esports are so much more than an innovative, rapidly growing competitive sports discipline: from a brand owner and investor perspective, esports also provide truly global multi-channel opportunities for unique marketing and advertising initiatives with the potential to appeal to today’s over-sated young audiences. And with the rapid growth of the industry comes its increasingly sophisticated regulation, providing a degree of stability and legal certainty that is crucial for attracting investment. In short, esports come equipped with everything to make the industry a vibrant hot-spot for exciting new business initiatives. At the same time, the complexity of entwined intellectual property rights owned by stakeholders on various levels calls for careful draftsmanship when businesses decide to join the esports arena.

esports are video games played competitively and professionally at a scale that beggars belief. Teams compete for millions of dollars in prize money, playing live matches in arenas with huge audiences and accompanied by the full orchestrations of the digital age: huge video screens, epic cinematic soundtracks, witty commentators and roaring fan crowds. And simultaneously, fans all over the world are following the live streams of matches on dedicated esports channels such as Twitch, YouTube Gaming and Azubu.

Stakeholders and their global Millenial audiences

The numbers speak for themselves: esports have generated over USD 900 million in revenues in 2018,with revenues expected to grow to USD 1.4 billion by 2020. The industry combines a wide circle of different stakeholders, including game publishers, teams, players and their sponsors, league organizations, eventorganizers, advertisers, broadcasters, merchandise vendors and manufacturers of dedicated software and hardware.

And they all vie for the attention of a truly global crowd of esports enthusiasts whose demographics are every advertiser’s dream: the majority of esports viewers are Millennials under the age of 35. This audience is notoriously hard to reach through traditional forms of advertising – only a meagre 6 % of Millennials find traditional forms of advertising credible, and the majority have adblockers installed and will routinely ignore standard online advertising formats. In contrast, most esports enthusiasts have a favorable view of brand involvement in esports.

It comes as no surprise, then, that global brands from every industry, covering tech and consumer goods, automotive and financial institutions, are avidly exploring the wide range of brand involvement opportunities that esports can offer: from sponsoring an entire tournament (such as the Intel Extreme Masters), a team or individual players, to positioning brand messages within a game (think of brands shown on the shirts of virtual football players in FIFA games), in-stream advertising on Twitch and You-Tube Gaming, to merchandise (such as Hasbrotoy figures of Overwatch characters). The opportunities are manifold, and they are fresh and appealing.

Look out for IP rights!

Whatever involvement in esports a company may be planning, there will be intellectual property rights to consider on several levels, and owned by a network of different right holders. From the visual and audio game content, to rights in live commentary, performance rights, league involvement, broadcasting rights, team brands, sponsor brands and merchandise. The “Spectate Faker”case illustrates quite strikingly how important it is to ensure that all necessary IP rights have been appropriately addressed before an industry player enters the esports arena. Faker, a pro player for the game League of Legends, had signed a deal with the streaming platform Azubu, giving Azubu the exclusive rights to stream Faker’s games. A third party then launched an automated live stream on Twitch called “Spectate Faker”, which went live whenever Faker played. Azubu filed a DMCA request with Twitch to take down the “Spectate Faker” stream. But it turned out that Azubu did not have the standing for such a takedown request. Since the act of playing an esports game is not individually protected, the rights in the streamed content lay with Riot Games, the publisher of League of Legends. So the license rights Faker had granted to Azubu were non-enforceable against third parties. The game still ended well for Azubu and Faker, thanks to the industry’s self-regulation. Riot Games, per its “Legal Jibber Jabber” liberally allows players to stream their spectator mode via third party platforms, even with a certain commercial scope. So Riot Games as the right owner in this case stepped up and filed the DMCA request with Twitch that was necessary to take down the unauthorized “Spectate Faker” stream. Another example, this one involving trademark rights, illustrates the increasing awareness of stakeholders in the relatively young esports industry for securing protection of their intellectual property, and shows how important it is to thoroughly vet for third party rights: FAZE Apparel ,a clothing company, obtained a preliminary injunction against the FaZe Clan, one of the most popular esports teams. The FaZe Clan had filed several US trademark applications for FAZE marks, including for apparel. FAZE Apparel secured an injunction enjoining use of FAZE on apparel, unless it is followed by the word CLAN in close proximity. The dispute is still pending.

Increasing industry regulation: Beneficial for all stakeholders

As the esports industry is growing at lightning speed, regulation is catching up, affording the stability and legal certainty that is necessary to foster long-term growth and investments. Since 2018, we have seen a trend of increasing restructuring of esports leagues. Initially, esports leagues were purely merit-based: everyone could participate, and in turn, teams could qualify, but also be kicked out again, on short notice. Correspondingly, revenue for players as based only on participation in an ongoing event – so players had a low incentive to continue if they had a row of bad events. But since 2018, a number of professional esports leagues, including the Overwatch League of Blizzard Entertainment, and the North American League of Legends Championships of Riot Games, have increasingly been shifting towards a franchise system, similar to the buy-ins and structure familiar from traditional sports leagues such as the NBA and NFL. Teams can no longer fall off the league mid-season, and players receive annual salaries and a share in revenue. The resulting stability is not only beneficial for teams and players, but also for prospective investors. As teams and players play for longer terms, viewers become more attached and the fan-base can be grown. In turn, this enables longer-term investment plans and increased visibility of investing brands. esports is certainly a space to watch, and not only in spectator mode. Join the game and consider the opportunities esports presents for your company!