Gowling: This is How Game Publishers Influence the Esports Industry

The esports industry is growing at an impressive speed, with the global gaming market projected to generate US$152.1 billion in 2019, according to a report published in June by Newzoo. 

On June 19, Susan Abramovitch, partner at Gowling, spoke at the Canadian Securities Exchange’s Epsorts and Capital Markets event at the Westin Bayshore in Vancouver. The event included speakers from Pepper Esports, Cash.Live, the Gaming Stadium and ePlay Digital (CSE:EPY). Abramovitch is an entertainment lawyer with an extensive history in virtual asset analysis.

The event featured two panels that covered esports investment opportunities, different segments of the industry and the outlook for the sector.

On the sidelines of the show, the Investing News Network (INN) spoke with Abramovitch about the legal landscape of the burgeoning industry.

She discussed intellectual property rights, esports player protections and the role of game publishers in the industry. Read on to learn her thoughts; the interview has been edited for clarity and brevity.

INN: I understand you wrote a paper with David Cummings in 2007 that describes three levels of virtual assets, and another in 2009 titled “Virtual Property in Virtual Worlds.” Could you talk more about the different levels of virtual assets?

SA: That was in the day of Second Life we were writing about, and pre-social network platforms. So the thing in those articles that we were looking at was what the different levels of intellectual property were and could be. They also included the risk analysis involved in all of that, at least in those days, over 10 years ago, when new personas were being created and manipulated by individual players.

To bring it up to date to esports 11 or 12 years laters, one of the major issues is obviously that the games are owned by the publishers. But when a player plays a game, they may be creating a derivative work, which is their manipulation or play of the game. So there might be several layers of intellectual property rights involved in a game.

INN: Interesting. And what are you seeing right now when it comes to approaches to intellectual property and esports?

SA: The thing about esports, unlike traditional sports, is that the game doesn’t exist without the publisher. Unlike soccer or football or basketball, which aren’t games that are owned by anybody, the games in esports are very much owned by the game publishers. Given that position of strength, really, the game publishers just make sure that they’re in control of all rights and that if anybody plays, the terms and conditions ascribe any ownership to them.

So again, unlike me photographing myself playing or doing a particular basketball move, or even another element of life, a lot of these questions are hypothetical — intellectual questions that really don’t need answers — because the game publishers who own the game make sure that they control the rights.

INN: How would you say that this relates to contractual obligations to the players? Would you say that there needs to be more protection? 

SA: I do, and that goes beyond intellectual property analysis. That’s only one aspect of it. A lot of these players are being signed to esports teams without players’ associations or minimum standards. Very often they are inexperienced, have little money and are possibly even minors.

So they find themselves keen to play and don’t necessarily have the wherewithal to either hire lawyers or educate themselves, or they do not have the leverage to demand better terms and conditions from the teams that they sign with.

INN: How are you seeing esports governance right now in the industry? 

SA: There is none, to the extent that governance means that there are unions or associations looking out for the protection of the players. With one exception there really are none. The one exception is the League of Legends Players Association. But of course that players’ association was actually formed and funded by the game publisher, in that case, Riot Games.

Other than that example … there are no unions or protective groups. It’s very hard to get your hands on these contracts, because a lot of these are being signed without the help of lawyers and are not necessarily made public.

A recently leaked gamer contract with a team showed that the salary was US$2,000 a month. It also showed that there were prohibitions on the use of the team’s name and logo without the team’s prior written consent; there definitely were exclusivity clauses for that player.

Any intellectual property, including the streams of the players playing the game, were assigned to the team. Then the money was split in various fashions; for example, any prize money was to be split 80-20 in favor of the players, any appearance at event money 50-50, brand deals brought in by the player 50-50 and if the team brought in a brand deal or some kind of sponsorship, the player only got 20 percent. So you can see that gamers typically lack bargaining power and that leads to contracts that are not super favorable to the player.

INN: What do you think needs to be done?

SA: Well, I think it starts with two things. Number one, a lot of players are starting to realize that they may be better off playing their own games and earning their money more as influencers on the various gaming streaming platforms.

You don’t need a team to stream yourself playing a game. And if you get popular like Ninja, selling sponsorships and all of that, you don’t need a team to do that. It may prevent those players from actually engaging in esports leagues and tournaments, but maybe they can bypass that.

Number two, teams aren’t making that much money yet either. I think when there’s more money at play for the teams and the gamers become more important in earning money, I think gamers might decide to come together and start gaining power. This could be done through either unionizing or acting in strength in numbers and negotiating better contracts.

INN: It’s definitely something that doesn’t immediately come to mind in terms of unionization for esports players. On the other side, what are you seeing when it comes to commercial practices with esports companies, media partners and sponsors?

SA: Well, what’s really driving the industry right now is the sponsorship money for sure. There is definitely money earned in prize money and ticket sales. If there’s live events, it goes to the publishers. There is money being earned in different ways. The vast majority is through sponsorship. That’s really what I think right now is driving the industry.

And that sponsorship money, depending on where you are in the ecosystem, is money that might have to be shared between a player and a team. Then the team, they have to share with the league, which ultimately is owned by the publisher. So that’s really where people are focusing and trying to get their hands into a split of that revenue.

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Securities Disclosure: I, Dorothy Neufeld, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.