Branding, ESports And NFTs – What's All The Fuss?

eSports is now an explosive, billion-dollar industry, where online gaming is now a spectator sport. 

Rather than watching a physical event, spectators watch competitors from different leagues or teams face off in the same games that are popular with at-home gamers,  for example, Fortnite, League of Legends, Call of Duty, and more.

Goldman Sachs reports ¹ monthly audience sizes, starting at 167 million in 2018 and rising to 276 million in 2022. This is bringing lucrative monetisation opportunities in areas such as media rights, IP ownership, in-game revenue and sponsorship. Though the largest audience is in Asia, it is still easy to find many Irish homes filled with gamers logging in. 

There are even many NFT games that will allow a gamer to play to earn rewards (e.g. Axie Infinity).  Add to all of this with the rush to develop tech for the Metaverse and the use cases for gaming there, it is appropriate to understand the legal challenges this industry may encounter. 

Terminology:

• Fungible Token:  fiat currencies (for example, the Euro) – they are divisible and non-unique.

• Non-Fungible Token ("NFT"):  tokens that are 100% unique and not interchangeable (such as a piece of art).  These are designed to be registered on the blockchain, which will track any purchase or sale of the token via a marketplace (e.g. Crypto.com).  Once the transaction is completed, the distributed ledger is updated.

• Metaverse:  a three-dimensional version of the internet. Find out more in our latest Metaverse Bulletin. 

• Blockchain: a decentralised or shared databas. Read more in our Introduction to Blockchain publicationOpens in new window. 

Where's the party?

With Metaverse hitting the virtual 'front pages', companies have been looking to launch brand collaborations with digital platforms,  including within the gaming industry.  Access to younger consumers is a very attractive prospect. 

NFTs have been sold for $69.3 million for "Everydays: The First 5000 Days" by Beeple.   Many brands have created their own collectibles, such as Disney, Nike, Adidas, and Coca-Cola. Luxury brands Gucci, Dolce & Gabbana, Ralph Lauren and Balenciaga, who have all launched NFT collections in the Metaverse.  NBA Top Shots sold NFTs as short highlights of some of their most memorable games (e.g. LeBron James' slam-dunk).

Artists, musicians and online content creators are creating NFTs, to consumers or fans.  The token can be a right to download the highlights of the game to a visual of their new artwork to VIP passes to their music concert.   The token is a certificate, sitting on the blockchain, immutable.

What are the legal challenges?

• Intellectual Property rights:  For example, around whether the full IP rights are being sold or just the right to display a piece of art in a digital virtual building (for example), or whether the purchaser has a right to resale or transfer.

• Uncertain Regulation:  An NFT may fall under financial regulation and/or the transactions themselves needing compliance with anti-money laundering and taxation laws.  Whether a NFT qualifies as, for example, a security would depend on the characteristics of the NFT and assessed in light of relevant laws.  To read more about this, read our latest insight on crypto assets and financial regulation.

• Data:  this includes hosting, security and privacy. For more information, please refer to our latest Introduction to Blockchain publicationOpens in new window. 

• System and Process Failures:    If the NFT provides an access key or URL link or the blockchain suffers a force majeure or unplanned downtime, the seller would need to cater for this.

• Third Party Providers:  the "minting" agreement will need to be clearly set out, including around IP rights and confidentiality.

• Smart Contracting:  setting out matters such as payment of royalties.  For pay-to-earn gaming, gambling laws application may pose an issue.  For more information on smart contracts, please refer to our latest article on smart contracts. 

• Local Laws:  compliance with the local laws need attention, e.g. consumer protection laws.

By carefully mitigating the legal risks, the strength in a company's brand will continue to help attract new customers be they Metaverse users, customers or eSport gamers. 

Footnote

1 https://www.goldmansachs.com/insights/pages/infographics/e-sports/

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.