NEW YORK--(BUSINESS WIRE)--Industry insiders believe the spotlight afforded by COVID-19-related shutdowns and restrictions will generate increased investment and deal activity for esports in the near term. Yet, as the third annual Esports Survey Report shows, even esports isn’t immune to the pandemic’s effects.
Conducted by law firm Foley & Lardner LLP and The Esports Observer – and based on responses from hundreds of executives involved in esports – the report identifies the opportunities and challenges ahead for this young industry. While concerns remain about match-fixing and cheating, along with myriad legal risks, strong revenue and viewership numbers in 2020 appear to have given executives confidence that esports is on solid footing and that the industry is well-equipped to navigate these issues.
Key takeaways from the report include:
Growth and Investment
The majority of survey respondents (73%) believe the pandemic will lead to more investment and deal activity in esports over the next six months (Q4 2020 and Q1 2021). More than half cite the drivers of this trend as: continued social distancing boosting engagement with video games and esports (61%), the growth of online streaming platforms (61%), and the increased movement of big brands into esports sponsorships (52%).
At the same time, those who expect a decrease in investment over the same time period cite the top challenge facing esports as the inability to hold large in-person events (77%), followed by declines in advertising and sponsorships (65%). The results also suggest some reluctance from investors hit hard by the downturn to inject further capital into esports. For instance, the percentage of respondents who expect increased investment from private equity and venture capital firms dropped from 47% in the 2019 survey to 40% in 2020.
“While hardly any industry has been spared from COVID-19’s economic impacts, the survey findings suggest an overall positive outlook for esports’ continued growth,” said Bobby Sharma, special adviser to Foley’s Sports & Entertainment Group. “Investors clearly remain interested in the value and potential of esports, and the fact that its massive audience has accelerated its growth in these uncertain times has only created more intrigue.”
Gambling and Match-Fixing
With traditional professional sports largely on pause, the early months of the pandemic saw a rapid escalation in the approval of gambling on esports matches by major betting regulators – thereby opening another potential revenue stream for the industry.
However, there remains some skepticism from regulators and bookmakers about the risks involved in taking bets on esports. When respondents were asked what poses the greatest threat to the esports betting market, the top choice was a lack of adequate detection systems and monitoring tools for fraud and cheating (46%). In addition, 75% believe that match-fixing and cheating pose a significant threat to the legitimacy and growth of esports.
As was the case in 2019, respondents view intellectual property (IP) and licensing (48%) and cybersecurity (41%) as the legal issues posing the most risk to the esports industry; however, they both dropped by about 10 percentage points from last year’s survey. In addition, most respondents (60%) feel that the control a small number of game developers have over esports – and the potential for these parties to exert their IP rights – is a barrier to the industry’s growth and development.
“As various stakeholders in the esports industry become more concerned with protecting their personal brands, trademark-related issues are moving more to the fore,” said Julie McGinnis, a member of Foley’s IP Practice and Sports & Entertainment Group. “Given the complexity of the esports ecosystem, along with the unique dynamic created by publishers owning the IP for games, it’s no surprise that IP issues remain high on the radar of survey respondents.”
Meanwhile, there is increasing sentiment that labor and employment issues pose a significant risk to the industry (38% cite this as a concern in 2020, up from 31% in 2019). The specific employment law issues that respondents identified as important include: Management of players under the age of 18 (68%), providing proper employee benefits (53%), and contract disputes/renegotiation as players increasingly assert their rights (47%). Respondents also identified a range of actions they feel the esports industry should take to increase the representation and equitable treatment of women in esports.
“As an industry so centered on its players, esports continues to grapple with various labor and employment concerns, including how talent is engaged contractually and the scourge of unacceptable behavior that brings #MeToo and other allegations of discrimination into the space,” said Jon Israel, co-chair of Foley’s Sports & Entertainment Group. “Industry stakeholders will need to address these issues with greater sophistication for esports to move further into the commercial mainstream.”
Esports and Traditional Professional Sports
In an increasingly virtual world, traditional professional sports executives and organizations are looking to esports for new ways of leveraging technology and engaging with fans.
When asked how traditional professional sports may focus on digital technologies amid the rise of esports and the ongoing pandemic, the top responses included: Using digital technologies to provide fans with more direct interaction and engagement (64%), incorporating new technologies into broadcasts (54%), and hosting tournaments in which traditional professional sports players compete in simulated games (54%).
“The pandemic may very well be a wakeup call for traditional professional sports, highlighting the need to evolve digitally and rethink the use of technology to deliver content and engage with fans, said Michael Wall, a member of Foley’s Sports & Entertainment Group. “Esports can provide a model for this transformation, as the industry has continued to offer compelling, dynamic, and engaging digital content to grow in popularity during this time.”
The 2020 Esports Survey was completed by 255 professionals primarily based in the United States and Europe. Respondents included esports and traditional professional sports teams and leagues, technology developers, media companies and agencies. To read the complete report and methodology, please click here.
About Foley & Lardner LLP
Foley & Lardner LLP looks beyond the law to focus on the constantly evolving demands facing our clients and their industries. With approximately 1,100 lawyers in 24 offices across the United States, Mexico, Europe and Asia, Foley approaches client service by first understanding our clients’ priorities, objectives and challenges. We work hard to understand our clients’ issues and forge long-term relationships with them to help achieve successful outcomes and solve their legal issues through practical business advice and cutting-edge legal insight. Our clients view us as trusted business advisors because we understand that great legal service is only valuable if it is relevant, practical and beneficial to their businesses.
About Foley’s Sports & Entertainment Group
With a broad and deep history, experience and multidisciplinary reach, Foley has been a market leader in sports and entertainment law for decades. Our attorneys have held high-profile positions at leading sports, entertainment and media companies, from the President and COO of Major League Baseball to Founding Partner of Electronic Sports Group. With an unmatched level of client service, innovation and value, we counsel clients on the full range of commercial and regulatory issues, including mergers and acquisitions, league and team operations, intellectual property issues, financing and investments, negotiation of media deals, labor and employment matters, and medical and health care issues for players. Our team of industry insiders and seasoned practitioners is consistently ranked among top-tier practices by U.S. News – Best Lawyers, Legal 500 and Chambers USA.
About The Esports Observer
The Esports Observer is the world’s leading source for essential esports business news and insights. As the esports business authority of the western world, TEO enables companies to make informed decisions for their business. We offer a comprehensive industry database covering entities from personalities to companies and games, real-time business intelligence, and insight reports. Through TEO’s business conferences and events, we connect industries and individuals alike. Our ultimate goal is to increase transparency and foster growth in the industry we love: esports.