Esports series #2: The rise of esports: Navigating an evolving legal and regulatory landscape
The growth of esports is most striking in Asia, particularly in China, which has recognized esports as an official sport since 2003 and included it as a medal sport in the 2023 Asian Games. However, the industry's rapid development has outpaced the laws designed to regulate it, leading to unique legal challenges.
Regulatory Structure Challenges
Unlike traditional sports, esports lacks an international governing body. Multiple organisations, such as the International Esports Federation and the Global Esports Federation, aim to centralise governance but face competition and lack widespread recognition. This fragmented regulatory environment leads to inconsistencies, as game developers largely regulate their own games, setting rules, running competitions, and disciplining players. This self-governance can result in perceived conflicts of interest and inconsistent rulings.
The Olympic Esports Games (OEG), established by a partnership between the IOC and Saudi Arabia's National Olympic Committee, aims to create a unique structure for esports, distinct from traditional Olympic events. Whether this will lead to a cohesive regulatory framework remains to be seen.
Emerging Financial Regulation
A fragmented regulatory structure has resulted in inconsistent financial rules across geographies and games, causing issues like unsustainable team spending and anticompetitive practices. Riot Games' introduction of salary caps in the League of Legends EMEA Championship is a step toward financial sustainability, but it raises complex legal issues in antitrust and employment law.
Salary caps aim to curb salary inflation, which can lead to the shutdown of esports teams amid economic uncertainties. However, financial regulations must be crafted carefully to avoid being overly complex or favouring established participants, as seen in other sports.
Legal challenges also arise from the Department of Justice's action against Activision regarding the "Competitive Balance Tax," which was deemed an unreasonable restraint of trade under the Sherman Act.
Integrity Issues
Doping, gambling, and player misconduct jeopardise the integrity of esports, similar to traditional sports. While some organizations enforce drug testing, the absence of a unified governing body means not all tournaments follow doping regulations. Match-fixing remains a concern, as seen in China's League of Legends Development League and the Royal Southeast Asia Cup Valorant competition in Singapore.
In-game purchases, such as loot boxes and skins, raise gambling concerns, particularly affecting young players. New legislation like the UK’s Online Safety Act and the EU’s Digital Services Act necessitates robust user protections and age-verification procedures from game developers.
Dispute Resolution Forums
Esports lacks a unified dispute resolution forum. Unlike traditional sports with institutions like the Court of Arbitration for Sport (CAS), esports forums vary by game, tournament, and region, making dispute resolution costly and unpredictable. Prominent forums include the World Esports Association Arbitration Rules and the Arbitration Court for Esports. Recently, the Bahrain Esports Federation appealed to the CAS, marking a potential step toward recognising esports-related disputes.
Looking ahead
As esports continues its meteoric rise, it faces unique legal challenges that require tailored solutions. The absence of a unified regulatory structure and the industry's rapid evolution call for a proactive and informed legal approach. Stakeholders must navigate this fragmented legal landscape, while developing a consistent dispute resolution mechanism to foster stability and fairness. Remaining vigilant and seeking expert legal counsel is crucial for safeguarding interests and promoting sustainable growth in this dynamic field.
Stay tuned for more insights in part 3 of our esports series. If you would like to discuss any of the topics raised, please get in touch with our key contacts.
