Gaming, esports & dispute resolution: a brave new world

Gaming, esports & dispute resolution

Gaming, and the competitive games sector, in particular esports and virtual sports, are growing exponentially. The magnitude of such growth can be measured by global financial, economic and social metrics. While this development is no doubt advantageous for the sports, gaming and esports sectors, it raises issues in relation to the most adequate ways to resolve contractual, tort based, disciplinary and doping and digital doping disputes and cases arising out in this new ecosystem. Let’s explore what is at stake, here, and analyse the possible avenues to structure, and process in the most confidential, efficient and diligent way any dispute arising in the gaming, esports and virtual sports spheres.

1. Gaming: the golden age is upon us

Video games and interactive media are a sector of the entertainment industry which has risen to new heights, especially during the Covid 19 pandemic when most human beings were stuck at home, with lots of time in their hands.

The gaming market was valued at USD198.40 billion in 2021, and is expected to reach a value of USD339.95 billion by 2027, registering a compound annual growth rate of around 10 percent over 2022-2030.

Advances in cloud technology allow game developers to rewrite codes for diverse console/platforms, such as PlayStation, Xbox and Windows PC, in order to incorporate such codes into a standalone product provided to gamers through a cloud platform. At the same time, cloud gaming services focus on leveraging hyper-scale cloud capabilities, streaming media services, social media channels, and global content delivery networks to build the next generation of social entertainment platforms. These factors have an anticipated positive impact on the gaming market growth.

Today, online video gaming platforms and game creation systems, such as Roblox, and online video games, such as Fortnite, allow gamers to play together in networks, wherever they are based in the world. Not only that, but gamers can even play games live to an audience (and there IS an audience!), by organising video game live streams and shows on popular video game live streaming services platforms such as Twitch. So entire streaming communities of gamers, and viewers, are built via these streaming communities who interact together via chats, mikes, etc.

In 2015, there were a reported 1.99 billion people considered ‟active gamers”. This number has grown year over year, reaching 2.96 billion in 2021 worldwide. The number of people who play digital games, whether via console, computer or mobile device, is set to surpass 3 billion this year, i.e. a third of the world’s population!

These positive economic, social and financial growth prospects for the gaming industry, which – let’s not mince words – are on steroids, have attracted the attention of the largest global high technology and media companies, such as:

  • Meta, the parent company of Facebook, Instagram and Whatsapp, which recently revealed its plans to monetise Horizon Worlds, its metaverse platform, NFT store and software marketplace, with an aggressive 47.5 percent commission rate on all in-app purchases, and

which invest heavily in the gaming sector, in order to shape online interactions in the metaverse and build new customer bases through online gaming communities.

2. Esports: how the gaming industry is cashing in on the sports’ genre

Within the global video gaming sector, there is a type and genre of games which is going from strength to strength: sports games, also called esports.

‟e” in esports is for ‟economic”, rather than ‟electronic”, as a publisher (re)writes the rules of its games, supplies the essential technology, and ultimately decides on the existence of the sport as a whole.

Sports games are self-defining. They include games such as MLB: The Show (baseball), the Madden series (American football) and FIFA Online (football).

As competitive video games continue to integrate into popular culture, global investors, consumer brands, media outlets and consumers are all paying attention to the rise in popularity of esports.

In 2022, there will be 29.6 million monthly esports viewers in the USA, up 11.5 percent from 2021.

Esports are championed by mainstream celebrities – and early esports investors – Michael Jordan, Drake and DJ Marshmello, and get an increasing amount of coverage from media outlets, such as traditional cable sports channel ESPN, and the breakneck rise of Fortnite and its Competitive Scene.

The pop-culturalization of the esports industry has supported the explosions in esports investment and revenue. Esports has hit this stratosphere in large part thanks to the social component of live streaming and gaming. Video gaming-specific streaming platforms, like Twitch and YouTube Gaming, give fans a direct connection to the players and teams, while more mainstream social media channels have allowed those connections to flourish.

Certain esports organisations, such as recently-IPOed Los Angeles-based professional esports and entertainment organisation FaZe Clan, which manages rosters of FaZe Clan players for various games such as FIFA Online, Fortnite Battle Royale and PlayerUnknown’s Battlegrounds, are also moving aggressively into areas like merchandising. This move into merch lends their brands more notoriety than if they had stuck to esports alone.

As esports is becoming the mainstream of gaming, many view it as an opportunity inclusive of gaming, media, pop culture and commerce, as it shines a light on possibilities beyond gaming events alone.

While venture capital and private equity investments are pouring in, in the sports gaming sphere, new jobs have been created around this new section of the gaming industry, as follows:

  • professional gamers, who belong to esports teams, and who can sometimes rake in seven-figure earnings and massive brand endorsements;
  • owners and managers of esports teams, just like in traditional professional sports, such as USD410 million valued TSM and USD350 million valued Cloud9;

While this esports ecosystem is developing at a rapid pace, legal issues, transactions and disputes are also cropping up, in the top three esports markets that are Asia-Pacific, North America and Europe.

The production, promotion, distribution of esports events, the management of data (the new oil where analytics can provide a competitive advantage to teams, players, leagues and events), the sponsorship deals with brands, all require contracts and legal frameworks, in order to ensure that the esports community can thrive, while doing productive business in a lawful way.

But what to do in case a deal turns sour, or a tort-based dispute arises?

3. Gaming, esports & dispute resolution: how to best resolve disputes in gaming, esports and virtual sports?

Like most other entertainment sectors, gaming and esports shy away from the public eye, when it comes to resolving disputes and breaches of contract.

Mediation and arbitration are therefore the preferred avenues to resolve legal claims in esports, as opposed to litigation in (open to the public) courts.

For example, during the 2019 Fortnite World Cup, and each year since this Epic Games’ annual tournament started in 2019, the Fortnite World Cup Finals Official Rules apply, in coexistence with the Fortnite End User Licence Agreement. These combined rules provide that, in case of disputes, an informal resolution process may start (possibly via online dispute resolution should the complaining gamer be located in the European Union), or a claim may be lodged with the competent small-claims court in the United States. If the dispute remains unresolved after the informal resolution process, or small-claims court case, then the gamer and Epic may start an arbitration conducted by the Judicial Arbitration Mediation Services (‟JAMS”), according to the JAMS streamlined arbitration rules.

Therefore, Epic Games, and most other game developers, impose commercial arbitration, with the likes of arbitral institutions such as JAMS, the International Chamber of Commerce (‟ICC”), the Singapore International Arbitration Centre (‟SIAC”) and the Hong Kong International Arbitration Centre (‟HKIAC”), to resolve contractual disputes with esports athletes and their eventual handlers. For example, Activision Blizzard opts for JAMS throughout the world, to administer arbitration procedures, in its Blizzard entertainment dispute resolution policy.

With respect to disciplinary issues, gaming publishers use auto-regulation, via their end user licence agreements as well as commercial arbitration. For example, Tencent-owned game developer Riot Games appoints various arbitral institutions, depending on where the gamer is located (the above-mentioned online dispute resolution for the European Union, SIAC for South East Asia and JAMS for the rest of the world – except Brasil). In 2021, Riot Games enforced its disciplinary rules by permanently banning Vietnamese professional esports player Minh Loc from its game League of Legends, following some comments deemed offensive about Covid 19, made by Minh Loc during a stream. The player is excluded from League of Legends, as well as from all games published by Riot Games.

Similarly, in relation to doping and digital doping cases, gaming publishers enforce penalties and bans against bad actors, via their end user licence agreements and commercial arbitration. Digital doping is difficult to prove, due to its sophistication. However, some cases of digital doping are so blatant that developers can only swiftly and strongly retaliate against doping players. During the first edition of the British Cycling Zwift eRacing Championships, the winner, Cameron Jeffers, used an algorithm to record ‟inconceivable” performances on his connected bike, letting the game to believe that he could pedal more than 200km/day (while Lance Armstrong, at the peak of his career, pedaled 177km/day) in order to unlock the use of a better virtual bike. British Cycling ruled that Cameron Jeffers was banned for ‟manipulation of pre-race data to gain an unfair advantage via in-game equipment”, via a six-month suspension and a GBP250 fine.

While I have obviously not read and reviewed all the management, player transfer, sponsorship, events promotion and distribution agreements which have been entered into by stakeholders in the esports microcosm, I am confident that most of these contracts set out mediation and arbitration clauses, which aim at confidentially, efficiently and quickly resolving contractual disputes.

There is a sub-portion of esports which consists in the simulation of real sports (as is the case with virtual cycling games like Zwift). These are ‟virtual sports”, developed by gaming publishers, but played in the physical realm and governed by International Sports Federations (‟IFs”).

For these virtual sports, dispute resolution is currently dealt with internally, and governed by IFs. However, virtual sports become more professionalised, especially with the launch of the ‟Olympic Virtual Series” (i.e. a collaboration between IFs and gaming publishers, such as the ‟Union Cycliste Internationale” (‟UCI”) and Zwift from Zwift Inc., and the ‟Fédération Internationale de l’Automobile” (‟FIA”) and Gran Turismo from Polyphony Digital) in 2021. Therefore, it is likely that the Court of Arbitration for Sport (‟CAS”) – which is the main body for sports arbitration, established in 1984 by the International Olympic Committee (‟IOC”) to deal with all disciplinary and commercial disputes directly or indirectly linked to sports – will take an interest in governing virtual sports disputes too.

Already, the IOC has expressed an interest in esports and virtual sports, by hosting a 2018 esports forum to discuss ‟possibilities for future cooperation and engagement”, which 150 representatives from the esports and gaming industry (players, publishers, sponsors, etc.), as well as sports athletes, and other members from the olympic community, attended.

More recently, the IOC encouraged IFs to consider how to govern electric and virtual forms of their sport, and explore opportunities with gaming publishers.

Next steps: the creation of a new arbitral institution for esports, conducting fully virtual proceedings based on the CAS ad hoc division model? And/or the creation of specialised panels of esports’ arbitrators, at existing arbitration institutions such as JAMS, ICC, SIAC or HKIAC?

Time will tell.

What we already know, is that arbitration of esports and virtual sports is bound to grow exponentially, in synergy with developments such as dispute resolution in the metaverse and in relation to cryptocurrencies.

Crefovi’s live webinar: Gaming, esports & dispute resolution – a brave new world – 17 August 2022


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