadcasters, leagues and athletes on digital channels and live streaming seeking to engage fans. platforms to fans/subscribers, and whose ultimate goal is to entertain viewers, whether they win or lose. 2 CLIFFORD CHANCE PLAY BY PLAY – AN INTRODUCTION TO ESPORTS, MONETISATION AND IP RIGHTS The majority of gamers will fall into either The International (a Dota 2 tournament) in one of the two brackets. In this article, Shanghai, with the team sharing the our focus is on esports, and the former. US$15 million first place prize and captain However, this is not to understate the Johan “N0tail” Sundstein becoming the importance to the esports industry of top prize-winning esports player to date, lifestyle gamers to the esports industry, with estimated career winnings of almost who may sign to professional esports US$7 million. teams, as part of those teams’ broader business models – for example, to attract Esports competitions are played in front sponsors and fans, sell merchandise and of spectators, who can watch in-person produce entertainment content. at a stadium or via online streaming. These audiences can be vast. For Esports, whilst a relatively nascent example, 60 million viewers watched the industry, challenges established Grand Final of the 2018 Mid-Season conceptions of what constitutes a “sport” Invitational, a League of Legends (although whether esports can be tournament hosted by Germany and appropriately classified as a “sport” France. According to a recent report by remains a controversial topic), but also Goldman Sachs, esports has been offers new and varied investment elevated “into mainstream culture as a opportunities to current and prospective legitimate professional sport with a market participants. Esports undoubtedly massive global following.” This global shares many of the fundamental following includes major celebrities and characteristics of traditional sport, professional sportspersons, which in turn however its idiosyncratic features require further raises the profile of esports. For a more bespoke approach in a number example, in early 2020, Real Madrid’s of respects, particularly in relation Gareth Bale launched his own esports to monetisation. team, Ellevens Esports. The rise of esports Who are the key In 1972, the first known esports event stakeholders? took place at Stanford University, with • Video-game publishers: video-game students competing at “Spacewar!”, a publishers produce, release and own combat video-game. The winner took the IP in the games they publish, and home a year’s subscription to the thus control the content of the games magazine Rolling Stone. Fast-forward to (including updates to the games 2019, and 16-year old Kyle “Bugha” subsequent to initial release). For Giersdorf scooped US$3 million for publishers, esports represents a way of winning the Fortnite World Cup solo final deriving revenue from their principal – the largest prize ever for a single player assets – their IP rights in the games – at an esports tournament. To place this by licensing the use of those rights. The into context, Bugha’s prize exceeds that primary purpose of such licensing may awarded to Novak Djokovic for winning be direct (a distinct revenue stream Wimbledon 2019 (US$2.91 million) and under the licensing contract), indirect Tiger Woods for winning the 2019 (using esports to generate interest in Masters (US$2.07 million). Moreover, the the game to drive sales) or a US$3 million won by Bugha was a combination of the two. fraction of the US$100 million prize pool set aside by Epic Games, creator of • Competitions and leagues: Fortnite, for all Fortnite esports publishers may also run esports tournaments held during the course of competitions and leagues (for which 2019. Less than one month after Bugha’s they control the structure and rules) or victory, five-man team “OG” triumphed at alternatively license the rights to run CLIFFORD CHANCE 3 PLAY BY PLAY – AN INTRODUCTION TO ESPORTS, MONETISATION AND IP RIGHTS and broadcast such competitions to obtain IP rights in relation to their third parties. High profile examples of players under the contracts with those the former include the creation of the players. As with traditional sports Fortnite World Cup by Epic Games, the athletes (such as elite footballers, formation of the League of Legends golfers and tennis players), esports Championship Series and the League players have become increasingly of Legends European Championship attuned to the fact that they are not just (the North American and European professional gamers, but also valuable leagues, respectively) by Riot Games media assets. and the subsequent launch of the • Players: the number of professional Overwatch League by Blizzard. An esports players has grown rapidly in example of the latter is ESL (formerly recent years. They can earn income the Electronic Sports League), which is through sponsorship, prize money and the largest organiser of esports team salaries (for members of a team competitions worldwide (e.g. ESL One). which pays a guaranteed salary). • Team owners/franchises: for those Substantive player salaries are likely to video games for which leagues have encourage more gamers to consider been created, the publishers can also pursuing esports as a professional sell “teams” that can participate within career, which in turn results in higher those leagues to third parties (similar to quality gameplay and increased fan the US sports “franchise” model). For interest. Furthermore, unlike in example, Activision (Blizzard’s parent traditional sports, lifestyle gamers can company) sold the first twelve teams in also earn income through streaming the Overwatch League for US$20 services. The highest profile example is million, and subsequently sold eight Richard Blevins, better known by his further teams for a reported US$30 to online alias “Ninja”, who earns an US$60 million each, with each team estimated US$500,000 per month based in a major city, and the teams from streaming and commenting split into a Pacific Division and Atlantic on gameplay. Division, respectively. Activision • Online streaming services: major targeted current owners of major sports technology companies including teams as prospective team owners, Amazon (Twitch), Google (YouTube) and including Kroenke Sports & Tencent (Douyu and Huya) own or have Entertainment (Los Angeles Gladiators) heavily invested in streaming services and the Kraft Group (Boston Uprising), which can broadcast competitive and who have experience in generating lifestyle gameplay. Facebook has revenue from local and global fanbases. recently launched a dedicated • Teams: in addition to the “teams” Facebook Gaming app in an attempt to which are sold to third parties, teams challenge these dominant players and exist in the more conventional sense, establish itself in the gaming and i.e.