Friday, May 24, 2024

10 questions with esports legal expert Ryan Fairchild

Esports and competitive gaming have taken the world by storm. Gaming research firm Newzoo estimates the number of esports enthusiasts reached 165 million worldwide last year, raking in upwards of $900 million in revenue. Newzoo expects that audience to grow to 250 million by the end of 2021 and generate $1.65 billion in revenue. Professional soccer and NBA teams have even started signing gamers to represent their clubs in virtual competitions. Iconic names like Mark Cuban, Jerry Jones, and Drake have invested in gaming teams and leagues. 

Ryan Fairchild, an associate at the Brooks Pierce law firm’s Wilmington branch, represents esports players, organizations and stakeholders in negotiating and drafting contracts, structuring intellectual property deals and addressing corporate matters. He represents top players of some of the biggest games in esports, including Dota 2, League of Legends and Call of Duty. He discussed the industry with Business North Carolina.

Responses have been edited for concision and clarity.

First, what are esports and what is competitive gaming?

[/media-credit] Ryan Fairchild

Esports are competitive video games. Imagine walking into Madison Square Garden or Rogers Arena or the Beijing National Stadium where there are teams of players, typically five-on-five, in booths, and the players’ in-game play is broadcast on the venue’s screens. Esports events can be single day events, multi-day tournaments, franchised leagues, open circuits, anything you can imagine for a competitive format. 

For many who are not familiar with esports, imagining this is quite novel and surprising, but there’s a major industry built around this. Also, esports are much easier to show than to describe, so I recommend that people watch an esports competition on Twitch or Juked or YouTube, or even on ABC, ESPN, TNT, and other major television channels. 

The Triangle is home to one of the nation’s fastest growing tech hubs and Epic Games, owner of the worldwide gaming phenomenon, Fortnite. How large is the Triangle’s competitive gaming market?

While Epic is located in the Triangle and Charlotte used to be home of Team Envy, a major esports franchise, the North Carolina esports scene has yet to realize its full potential. For example, Team Envy relocated to Dallas; Michael Jordan invested in an esports group whose most notable team is based in southern California; and Epic’s Fortnite World Cup was hosted in Arthur Ashe Stadium in New York City. Still, the most recent major tournament for Ubisoft’s Rainbow 6 franchise was held in Raleigh just last month, and smaller scale events—regional tournaments and “locals”—happen regularly across North Carolina. 

I expect the North Carolina esports scene to continue to grow as esports grows. Two city-based franchised leagues have already launched, and though there isn’t yet a North Carolina-based franchise, I expect to see one within the next 5-10 years. Esports are spreading and will continue to spread across the country away from the Southern California center of gravity.  While the majority of my clients live and work across the country and the world, I also represent players who live in or are from North Carolina. The state is ripe for a major esports scene, and I would love to help anyone trying to make that happen.

What are the causes for esports’ growing mainstream appeal and how has that affected local teams?

The simple explanation is demographics. The average MLB fan is around 55 years old and quickly aging. The average NFL and NHL fans aren’t far behind and also rapidly aging. Soccer and the NBA have some of the youngest average fan ages sitting around 40 years old and are a bit more stable. The average esports fan is at least 10 years younger than that. Moreover, 18- to 25- year old males are watching more esports than all of traditional sports combined. Marketers refer to the esports viewer demographic — young, educated males — as the Holy Grail of marketing. The demographics are the primary reason behind the growth of esports. 

At this point, more than half of NBA ownership groups have invested in esports ventures as are owners of other professional sports teams. Sports owners want to cross-market their primary brands to a younger demographic while also investing in the potential next big entertainment pillar. We are also seeing major investments from oil tycoons, major music artists and more. 

What’s the profile of the typical professional gamer that you represent? Do they typically compete in tournaments or stream their game footage online? 

In some ways, the typical professional gamer profile is what you’d expect: male and late teens to mid-twenties. Outside of those two attributes, however, players come from all walks of life and backgrounds. You have young men from rural, urban and inner-city backgrounds, all competing on a level playing field. You have players who spend their free time bodybuilding, others who travel the world, others who are foodies, and so on. There’s no archetype for esports players and I think it’s important to dispel the stereotype that these are just nerds who barely emerge from their parents’ basements. Also, this is a space where there should be parity between all genders. I think there are a lot of cultural and systemic barriers to more female competitors in esports, but I hope that we can work to remove those barriers.

Some esports players win competitions but don’t create any content. Others are less successful competitively but are phenomenal content creators. Some do both. Those who win competitions but don’t create content rely on their salaries and prize pool winnings for their living. Some players eschew competition altogether, such as Ninja (one of the streamers with the largest following on Twitch before he moved to using Mixer), but have amazing entertainment brands where they make millions on streaming, content, endorsements, etc.

There’s no standard model, but you can think of the entertainment aspect and the competitive aspect as two axes in the esports space. Whereas traditional sports players might create a personal brand in addition to being great players (e.g., Michael Jordan selling sneakers, hamburgers, underwear, etc.), we already understand esports as an entertainment space and every player has a brand of varying strength and notoriety.

How do contracts for individual players work? 

Player contracts are similar to traditional sports in terms of players typically signing with teams. Outside of that, however, the similarities end. The differences arise because of the maturity of the esports space and because of publishers’ copyrights. In esports, as opposed to traditional sports, player unions do not exist, player associations are just emerging, esports league entities are not structured like traditional sports leagues because of the rights held by publishers, and so we don’t see any collective bargaining agreements. Because of this, esports contracts are longer, more complex and more team-favored in their legal terms when compared to traditional sports. At the same time, the lack of collective bargaining means that superstars have more upside earning potential. Imagine how much a young LeBron James could have leveraged in his contract negotiations if there were no collective bargaining agreements in the NBA. 

We have started to see contracts evolve in just the last several years. Player contracts used to have far more revenue sharing between teams and players, but now the primary economic incentives are salary and prize pool splits. Teams now also require players to do more to build the team brands through sponsorship work, streaming, promotions, etc. 

Which competitions have the most prize money and are the most lucrative for players? 

The International 2019 — the premier annual tournament for the game Dota 2 — had a prize pool of $34,330,068, the great majority of which was crowdfunded by the Dota 2 community. The winning team of five players took home over $15 million. The players likely shared some of the winnings with the team’s coach, manager and sports psychologist, but overall that was the largest single prize pool in esports history. Fortnite’s World Cup was a close second with a total prize pool of $30 million. The top solo player, a 16-year-old from Pennsylvania, took home $3 million. 

In terms of salaries, I only have anecdotal evidence, but League of Legends players are among the highest paid in terms of average salary. Several players received seven figure deals when the first North American league launched two years ago. League of Legends prize pools may not be as large as Dota 2 or Fortnite, but the salary makes up for it and adds an element of stability.

Also, while these numbers are large and growing, some players play for virtually nothing. Esports existed long before lucrative salaries and eight-figure prize pools. That’s one of the reasons I think esports will always exist in one form or another, regardless of whether certain esports titles rise or fall.

What are the chances for any given gamer to make it professionally? 

The chances of becoming a professional esports competitor are on par with traditional sports. Only the very top players have a chance to become professionals. By way of example, Dota 2, a major esports title, has a player base of about 11 million active players. Only 484 Dota 2 players have earned at least $10,000 in prize money over their entire careers, which is a very low benchmark. That results in far fewer than 1% who have a chance to become professional players.

Where do you see the competitive esports industry going in the next five years? 

The joy and bane of esports is unpredictability, but we will witness the outcome of several major esports ventures. I am most interested in how city-based franchised leagues fare, notably Overwatch League and Call of Duty League, as well as non-franchise models, such as the recently announced ESL Pro Tour. Players associations will continue to emerge and develop in esports and we’ll get a sense of how much or how little impact those associations will have, primarily vis-à-vis publishers. We’ll likely witness the emergence of a leader in collegiate and high school esports governance, and it won’t be the NCAA. I also anticipate government regulation of certain aspects of esports, such as gambling and loot boxes (a form of monetization used by game publishers), whether directly or indirectly. I expect there to be a lot of discussion of how teams can make money on the esports side of their brands when publishers still control the flow of revenue. The industry is still so young and just beginning to mature. It’s an exciting time but there’s still a lot of unknowns.

As far as more kids pursuing esports, I am sure that will happen, but I don’t think it will necessarily cause a decline in physical sport participation. My kids play video games, but they also play soccer and basketball and go boogie boarding. Esports opens up additional avenues for kids; it’s not a zero sum game between esports and traditional sports.

As a small note, outside observers sometimes perceive esports as having no physical component, but that’s a misconception. Esports requires an intense degree of hand-eye coordination, concentration, and reaction speed.

In the past year, professional streamer Tfue sued FaZe Clan, the team he was signed to, claiming his contract failed to let him maximize his earnings.  What are some of the typical legal disputes in the professional gaming community? 

Before jumping into specific examples, esports legal disputes are driven by two major factors: (1) the economics of esports, which is heavily influenced by publisher copyrights, and (2) outside of the major publishers, esports ventures are start-ups. To the first point, video game publishers hold the copyrights for esports titles and therefore control the space in a way that the NFL or NBA could never control the game of football or basketball. Given that, esports publishers eat first, as it were, when it comes to esports revenues. Teams, tournament organizers, production companies and players are left to see what they can earn from what publishers allow to flow downwards. 

The California suit filed by Tfue against FaZe Clan—which now involves a countersuit by FaZe Clan against Tfue in New York—is pretty exemplary of the most common legal dispute I see: contract disputes, often because  players have not been paid by a team. Wage theft is the single biggest category of theft in the United States and it’s no different in esports. At the same time, I have also seen players refuse to pay a team its share of prize winnings (player contracts typically include a split of prize pool winnings between teams and players with the majority of winnings staying with players). There are certain competition organizers that also have a history of not paying players or teams. Again, everyone but publishers is scrambling for scarce resources and so there are frequent fights about money. 

To the second point, that esports ventures are start-ups, many esports companies started with groups who were passionate about esports and just started making things. Legal due diligence is a secondary or tertiary concern and so players, teams, and other entities run into legal issues related to that lack of due diligence. To give an example that involves both a public dispute and FaZe Clan, the FAZE Apparel brand sued FaZe Clan for violating its trademark rights in FAZE.  FAZE Apparel has a registered trademark; FaZe Clan doesn’t. That suit, to my knowledge, is still ongoing. As the esports industry grows in revenue and prominence, we will see more disputes arising from the lack of legal due diligence but begin to transition more towards the legal landscape of any other growing entertainment industry.

What’s your console/system of choice and what are your favorite titles to play in your free time? Have you entered any competitions? 

Ha! The funny thing about esports is, the more you work in it the less you get to play the games. Most esports titles are played on PC and that’s where I spend most of what little gaming time I have. 

As far as competitions, my first job in high school was at a mini-golf/arcade called Sunnyvale Golfland in Sunnyvale, California. The arcade scene back in the mid 1990S Bay Area spawned EVO, the largest fighting game tournament in the world, and I used to play in local tournaments against players who are now professionals. That’s the closest I’ve come to playing professionally.

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