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Compliance & Regulatory

Millions of Dollars in Limbo Amidst IeSF Corrpution Allegations

The International Esports Federation (IeSF), an organization pivotal in the legal recognition of eSports globally, is currently embroiled in a major financial scandal. This controversy revolves around the past IeSF World Championships that took place in Romania. The scandal was brought to light by Andrey Yatsenko, Director of Strategic Partnerships at StarLadder, and extensively reported by Reporteris.

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The IeSF’s Role and Influence

Established in 2008 and headquartered in Seoul, South Korea, the IeSF unites national cybersports organizations and advocates for the legal recognition of eSports. It operates under the auspices of the South Korean Ministry of Culture, Sports and Tourism, illustrating its significant international stature.

IeSF 2023 World CyberSport Championship

The event took place between 24 August and 4 September 2023, in Iasi, Romania, and was a landmark event in eSports, featuring tournaments in popular games like CS:GO and Dota 2, each with a USD 100,000 prize pool.

The Core Financial Scandal

Central to the controversy is the process and stipulations involved in acquiring the hosting rights for the championship. The Municipal Sports Club (CSM) of Iasi was expected to pay a USD 1 million license fee for this privilege. However, USD 750,000 of this sum was controversially transferred not to the IeSF’s primary account in South Korea but to a subsidiary in North Macedonia, reportedly associated with the IeSF. Notably, this subsidiary was established by then IeSF President Vlad Marinescu just weeks before the transaction.

Detailed Examination of the Financial Scheme

Irregular Payment Route

The payment to the North Macedonian company, rather than the IeSF’s official South Korean account, is the crux of the scandal. This diversion of funds raises serious questions about the legitimacy and transparency of the transaction, especially since the company in North Macedonia was a recent establishment by Marinescu himself.

The North Macedonian Connection

The involvement of the North Macedonian subsidiary, especially given its recent formation and the association with Boban Totovski, a controversial figure in eSports, adds layers of complexity and suspicion. Totovski’s past is marred with allegations of fraudulent activities, including incidents where prize money for tournaments he was involved with was never paid.

Inconsistent Financial Practices

The reported use of the 2023 event’s funds to cover prize money from the 2022 championships contradicts standard financial practices and raises questions about the management and allocation of funds within the IeSF. This mismanagement not only suggests potential financial irregularities but also reflects poorly on the governance and operational transparency of the organization.

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The Budget and Taxpayer Concerns

With a total event budget of EUR 7.3 million, there are significant allocations for various event aspects like logistics, ground rent, and production. However, the scale of these expenditures, largely funded by taxpayer money, has sparked debate over their justification and the overall financial governance of the event by IeSF and the local organizers.

Denials from IeSF North Macedonia and Iasi Municipality

Both, IeSF North Macedonia and the municipality of Iasi have vehemently denied any wrongdoing in the financial arrangements for the IeSF 2023 World Championship.

IeSF North Macedonia’s Standpoint

IeSF North Macedonia, represented by Ana Karakolevska, has categorically dismissed the allegations of improper financial conduct as unfounded. The organization insists that the funds transferred by the municipality of Iasi were handled according to standard international auditing and accounting practices, underscoring a commitment to transparency and legal compliance in cross-border transactions.

Municipality of Iasi’s Response

Similarly, the municipality of Iasi has come forward with a strong refutation of the corruption accusations. In their official communication, they have emphasized the legality of their actions, highlighting their adherence to established procedures in handling the licensing fee for the IESF event. The municipality’s statement underlines that their actions were in full compliance with the legal and ethical standards, and they have taken steps to ensure fiscal responsibility and transparency.

Chronology of Events

Early 2022 – Establishment of IeSF Subsidiary in North Macedonia

In a strategic move to expand its global presence, IeSF established a subsidiary office in North Macedonia. This step was seen as a means to facilitate operations within the European region.

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Spring 2022 – Transfer of Licensing Fee by Iasi

The municipality of Iasi transferred USD 500,000 to the North Macedonian office of IeSF. This payment, constituting half of the total licensing fee, was a critical step in securing the hosting rights for the World Championship in Iasi.

December 2022 – Financial Requests by Totovski

Boban Totovski, associated with the North Macedonian office, requested an additional USD 30,000 from the main office for operational expenses, citing a shortage of funds. This request added another layer of complexity to the financial dealings of the IeSF.

Contradictory Statements and Further Doubts

Despite the strong denials from IeSF Macedonia and the municipality of Iasi, the situation is far from being clear-cut. The details emerging from various sources paint a contradictory picture, leading to increased skepticism and doubts about the integrity of the financial transactions.

Insights from Jeff Bee

Jeff Bee, a former financial manager at the IeSF’s main office in South Korea, provided crucial insights into the situation. His revelations, as reported by the Romanian news portal Reporteris, suggest a pattern of mismanagement and obscure financial practices within the IeSF. Bee’s account points to irregularities in the handling of the licensing fee and other funds, raising serious questions about the transparency and accountability of the IeSF’s financial operations.

Financial Irregularities Highlighted

  • Questionable Use of Initial Funds: The way the initial USD 500,000 was utilized remains shrouded in ambiguity, with no clear breakdown or justification of the expenditures.
  • Unexplained Commissions and Expenditures: Various transactions and commissions lack proper documentation or explanation, suggesting potential financial mismanagement.
  • Non-Contractual Employment Practices: The employment of staff without formal contracts and the payment of salaries in cash point to a lack of standard HR practices.
  • Personal Use of Funds: Allegations of funds being used for personal expenses further tarnish the image of the IESF.
  • Irregular Private Company Transactions: The involvement of private companies in financial transactions without clear contractual agreements raises red flags about the legality and ethics of these dealings.

Impact and Concerns

This ongoing controversy has profound implications for the IeSF and the broader eSports community. The accusations and the subsequent denials have not only cast a shadow over the financial integrity of the IeSF but also raised broader concerns about governance in the world of eSports. With the South Korean Ministry of Culture, Sports, and Tourism suspending funding, the financial viability of IeSF’s operations is in jeopardy. This situation highlights the critical need for transparency and robust financial governance in sports organizations, particularly in the rapidly evolving

Conclusion: Implications and the Need for Transparency

This complex financial web involving international transactions, newly formed subsidiaries, and questionable allocation of funds highlights the need for stringent financial governance in international sports organizations like the IeSF. The ongoing investigations are crucial to unravel the full extent of this scheme, ensuring accountability and restoring integrity in the realm of eSports. This scandal serves as a cautionary tale about the challenges of financial management and transparency in rapidly growing international sports sectors like eSports.

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Via:  Telegram channel of Andrey Yatsenko, the Director of Strategic Partnerships at StarLadder

Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris.

Compliance & Regulatory

The Scandalous Legal Tug-of-War in Kenyan Esports: What’s Behind the Gaming Impact Grand Series Cancellation

The recent cancellation of the “Gaming Impact Grand Series” by the Electronic Sports Kenya Federation (ESKF) has sparked significant debate in the esports community. The Federation’s decision, citing SmartVR’s lack of registration and concerns over player safety and competition integrity, raises questions about regulatory intervention in esports events.

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Kenyan Esports

The “Gaming Impact Grand Series” promised to be a landmark event in Kenyan Esports scene, featuring monthly FC24 showdowns and significant prize pools. However, ESKF‘s intervention underscores the regulatory challenges facing esports in Kenya. Critics argue that the Federation’s approach could deter the growth of esports, advocating for a more supportive framework that encourages event organizers while ensuring participant safety and fair competition.

The Heart of the Controversy

At the heart of this controversy lies the Federation’s decision to cancel a highly anticipated series of monthly tournaments. These events, which promised to galvanize the local esports community with a grand finale prize of Ksh 300,000, were poised to set a precedent for the scale and excitement of esports competitions in Kenya. The Federation’s rationale centers on SmartVR’s failure to register as an official esports tournament organizer, coupled with apprehensions surrounding player welfare and the authenticity of competitive play.

Critique of the Kenyan Esports Federation’s Stance

The Federation’s stringent measures have not been met without critique. Many argue that such interventions, though arguably well-intentioned, may inadvertently stifle the growth and dynamism of Kenya’s esports ecosystem. Critics suggest that fostering an environment conducive to growth necessitates support and guidance for emerging organizers, rather than outright dismissal or obstruction. This incident has thus sparked a broader conversation on the balance between regulation and encouragement in the development of esports.

A Call for Collaborative Regulation

The crux of the issue may not lie solely in the act of regulation but in the manner of its execution. A collaborative approach, where regulatory bodies work hand in hand with event organizers, could serve as a middle ground. Establishing clear, accessible guidelines for registration and operation, alongside active support for compliance, could mitigate the risks without quashing initiative. Such a framework could ensure the integrity and safety of events while nurturing the competitive and entrepreneurial spirit that drives esports.

The Impact on Kenyan Esports Future

The implications of this legal skirmish extend far beyond the immediate parties involved. They touch upon the very trajectory of esports within Kenya, posing questions about the role of governance in a rapidly evolving field. The balance between safeguarding participants and promoting innovation becomes ever more critical as esports continues to capture the imagination of a global audience.

Towards a Constructive Resolution

The path forward requires dialogue, understanding, and compromise. The Federation, while steadfast in its commitment to regulation, must also embrace its role as a facilitator of growth. For their part, organizers like SmartVR must navigate the regulatory landscape with diligence and transparency, ensuring their events meet the requisite standards for safety and fairness.

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Conclusion: A New Chapter Awaits

The Gaming Impact Grand Series debacle serves as a pivotal moment for Kenyan esports, one that could define the contours of its future development. By embracing a spirit of cooperation and mutual respect, stakeholders across the spectrum can forge a robust framework for esports. This not only guarantees the safety and fairness of competitions but also ensures that Kenya’s esports scene continues to thrive, innovate, and inspire.

This article is inspired by James Fudge’s (The Esports Advocate) research on X/Twitter

Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris.

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Compliance & Regulatory

China’s Proposed Regulations on Online Games: A Comprehensive Overview

Explore China’s proposed regulations on online games, unveiled by the National Press and Publication Administration (NPPA)

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In a development there has been an announcement, by the National Press and Publication Administration of China (NPPA) on December 22 2023. They have introduced a draft guideline titled “Measures for the Administration of Online Games.” This comprehensive document consists of 8 chapters. Includes 64 articles. It aims to consolidate existing regulations while providing clarifications and amendments. Around 10 of these articles bring about changes in regulations marking a shift since restrictions were imposed on Chinese youth gamers back in September 2021.

One specific focus in the draft is Article 18 which aims to control spending and speculation in games. It states that games should not use reward systems that encourage users to overspend, such as offering in game rewards for logins or frequent purchases. Additionally the draft prohibits publishers from endorsing auctions for in game items. Publishers are also required to display pop up warnings to users who exceed a spending limit and set caps on in game expenditures although specific limits are not detailed in the draft.

The potential impact of these regulations regarding spending limits could be considerable as it primarily affects Average Revenue Per User (ARPU) games. Notably popular titles like Honor of Kings (Tencent) and Eggy Party (NetEase) may experience effects due, to their number of Daily Active Users (DAU) and low ARPU.
However game publishers face a challenge, in retaining and attracting users due to the lack of rewards for logins and ongoing purchases.

The response from both the industry and government to these regulations is crucial. Historical data shows that when there are changes in the gaming sector video game approvals tend to be put on hold. However after the draft release we saw a record breaking approval of 40 imported games and 105 domestic games in 2023. This indicates an inclination towards continuing to approve games, which demonstrates the governments commitment to fostering a gaming industry.

According to Niko Partners research the governments goal is to promote high quality development while addressing user concerns and rectifying business practices. The draft has prompted a response with the NPPA being open to industry feedback and recognizing the need, for revisions. It is worth noting that removing Feng Shixin, who oversaw the NPPAs Publishing Bureau has introduced an element of uncertainty into the landscape.

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As we progress through the 30 day review period industry stakeholders are eagerly anticipating a revised version of the draft that incorporates feedback.


Throughout the year it has become clear that China is moving towards implementing policies, for the video game industry. It is expected that the final draft will address concerns related to Article 18 providing an understanding of how loot boxes, daily incentives and spending limits will be handled. Although the complete impact is yet to be determined games that heavily rely on these monetization methods may encounter obstacles in the changing landscape.

image by: www.slon.pics

Author

  • Gilberto Ceballos

    Gilberto is a Mexican law student at Universidad Panamericana in Mexico City, one of the top law schools in the country, with an unwavering passion for various legal subjects like international law and arbitration. He is part of the full immersion program, designed to provide students with a deep understanding of international law. This experience aims to delve into the complexities of global legal systems, international relations, and dispute resolution mechanisms. In addition to this, Gilberto participated in the youth parliament organized by the Mexican Senate, representing the voice of the Mexican youth, as well as having various international academic experiences in Canada, United Kingdom and France. He is a passionate gamer and looking forward to contribute to ELN.

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Compliance & Regulatory

DouYu CEO Arrest: Implications and Company’s Response in the eSports Landscape

In a recent development that has sent ripples through the eSports industry, DouYu International Holdings Limited (Nasdaq: DOYU), a frontrunner in game-centric live streaming in China, faces a significant challenge. The Company’s CEO and Chairman of the Board, Mr. Shaojie Chen, was arrested by the Chengdu police around 16 November 2023. This news has raised concerns about the potential impact on DouYu’s operations and its position in the eSports value chain.

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The DouYu CEO Arrest and Its Immediate Aftermath

DouYu, in its official statement, disclosed that it was informed of Mr. Chen’s arrest on 20 November 2023. However, the reasons behind the arrest and the nature of the investigation remain undisclosed, as the Company has not received any official notice regarding the same. This lack of clarity has led to speculation and uncertainty, both within and outside the organization.

Sources close to the matter indicate that the investigation revolves around allegations of pornography and gambling content on DouYu’s platform, both of which are illegal in China. This arrest is part of a broader pattern of increased scrutiny and regulatory action against tech companies in the country.

Potential Impact on DouYu and the eSports Industry

Mr. Chen’s arrest and the ensuing legal proceedings, if any, could significantly affect DouYu’s reputation and operations. The company, known for its robust live streaming platform that caters extensively to the eSports and gaming community, might face challenges in maintaining its market position and user trust. The incident could also cast a shadow over the broader eSports industry in China, which has been burgeoning in recent years, with DouYu being one of its key players.

Company’s Response and Contingency Plans

Following Chen’s disappearance, DouYu has stated that its business operations remain normal. However, the company declined to comment on Chen’s whereabouts. This situation has raised concerns about the future of DouYu, especially considering the company’s significant user base of approximately 50 million monthly users and its diverse range of content, from eSports to live cooking shows.

Broader Implications for the Tech Industry in China

Chen’s arrest is the latest in a series of actions against high-profile tech executives in China, reflecting the government’s tightening grip on the tech sector. This trend has been marked by a two-year crackdown, affecting business confidence and investment, particularly in the tech industry. The situation mirrors the experiences of other Chinese tech figures like Alibaba’s Jack Ma and China Renaissance’s Bao Fan, who have faced similar challenges.

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DouYu’s Journey and Current Challenges

Since its founding in 2014, Chen had led DouYu to become a major player in the game-streaming and eSports arena. The company went public in 2019, raising USD 775 million from US investors at a valuation of nearly USD 4 billion. However, the ongoing crackdown and increased regulatory scrutiny have severely impacted DouYu’s business, with its market value plummeting to less than $300 million, a stark contrast to its cash and short-term investments worth nearly $900 million.

Tencent’s Involvement and the Failed Merger

Tencent, holding a 38% stake in DouYu, had plans to merge the company with rival streaming platform Huya. However, this merger was abandoned in 2021 due to failure in obtaining approval from China’s antitrust authorities, further complicating DouYu’s position in the market.

About DouYu International Holdings Limited

DouYu, headquartered in Wuhan, China, is a leader in game-centric live streaming. The platform, accessible via PC and mobile apps, offers an immersive and interactive experience in games and entertainment live streaming. It is particularly noted for its focus on eSports, providing a mix of video, graphic content, community events, and discussions. DouYu’s commitment to high-quality content and technology-based talent development has been instrumental in expanding its user base and enhancing user experiences.

Looking Ahead: The Road for DouYu and eSports

The arrest of Chen Shaojie and the subsequent uncertainty surrounding DouYu underscore the complex and often precarious nature of operating within China’s tech sector. This incident not only affects DouYu but also sends a cautionary signal to other companies and investors in the industry. As the situation evolves, it will be critical to monitor how DouYu navigates these challenges and what this means for the broader landscape of tech and eSports in China.

As the situation unfolds, the industry and stakeholders will closely watch how DouYu navigates this challenging phase. The company’s response and adaptability in the face of this unforeseen event will be crucial in determining its future trajectory in the dynamic and ever-evolving world of eSports and live streaming.

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Via: PRNewswire

Image source: BNN

Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris.

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