Torino FC celebrated their championship victory on 13 April, after a hard-fought match against Venezia. No, we are not recalling the glories of the Granata of the 1975-76 season: we are talking about e-sports. In particula, we are talking about the Final Eight of the eSerie A TIM, which ended a few weeks ago with the victory of the player Obrun2002, the most skilled in managing FIFA 22 players through his Playstation controller. A “live” event broadcast on TimVision and various Twitch and YouTube channels, also commented in English.
This is just one of the many events that make up the varied international puzzle of e-sports. So let’s shed some light on this gaming phenomenon – closely linked to the revolutionary advent of NFT, on which we discussed in a previous post here – that has become a competitive and professional sport in just a few years.
E-Sports is the term used to refer to electronic sports, i.e. video game competitions played between several teams at national or international level on a virtual platform and whose format can be the same as other sporting competitions such as football or basketball. It differs from the “gaming” which is purely recreational.
E-sports is a sector with great expectations for growth in the coming years, as predicted by studies conducted by different consulting firms and specialists such as Boston Consulting Group, Insider Intelligence and Aevi. According to Newzoo, e-sports revenues were $856 million in 2018 and are expected to grow to $1.79 billion by 2022 with sponsorship and advertising being their key channel up nearly 60% when combined. These numbers include also media rights, merchandise, ticket sales and game publisher fees.
Apart from the mere “numbers”, e-sport is a sector with particularly interesting legal topics.
Is e-sport a sport?
A long-standing debate revolves around the sporting consideration of e-sports and the question: “Is e-sport a true sport?”. To answer this question, it is first necessary to define what a sport is and there is neither a harmonised definition for that.
The French Council of State has, for example, laid down several cumulative conditions for qualifying an activity as “sport”, namely the pursuit of physical performance in competitions organised on a regular basis according to well-defined rules, and the existence of physical activity.
In view of the above, if chess – for instance – can be considered a sport in its own right, e-sport should be able to benefit from the same appreciation, especially since the structure of e-sports tends to follow that of the sports movement.
These similarities in structure and values should not, however, blind us to two fundamental differences between e-sport and sport: (1) the transitory nature of competitive titles, which is a commercial product with a limited life cycle in a constantly evolving environment; (2) the existence of a role that has no parallel in classic sport: the publisher, owner of the intellectual and industrial property of each title or game.
E-sport players, are they employees or self-employed?
If e-sport can nowadays be generally considered a sport, the status of e-sport players worldwide is still uncertain.
Each national legislation and the interpretation given by the courts is particularly decisive in this respect.
That being said, qualify an e-sport player as employee or self-employed depends from the existence or not of a link of subordination.
Conversely, the existence of a written contract and its wording will most often be irrelevant. Therefore, even if the parties declare that it is a contract for the provision of services, its qualification will depend by the actual conditions of its performance and the relationship between the e-players and the teams will be deemed an employment relationship if the employer can exercise a power of control, direction and sanction over the e-player.
This is easier to establish when professional e-players are part of a team composed of coaches, doctors, physiotherapists, technical, marketing and administrative staff and even psychologists. Organisations such as Liga de VideoJuegos Profesional (LVP) in Spain require their teams to deposit the employment contracts of their e-players before starting its competitions.
This approach was also followed in France, one of the first countries to regulate the e-sports and specially to set up an authentic “professional e-players’ status” via the law n. 2016-1231 of 7 October 2016 pour une République numérique which created a specific employment contract for professional video game players inspired by the one existing in the French sports code for professional sportsmen and women.
Signing such standard employment contract is mandatory for companies/associations operating in the e-sports environment which are also obliged to obtain the approval granted by the Minister for Digital Affairs to participate in competitions.
This type of contract may last between a minimum of 1 up to a maximum of 5 years, with the minimum length that can be shortened in case of a replacement for an absent or suspended professional e-player and when the contract runs at least until the end of the season, which is set by ministerial order. Other interesting provisions of this type of contract are that the e-player as employee is provided with supplementary pension, provident funds and supplementary health cover and that it cannot contain clauses for its unilateral termination.
Finally, French law also envisages the possibility for companies and associations benefiting from the approval of the State to employ minors of 16 years of age, provided that they have received an authorisation from the Commission des enfants du spectacle for each minor concerned.
On the other side, the approach and categorisation is very different when professional e-players have freedom to schedule their activities, have their own material means (computers, software and connectivity), rent and use the infrastructure of, for example, the organiser of an event for their own use and practice, and are registered within the competitions as independent. In these cases, self-employed players assume the risk of their participation in the competitions and they can then post their game to monetise it on platforms, Twitch for instance, without obeying the imposed content criteria of a third party.
How is e-sport organized and how competitions are regulated?
The International E-Sports Federation (IESF) is based in Seoul (South Korea), established as non-profit corporation currently includes 123 national federations.
The statutes of IESF recognizes the jurisdiction of the Court of Arbitration for Sports (CAS) in case of dispute arising therefrom or in connection with its events. The IESF set up as well an anti-doping regulation developed in partnership with the World Anti-Doping Agency granting an exclusive jurisdiction to CAS in appeal to decide on cases arising from the participation in an international event or in cases involving international level athletes.
E-sports tournaments are fantasy sports tournaments organised by private companies such as Riot Games, an American company which combines its role of video game developer, publisher and e-sports tournament organizer managing League of Legends, regularly cited as the world’s largest e-sport, free-to-play and monetized through purchasable character customization. Suffice to mention that its 2019 event registered over 100 million unique viewers, peaking at a concurrent viewership of 44 million and that its domestic and international events have been broadcast on livestreaming websites such as Twitch, YouTube and cable television sports channel ESPN.
As such, the private e-sports sector carries out and organises all the development from a competition point of view. Nevertheless, in the absence of a clear state regulation, the holding of these competitions or more globally the existence of e-game rooms can pose certain practical problems.
One of them, is to be assimilated to gambling or lottery activities, the activity of which most often requires in several states an authorization/declaration and/or the respect of several conditions. Indeed, participation in these competitions often involves the payment of an entry fee and gives rise to a reward for the winner.
If some European countries, such as France, are well aware of the potential of the e-sports phenomenon to such an extent that they regulate it and exploit it in the electoral campaign by raising their sights with statements of a certain weight (e-sports protagonists of the Paris 2024 Olympics?), other nations, such as Italy, are still lagging behind in recognising its economic impact and popular relevance.
That is why in Italy, in April 2022, there was the rather surprising case of the closure of 4 LAN (Local Area Network) rooms by the authorities. These premises equipped with PCs and consoles for e-sports tournaments were placed under seizure due to the intervention of the ADM, the Customs and Monopolies Agency, which allegedly saw a similarity with traditional arcades – thus not considering the differences between the two types of activities – and contesting the LAN rooms’ failure to possess a series of authorisations and approvals presented instead by traditional games rooms.
Beyond the details of the case, the affair highlights a gap to be filled: the lack of up-to-date regulations. Suffice to mention that the current Italian regulations are very outdated if we consider that they equate LAN rooms to the more traditional arcades, made up of coin-operated arcade games.
Intellectual Property matters
Another area of law that is of fundamental relevance in the e-sports sector is intellectual property.
The sources of the main economic revenues generated by all major sports today are (i) sponsorship contracts and (ii) the commercialisation of audio-visual rights to broadcast major tournaments or competitions but the issue is somewhat more complex in e-sports.
In addition to the traditional stakeholders, e-sports must necessarily include a new key role: the studio/company that develops the video game, which has a new way of exploiting its work that is just as profitable, if not more profitable, than distributing copies.
This is undeniable since the basis of competitions are the video games themselves, creative works of a complex nature that are intangible, exclusive and irreplaceable and which are protected by the intellectual property or copyright law and whose rights exclusively belong to the developer company.
Videogames usually have two parts: the technical part, which basically consist of a computer programme that gives the video game its structure and allows the movements made by the e-players on the controller or joystick to be faithfully represented in the game, and the artistic part composed of a wide variety of creative contributions: characters, skins, scenarios, plot or script, music and even acting performances.
In the e-sports world video games cease to be a product in themselves and become, in turn, a key element in the creation of a new tool: the commercialisation of audio-visual broadcasts.
The development company acquires, either by statutory provisions or by entering into comprehensive licensing agreements, all the necessary exploitation rights over the different elements mentioned above to include them in the video game and to be able to exploit it as a whole.
The presence of the development company in the e-sports sector is thus unavoidable insofar competitions cannot be organised without the company holding the commercial rights of the video game in question. This led to two different paths: it is possible that competitions will be entirely centralised by the videogame developer itself, as Riot Games is already doing with its League of Legends but it is also possible that the developer licenses to third parties the organisation of competitions and/or the broadcasting of events. Both models currently coexist. In this second scenario, different stakeholders can carry out acts of exploitation of the publisher’s intellectual property in the e-sports sector: the organiser of the competition, the broadcaster and/or the exhibitor.
In general terms, developer companies can monopolise the exploitation of their audio-visual rights, exercising the position of strength that ownership of the video game gives them.
Obviously, for the competition on video games is only possible with the presence of good teams and players showing their skills and raise the fans’ interest. Different from some traditional sports however these teams do not usually participate in the revenues derived from the commercialisation of broadcasting rights and that is why their source of income is somehow still limited. Only by redesigning the model of exploitation of audio-visual rights so that all key members of the spectacle can obtain a share of their revenues can render the whole system more profitable for all its leading actors.
An unstoppable growth
Notwithstanding the critical issues we have highlighted and the need for some countries to update their legislation on this subject, e-sports continue to grow producing an increasingly significant economic impact.
Although the International Olympic Committee has described the inclusion of e-sports among the Olympic disciplines as “premature”, it cannot be ruled out that it could make an appearance, for the first time in history, at the 2028 Los Angeles Olympics.
In the meantime, as a law firm, we will continue to monitor the developments of this sector, investigating its legal evolution and its impact on both the regulatory and business side.
