The e-gaming ecosystem has expanded at an unprecedented rate in recent years, with e-gaming now considered as the most profitable form of entertainment in the world. In the GCC alone, the e-gaming market is predicted to be worth around USD 800 million during 2021.
E-gaming offers increasingly diversified revenue streams for a variety of stakeholders, including telecoms companies, platform providers and rights' holders, particularly where traditional revenue streams are less lucrative. The industry is commonly split, among others, into mobile gaming, e-sports streaming, console purchase and requires input from e-gaming distributors, publishers/creators, service providers (including data).
The United Arab Emirates (UAE) in particular has seen an increased focus on e-gaming investment. The Dubai Government has approved (under the supervision of Dubai Future Foundation) plans for the Dubai X-Stadium, a dedicated e-gaming arena and Abu Dhabi also announced plans for Al Qana, a development which will host the emirate's largest e-sports and virtual reality gaming complex.
As e-gaming grows in popularity, investments in the industry have seen a significant uptick and there has been an increase in M&A activity with stakeholders collaborating to maximize their market opportunities. Therefore investors need to be aware of the key aspects of investing in e-sports in the GCC (and, more specifically, the UAE), whether investing in or commencing a start-up or investing into a more mature business.
Some of the material considerations surrounding investments in this industry are as follows:
1. Establishing a business - incorporation and licencing
As with all new businesses, it is vital to consider a suitable jurisdiction for establishing your business, including the availability of the appropriate licence(s). The UAE has become more and more attractive for e-gaming and the various UAE jurisdictions' authorities have embraced this uptick, with free zones and their respective regulators such as Media Zone Authority (MZA) in Abu Dhabi and Ras Al Khaimah Economic Zone (RAKEZ) announcing the creation of multiple categories of dedicated licences available in connection with the e-gaming industry. Recent Federal legislation also provides for 100% foreign ownership of UAE mainland companies (the implementation of which is yet to be finalised) in a majority of sectors, rather than the requirement to engage a local partner, making significant investments in the UAE (in e-gaming and more widely) potentially more attractive for foreign investors.
Any person engaging in e-gaming for commercial purposes should also take into consideration applicable e-commerce laws that apply in the UAE.
Franchising may involve the engagement of a player, or a player on a long term or tournament/completion only basis. The franchise relationship should address the roles/responsibilities of the parties, an exclusive appointment and representation by the franchisee, payment and bonus rewards for players and ownership of intellectual property rights in the franchise.
3. Intellectual Property
Intellectual Property (IP) is a valuable asset of a business (particularly with technology or e-focused businesses) and therefore it is imperative to ensure that all IP, of all relevant parties, is protected (contractually and/or by way of registration in the relevant jurisdictions) for the benefit of the business and its investors. Our IP team will take an in depth look at protection aspects of e-gaming in the next instalment of this series.
4. Corporate Documentation
It is important, from an investment perspective, to have the related documentation framework in place to govern the corporate entity operating the business and the rights/obligations of the stakeholders, including: (i) articles of association - to deal with rights and/or restrictions attaching to shares etc.; (ii) an investment agreement - to govern matters such as transfers of shares, management control, key employee matters etc. and associated ancillary agreements; and (iii) ESG and other policy documents - to ensure that the business operations align to its regulatory environment and market practices.
5. Contractual Framework
E-gaming relies on a host of contractual arrangements, including endorsements/sponsorship, advertising, competitors, IP (licensing) etc. It is important to ensure that this contractual framework is secure and that value of the business is protected.