Esports: The rise of the next billion dollar industry

By Matt Dunn

Video games. When the typical person hears that term they generally think of a young person hiding out in their parents’ basement or some other negative connotation. But in today’s world, that couldn’t be further from the truth. The truth is now there are thousands of people of all ages getting paid to be “professional video gamers.” Video games have been around for years and have become more accessible and prevalent as technology increases. Starting with the original Nintendo Entertainment System, launched in the US in 1985, all the way up to Microsoft’s Xbox One X that was announced last month, the popularity of console video games has been increasing at an exponential rate. But even more so than console gaming, the boom of technology in the PC market has allowed for the rise of the true modern day sport, Esports.

The question most of you are wondering right now is, what in the world is esports? Esports is the general term for all competitive video gaming. Current competitive titles include League of Legends, Dota 2, Counter Strike: Global Offensive and Call of Duty: Infinite Warfare. In 2016 alone, there were over 3,900 esports competitions held around the world. Among those competitions there was well over $70,000,000 in prize money handed out, including over $37,000,000 in Dota 2, $14,600,000 in Counter Strike: Global Offensive, and $9,800,000 in League of Legends. These dollar amounts do not include any type of advertisement, sponsorship deals, or player salaries. Overall, revenue for esports in 2017 is expected to grow to over $700,000,000.

So is someone punching buttons on a controller or keyboard considered an athlete of an actual sport? The US government has recently decided that in fact yes, esports participants are considered athletes just like if they were playing one of the major sports. Under a P-1A visa, an “internationally recognized athlete” can be granted a Visa to enter the US to train and earn a salary for up to five years. This type of Visa was traditionally granted for a participant in one of the major sports such as football, basketball, soccer, etc. That is up until 2013, when the US government recognized and allowed esports athletes to acquire and utilize this type of visa for the first time. It’s important for any athlete coming to the US to receive this type of Visa because it allows you to earn a salary while staying in the US, whereas most other types of Visas do not allow you to earn any monies, except prize money winnings.

So how do lawyers play a part in this ever expanding industry? The simplistic answer is in every way. Two of the biggest areas of legal significance right now are player representation and gambling.

As one would expect with any athlete, there is a need for player agents and representation when dealing with any type of contract. Just as in the major sports where a player is often represented during contract negotiations, the same is becoming necessary for an esport athlete. There has been a significant rise in the need for player representation because of the amount of money that is now involved. Just in the last five years, most esports organizations have gone from grassroots organizations that had handshake deals with their players to now having a number of players across multiple games receiving over six figure annual salaries. It likely won’t be long before esports athlete agents are regulated in a similar manner as a major sport athlete agent.

Gambling in esports has taken many forms but the one currently at the forefront of controversy is gambling weapon “skins” in Counter Strike: Global Offensive. In the game, the creators have released an extensive series of different weapon “skins” that allow for the individual player to acquire these “skins” and then equip them during gameplay to make their weapons look facially different. Because these “skins” are not all available to everyone, they began to take on real world dollar values. Depending the rarity and popularity of the individual “skin,” prices on some items have reached into the thousands of dollars range for a single item. As this market began to grow, third-party internet sites began popping up that allowed a player to bet or wager their “skins” against other players. It’s estimated that over $7 billion in “skins” were bet on these websites in 2016 alone. These sites were allowed to thrive for quite some time due to the Courts determining these items be classified as “virtual items” and therefore not “real money.”

Most of these betting websites have been shut down now as the unregulated gambling of “skins” was brought to a screeching halt when several popular gaming personalities were found to have owed these sites without properly disclosing their ownership stake or sponsorship deals. These individuals advertised the sites on their channels without disclosing in accordance with Federal Trade Commission requirements. The FTC requires that anyone who is being paid for their endorsement of a product to clearly disclose their agreement with the company. This required disclosure did not happen by those involved in the gambling sites and several of these individuals are now being sued in class action lawsuits. Because of this new scrutiny in a few higher profile cases, these in-game virtual items will likely soon be considered to have a real money value and, therefore, will no longer be able to be used for unregulated gambling.

These are just some of the legal issues that are currently affecting the up and coming esports industry. Video gaming is becoming more popular and accepted every day and shows no signs of slowing down. This is likely only the very tip of the esports iceberg and the potential legal ramifications that come along with it.

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