ENTERTAINMENT & SPORTS - January 2024

Legal and Regulatory Issues in Video Gaming and Esports (Part 1)

By Lau Kok Keng, Edina Lim and Yong Yi Xiang (Rajah & Tann Singapore LLP)

I. Introduction

E-sports, or competitive video gaming, has emerged as a global phenomenon that is attracting millions of fans, players and sponsors. The e-sports market worldwide was projected to reach a revenue of US$3.8bn in 2023, and is expected to reach US$5.7bn in projected market volume in 2028[1].

E-sports events, such as the League of Legends World Championship and the Dota 2 International, offer multimillion-dollar prize pools and draw viewership numbers that rival popular traditional sports.

But what is e-sports exactly? How is it governed and regulated? What are the legal issues and disputes that arise from this rapidly evolving and diverse sector? What are the future prospects and challenges for e-sports as a mainstream and legitimate form of entertainment and competitive activity? These are some of the questions that this article will explore, by providing an overview of the development of e-sports, as well as examining some of the key legal topics and cases involving e-sports.

In this first part, we will provide a brief introduction into the definition and development of e-sports, provide an overview of the governance of e-sports, and explore the current legal issues facing the e-sports industry.

II. What is E-Sports?

The term “e-sports”, short for electronic sports, is traditionally understood to refer to the playing of video games in an organised and competitive environment and format[2]. The Cambridge Dictionary defines “e-sports” as “the activity of playing computer games against other people on the internet, often for money, and often watched by other people using the internet, sometimes at special organized events”[3].

This understanding of e-sports as the competitive play of video games is consonant with the numerous e-sports competitions which have garnered immense popularity in recent years. For instance, at the recent Asian Games 2023 held in Hangzhou, China, e-sports was included as a medalled event where teams from different participating countries competed against each other in various video games such as League of Legends and Street Fighter V: Champion Edition[4].

The video games which are the subject of such e-sports competitions can range across wide genres (from multiplayer online battle arenas (MOBA) (such as League of Legends and Dota 2) to first-person shooters (such as Counter-Strike and Valorant)), and often feature substantial prize amounts[5].

However, in the inaugural edition of the ‘Olympic E-sports Week’ organised by the International Olympic Council and hosted in Singapore in June 2023, a vastly different definition of “e-sports” as virtual sports as opposed to competitive video games was adopted. Under this definition, “e-sports” refers to virtually simulated competitions of sports and games (which are traditionally played in the real world) through the use of virtual technologies such as virtual reality headsets. Examples of such “e-sports” which were featured at the ‘Olympic E-sports Week’ include archery (Tic Tac Bow), baseball (WBSC eBASEBALL™: POWER PROS), chess (Chess.com), tennis (Tennis Clash) and Virtual Taekwondo[6].

It remains unclear whether there will eventually be a reconciliation of the above definitions of e-sports into a single overarching definition, particularly as e-sports in the form of competitive video games do not presently share and/or call for strict adherence to the values underlying traditional sports, such as the Olympic values[7], but on the contrary, feature violence and the use of firearms.

That said, this does not mean that both forms of e-sports are fundamentally incompatible. On the contrary, there has been a discernible move towards collaboration / confluence between the two, a prime example being the inclusion of a specially designed version of the popular first-person shooter video game, Fortnite, in the virtual sport shooting competition of the Olympics E-sports Series[8].

E-sports has grown rapidly in the past decade, attracting millions of fans, players, sponsors, and media outlets. This immense popularity is attributable to a variety of factors, including:

Accessibility: Anyone with a computer, console, or mobile device can play video games and participate in e-sports, regardless of their age, gender, location, or physical ability.

Entertainment value: E-sports matches provide high entertainment value as they are often thrilling and involve high stakes. E-sports have also increasingly featured professional casters, analysts, and hosts, who provide commentaries and insights that enhance the viewing experience.

Recognition and reward: E-sports competitions are increasingly offering huge prize pools to winning teams, and skilled e-sports players are often propelled to fame and fortune in the course of competing for prestigious titles, trophies, and prizes.

With the increasing popularity of e-sports, there is a growing need for some form of regulation over this industry to deal with the various legal and ethical issues that may arise. Moreover, the recognition and acceptance of e-sports as part of international sporting events such as the Olympic games requires there to be an international governing body for the sport.

III. How is E-Sports Governed?

Various governing bodies have emerged to regulate and promote the e-sports industry:

International governing bodies: These refer to global organisations with members from different regions and countries, and whose aims are to represent and try to unify the e-sports community across the world, establish common standards, rules, and policies for e-sports, and advocate for the recognition and support of e-sports. Examples of such international governing bodies include the International E-sports Federation (IESF), Global E-sports Federation (GEF) and World E-sports Association (WESA).

Regional governing bodies: These organisations aim to represent and support the e-sports community within a specific geographic area and region. Examples of such organisations include the Asian Electronic Sports Federation (AESF), European E-sports Federation (EEF) and E-sports Federation of Africa (ESFA).

Game-specific governing bodies: These refer to organisations which are concerned only with a specific game or genre, and which seek to promote the specific game or genre and to establish and enforce the relevant rules, standards, and policies. A prime example is the International Simulation Football League (ISFL), which is the game-specific governing body of American football e-sports.

IV. Current Legal Issues Faced by the E-Sports Industry

1. Legal and commercial disputes

The e-sports industry is a fertile breeding ground for legal and commercial disputes, and perhaps unsurprisingly so given the significant investments that are pumped by stakeholders into the development of e-sports.

Intellectual property disputes: E-sports involves the creation and use of various types of intellectual property, such as game software, gaming hardware, music, graphics and trademarks. Video games typically comprise multiple IP-protectible components, such as game characters, weapons, accessories, gameplay maps, graphic user interfaces and gameplay music[9]. However, the nature, ownership, licensing and enforcement of these rights may be unclear or accorded different legal protection in different jurisdictions, thus giving rise to disputes between the relevant stakeholders, including developers, publishers, platforms owners, event organisers and sponsors. Given the worldwide accessibility of e-sports, there is an added dimension of complexity to such intellectual property disputes due to the involvement of conflict-of-law issues and the prospect of multi-jurisdictional litigation. We will elaborate further on such disputes in Part 2 of this article.

Contracts with e-sports players: E-sports players are often bound by contracts with their teams, leagues, publishers, platforms, or sponsors, which may stipulate their rights, obligations, and remuneration. As with traditional sports, disputes may arise from such contracts if they are not expressed in clear and unambiguous terms, or if they seek to impose onerous or predatory terms on individual players[10]. This may in turn give rise to antitrust concerns, as can be seen from the recent probe by the U.S. Justice Department into Activision’s imposition of a tax that functioned as a cap on the salaries of e-sports players.[11]

Commercial disputes: Given the numerous stakeholders with vested commercial interests in the e-sports industry, disputes can also arise from other commercial relationships such as the advertising of e-sports and sponsorship arrangements. In 2020, Tencent Holdings sued China’s biggest chilli sauce brand Lao Gan Ma for USD2.3M in unpaid advertising fees in relation to the promotion of the Lao Gan Ma brand in Tencent’s “QQ Speed S League” competition, QQ Speed being a popular racing mobile title in China.[12] Employment disputes can also arise in the e-sports industry, such as where Fortnite steaming star Turner Tenny claimed that his employer, FaZe Clan, had exploited him with an “oppressive, onerous and one-sided” contract that violated Californian state law and the Talent Agency Act.[13]

2. E-Sports and gambling

There are two aspects to be explored in relation to e-sports and gambling. The first is whether e-sports itself constitutes gambling. The second is regarding betting on e-sports matches and the consequences of the growth thereof.

Does E-sports constitute gambling?

Whether E-sports constitutes gambling depends on the definition of gambling (which differs from jurisdiction to jurisdiction), as well as the game mechanics involved in the specific esports activity. Some countries use the predominance test (i.e. whether a game is predominantly a game of chance or skill) to determine if an activity is “gambling”, while other jurisdictions consider the presence of any chance element to be enough to constitute gambling. For example, in Myanmar’s new Gambling Law, gambling includes games that require skills for money, which gives gambling an extremely broad definition.[14]

E-sports invariably feature games that require a high level of skill, such as motor skills, response time, playing IQ and strategy. However, chance also plays a significant role in E-sports. For example, Random Number Generation (RNG) is regularly used in games – this can be in terms of calculating critical hits in combat games, item drops or loot boxes, generation of in-game events or changes in the environment, and more. RNG adds some unpredictability to the game, which challenges the players to use different strategies. The use of RNG brings e-sports closer to games of chance, because the chance element affects the gameplay and the ultimate result.

In Singapore, the Gambling Control Act (GCA) defines a game of chance to include a game that has both chance and skill elements, as well as a game that involves an element of chance that can be eliminated by superlative skill, but excludes any sporting event. In turn, “sporting event” is defined as a sport or competition, or an exhibition, entertainment or activity, involving primarily the exercise of physical prowess or dexterity, physical strength, physical stamina or mental stamina, and to the extent that it is a sport or competition, or an exhibition, entertainment or activity in which human beings take part in by, inter alia, using a computer on a computer monitor, television screen, mobile device or similar medium with electronically recorded data installed in to support an interactive computer game or computer‑generated images. As such, it is likely that e-sports will not be considered to be a game of chance under Singapore law.

In any event, many countries have embraced e-sports as a legitimate recreational and sporting activity. For example, Gamescom Asia, a regional spin-off from one of the world’s largest gaming trade shows, was held in Singapore in October 2023.[15] In 2019, Singapore opened its first e-sports training facility at the OCBC Arena to train local talents in the e-sports industry.[16] This is also the case in other South-east Asian countries. In 2021, the Malaysian government allocated US$3.6M to the development of e-sports in its annual budget.[17] Similarly, the Indonesia government is also pushing for e-sports growth in Indonesia, and as host of the 2018 Asian Games, supported the inclusion of 6 e-sports games as demonstration sports, including League of Legends, Arena of Valour and Pro Evolution Soccer.[18]

Betting in E-sports

Given the growing popularity of e-sports, it is not surprising that e-sports betting has also become an attractive activity for both e-sports enthusiasts and punters. Global wagering on major e-sports tournaments was estimated at $5.5 billion in 2016 and is projected to approach $13 billion by 2025.[19]This includes both traditional betting and skin betting.

Skin-betting relates to the use of skins (i.e. cosmetic items like a character's costume) as a form of virtual currency to wager on e-sports platforms or used to gamble on casino-type games. Skins can have real-world value within digital marketplaces that allow users to buy and sell in-game items (e.g. Steam marketplace). This makes skin-betting similar to betting with actual money.[20] However, due to the lack of clarity as to whether skin betting actually constitutes gambling, skin-betting is much less regulated than traditional betting, and this in turn increases the risk of match fixing. For example, in the USA in 2015, multiple members of the iBUYPOWER CS:GO team bet against themselves in the CEVO Professional League and deliberately lost. The player which deliberately lost the match later distributed around US$7,000 worth of in game skins after the game.[21]

On the other hand, traditional betting on e-sports is clearly considered to be gambling in Singapore, since it is the staking of money or money’s worth on the outcome of a sporting event, which is defined to include games. The National Council for Problem Gambling has specifically stated that e-sports betting is illegal in Singapore.[22] Nonetheless, websites offering e-sports betting have proliferated, leading to increased instances of match fixing in e-sports.

3. Match fixing in e-sports

Several significant instances of match-fixing in e-sports have resulted in legal consequences and disciplinary actions against the individuals. In 2015, the Korean e-sports scene faced a major match-fixing scandal in respect of the game StarCraft II. Professional players were found to have deliberately thrown matches in exchange for financial returns. Fines and bans were eventually issued for the players involved. This scandal raised awareness about the vulnerabilities in e-sports integrity and triggered discussions on the need for enhanced measures to prevent such incidents.[23]

The same year witnessed the CS:GO "IBUYPOWER" match-fixing scandal in North America, where members of the iBUYPOWER team intentionally lost a match for financial gain through skin betting, leading to indefinite bans imposed by Valve Corporation, the developer of CS:GO. This incident shed light on the risks associated with skin betting and prompted increased scrutiny of the practice within the e-sports community.[24]

More recently, in Singapore, the captain of an e-sports team was charged for corruption under the Prevention of Corruption Act for deliberately losing a match in exchange for financial benefit. The accused, Chung, played for Team Resurgence in the EPULZE Royal Southeast Asia Cup Tournament, which was part of the Valorant Ignition Series. Chung led his team in matches against three other teams in September 2020. His team lost the first two matches against teams from Singapore and South Korea, and the last match was against a team from Japan. Before the last match, Chung's online gamer friend, Tan, proposed to Chung that they wager on Chung's team losing. He also proposed that Chung purposely lose the match so that they could profit from the bet. Chung's team intentionally lost the match by a score of 0:2. Chung earned a total of S$7,019, keeping S$2,719 for himself. The rest went to Tan's brother, Tan's friend and others, including Chung's teammates. Chung was eventually given four months jail and ordered to pay a penalty of S$400, while Tan was sentenced to reformative training for a minimum of six months.

4. Other regulatory issues in e-sports

The increasing popularity and mainstream acceptance of e-sports have also cast the spotlight on various other issues which require regulatory intervention.

Harmful effects of e-sports: Video game addiction and exposure to inappropriate content (such as violent themes) have been a growing concern as e-sports gained popularity among youths worldwide. This has led to the well-known clampdown on the gaming industry in China, with a nationwide ban on online gamers under the age of 18 from playing on weekdays and limiting their gameplay to only an hour of playtime between 8 pm to 9 pm on Fridays, weekends and public holidays[25]. It remains to be seen whether other jurisdictions will similarly embark on restrictive measures of similar magnitudes, or if the Chinese government will adopt a different approach given the success of the country in the esports competitions at the Asian Games 2023 in Hangzhou.[26]

Doping in e-sports: A key concern in the e-sports industry is the high risk of doping by gamers, particularly during competitions with significant prize monies at stake. The use of performance-enhancing drugs which increase gamers’ ability to stay alert and focused during competition has been a live issue[27], but the absence of a centralised and recognised world governing body for e-sports has resulted in the lack of anti-doping enforcement notwithstanding the existence of doping.[28] For instance, there has not been an adoption of the World Anti Doping Agency (WADA) Code in e-sports competitions, and it is imperative for the e-sports industry to move towards a more structured and regulated approach towards the use of potentially objectionable substances if it is to gain acceptance into the Olympic fold.

V. Conclusion

The e-sports industry is experiencing rapid growth and provides entertainment, competition, social interaction and even employment to increasing numbers of people across the globe. The growth of the industry has been accompanied by various legal issues and challenges which arise from time to time.

In the second part of this article next month, we will examine the disputes that have arisen in the e-sports industry and the forums for resolving such disputes, the sportification of e-sports and the corresponding gamification of traditional sports, as well as the future of e-sports technology.

AUTHOR INFORMATION:

Lau Kok Keng is a Partner and Head of the Intellectual Property, Sports and Gaming Practice at Rajah & Tann Singapore LLP.
Email: kok.keng.lau@rajahtann.com

Edina Lim is an Associate in the Intellectual Property, Sports and Gaming Practice at Rajah & Tann Singapore LLP.
Email: edina.lim@rajahtann.com

Yong Yi Xiang is an Associate in the Intellectual Property, Sports and Gaming Practice at Rajah & Tann Singapore LLP.
Email: yixiang.yong@rajahtann.com

REFERENCES

[1] https://www.statista.com/outlook/amo/e-sports/worldwide

[2] https://hir.harvard.edu/e-sports-part-1-what-are-e-sports/

[3] https://dictionary.cambridge.org/dictionary/english/e-sports

[4] https://www.scmp.com/sport/china/article/3235963/asian-games-2023-esports-what-are-games-how-are-they-played-and-who-expected-win

[5] The e-sports tournament that has offered the greatest overall prize pool as of September 2023 was ‘The International 2021’, with a total prize pool of over USD 40 million: https://www.statista.com/statistics/517940/leading-e-sports-tournamets-worldwide-by-prize-pool/

[6] https://olympics.com/en/e-sports/

[7]https://olympics.com/ioc/olympic-values; https://www.scmp.com/week-asia/health-environment/article/3137946/why-e-sports-and-olympics-still-have-complicated

[8] https://olympics.com/en/esports/olympic-esports-series/shooting

[9] For a list of the potentially relevant intellectual property rights to video games, see https://www.wipo.int/wipo_magazine/en/2014/02/article_0002.html

[10] https://www.washingtonpost.com/video-games/e-sports/2022/03/04/e-sports-player-contracts/

[11] https://www.reuters.com/legal/us-files-antitrust-lawsuit-against-activision-blizzard-2023-04-03/

[12] https://archive.esportsobserver.com/tencent-vs-chili-sauce-lao-gan-ma-a-2-3m-esports-advertising-dispute/

[13] https://www.forbes.com/sites/christinasettimi/2020/08/26/fortnite-star-tfue-settles-dispute-with-faze-clan-ending-esports-first-major-employment-lawsuit/?sh=6db3e8822d81

[14] https://mm.rajahtannasia.com/media/4112/2019_09_myanmar-passes_gambling.pdf

[15] https://www.straitstimes.com/tech/singapore-eyes-a-slice-of-south-east-asia-s-69-billion-gaming-pie

[16] https://danamic.org/2019/04/30/singapores-first-ever-e-sports-training-facility-opens-at-singpore-sports-hub/

[17] https://archive.e-sportsobserver.com/malaysia-3-6m-for-e-sports/