Yearly Wrap Up & 5 Trending Esports Legal Topics For 2024

Yearly Wrap Up

As 2022 continued into 2023 and the “esports winter” in the United States arrived, there was a myriad of shifts in the business and legal landscape including esports organization FaZe Clan famously going public at a nine-figure valuation, receiving a Nasdaq delisting warning; and eventually being purchased at a fraction of its initial listing price by the owners of the esports organization Complexity, GameSquare. This purchase was in addition to other esports organizations and event operators being acquired including NRG Esports buying Counter Logic Gaming, Shopify purchasing a League of Legends spot from TeamSoloMid (TSM), and the Savvy Gaming Group acquiring Electronic Sports League (ESL), Dreamhack, FACE-IT, and Vindex including Esports Engine. There was also a highly publicized franchise fee payment arbitration dispute, disclosed and undisclosed salary “caps” as well as an esports players’ association initiated “walkout.” Finally, Microsoft received approval for its purchase of Activision-Blizzard which is set to shift the entire esports space in ways yet to be seen. Accordingly, while there are many legal topics that are currently trending, here are five ones to monitor as the esports global industry continues to grow and evolve in 2024.

I. Continued player (gamer-tag) and esports team name disputes

Riot Squad Esports sued by Riot Games, Valorant team Squirtle Squad changing its team name, and streamer and content creator Digitalprincxss agreed upon rebrand from “Pokeprincxss” are just some of the recent examples of improper brand building and legal due diligence causing individuals to have to alter their entire established gamer-tag and associated personal “brand” as well as companies being involved in a trademark infringement lawsuits and other costly name disputes.

II. Franchise fee payment disputes

After a highly publicized compelled arbitration and eventual settlement, the Overwatch League eliminated all the outstanding fees owed by the participating franchise teams as well as agreed to absolve the esports organizations of any future franchise league payments. While the exact specifics and reasoning for the settlement are undisclosed, the Overwatch League did not seem to live up to expectations after nearly two dozen teams spent several million dollars in franchise fee buy-ins paid to the league operator Activision-Blizzard as well as expended additional substantial sums on player and personnel salaries, training, and other related team operational costs. While the Overwatch League seems to have disbanded, it will be interesting to see if any other esports franchise leagues that previously required and collected a buy-in payment will be subject to a similar fate with compelled alternative dispute resolution (ADR) by disgruntled franchisees. If so, this additional quarrel will be an interesting situation to monitor to see if it is resolved in a similar fashion or if litigation is necessary to effectuate a resolution.

III. Additional player salary “caps”

This past year, Activision-Blizzard settled a Department of Justice (DOJ) lawsuit for unlawfully implementing an undisclosed salary “cap” described as a “competitive balance tax” in its two franchise leagues. This undisclosed tax “penali[zed] teams that spent more on player salaries than an amount decided by Activision Blizzard.” Accordingly, the DOJ sued Activision-Blizzard for “suppress[ing] the wages of esports players” in both the Overwatch and Call of Duty leagues “in violation of the Sherman Act.” Conversely, league operator Riot Games instituted agreed upon player salary “caps” in both the LCKand LECfranchiseleagues for League of Legends esports, including capping an organization’s total player salaries to “70 percent” of the team’s annual revenue. Additionally, the franchise league also imposed a “‘luxury tax’” payable by any team that spends “over the maximum” amount. After the North American League of Legends Championship Series Players’ Association’s (NALCSPA) successful stance, it will be interesting to see if a salary “cap” and “luxury tax” implementation is on the horizon for the North American league. If so, this action may be ripe for dispute and discussion by the NALCPA and other interested parties including potentially the DOJ as a potential restraint of trade or other anti-trust violation. While each country has its own labor and employment laws, implementing a concerted effort to impair esports professional players’ wages could be a similar DOJ violation as the one that Activision-Blizzard encountered (U.S. v. Activision Blizzard, Inc., No. 1:23-cv-00895 (D.D.C. Apr. 3, 2023)).

IV. Continued immigration hurdles for foreign esports players and teams

In the United States, there has been a series of highly publicized esports players and teams missing competitions, league matches, and other events as the result of failing to timely obtain proper work authorization in the form of a “visa” to enter the country. As noted, a visa is required for any foreign citizen wishing to come to the United States to earn some form of income, including receiving a salary from a U.S.-based esports team or earning prize money from a U.S.-based esports tournament organizer. This year has been no different, as the currently existing visa classifications and corresponding application criteria act as continued hurdles to the seamless issuance of visas for professional esports players, coaches, casters, and other personnel. While some independent organizations, such as the Esports Trade Association (ESTA) created services to assist in fulfilling some of the visa requirements, the currently existing legislation and statutory framework does not seem to adequately address and account for the unique needs specific to the competitive video game industry. As a result, similar to Germany, it might be appropriate for the federal legislature to create and carve-out a unique visa category classification for esports and competitive gaming in an effort to streamline the application process for the government officials handling the cases as well as for the individuals and businesses applying for work authorization. If not, there is sure to be a continued trend of players, coaches, and other individuals missing lucrative competitive opportunities as well as more large-scale esports events occurring outside the United States due to these hurdles.

V. Continued “community” tournament guidelines licensing changes

Since a game publisher or developer owns the exclusive copyright in the game, the company determines all usages of a title, including any commercial ones. However, many game entities have created “community” events or tournament guidelines that permit the hosting of certain commercial events without obtaining a license and paying a licensing fee to the game publisher or developer. While each company issued its own criteria, some companies have recently enacted stricter guidelines than others companies, including Nintendo and Capcom. Accordingly, these stringent procedures might potentially negatively impact some existing event operators whose current events might not fit into the revised and potentially arbitrarily determined criteria causing them to cease operations due to the lack of potential profitability. As a result, the unfettered discretion by the game developers and publishers in implementing the prize pools limitations, imposing branding and event marketing guidelines, and other articulated restrictions could potentially be challenged. As a result, similar to other entertainment industries such as music, it could be argued that there might be a need for a third-party royalty board or other similar tribunal to weigh in and potentially establish a uniform statutory rate or compulsory license system as it relates to third-party event operations. While this might not necessarily be a legal battle on the horizon or one that may ever exist, there are many business ventures that are impacted by game publisher and developers’ community tournament guidelines as these rules can be changed at a company’s leisure. For instance, these alterations impact the establishments that these events occur at, the players competing in them, the casters commentating for them, as well as the companies involved in the production, marketing, and other aspects of the events.

VI. Conclusion

As evident by the above and by the many other potential legal matters that may spring up in the coming year, it is clear that there will be many new issues and disputes for esport legal practitioners to engage with and learn from. It will be interesting to see if existing players’ associations continue to grow in power and influence as Rocket League launched its own association which added to the growing list of independently created player advocacy associations. Accordingly, the sustained growth of these organizations will be especially important and applicable to the esports legal field in light of the potential restructuring of franchise leagues as well as due to the agreed upon player compensation limitations enacted in esports leagues outside the United States. In addition to potential anti-trust issues related to a game publisher or developers’ ownership and unfettered discretion as it relates to third parties utilizing their protected works, there are immigration and intellectual property law matters that require ample attention and focus in order to ensure that all the individuals and companies in the esports industry are operating in the most efficient and economical fashion to grow the entire field. Overall, it will be interesting to see if there are additional mergers and acquisitions with many existing gaming companies exploring their potential long-term viability along with what the best course of action is going forward.

Disclaimer: This article is not intended as legal advice, as an attorney specializing in the field should be consulted.

Image: DallE