Mon, Aug 9, 2021

The Importance of Compliance for Esports

While still not entirely understood by many, there is no argument on the importance of electronic sports (“esports”) as an industry. A 2021 study by Newzoo reported that the total esports audience will grow to 474.0 million people this year. The same report also highlights that esports revenues have already reached the $1 billion milestone.

But what exactly are esports? While there are many definitions, it is a consensus that esports are competitions using electronic games. Competitions are organized at all levels around the world, from online tournaments to amateurs to massive events in sports arenas featuring teams of professional players (“pro-players”). The most famous pro-players often reach celebrity status, having millions of followers on social media and signing significant endorsement agreements. Streaming platforms such as Twitch are used by pro-players to engage with fans.

This billion-dollar industry with global outreach and the potential of growing exponentially over the next decade attracts followers of all ages and reaches out to fans globally. In one of its biggest events in 2019, an audience almost as big as the Superbowl watched the finals online. And while esports will not be seen during this year’s Olympic Games in Tokyo, the International Olympic Committee has already acknowledged its importance and has confirmed that it will keep working on an agenda to “engage” and “mobilize” it.

The complex environment surrounding esports means that there are various stakeholders involved. This includes teams, pro-players, influencers, broadcasting platforms, event organizers, and of course, game publishers. 

For an industry so significant—and so promising—it is not possible to ignore the importance of understanding its risks and ensuring that the appropriate level of controls is implemented. These range from local regulations such as labor laws to reputational risks related to the parties involved (sponsors, partners, event organizers, etc.).

Many professional esports teams started as a small operation and grew significantly in a short time frame, thanks to their sporting achievements. Prizes for the top spots in the main events are sizeable, and good results will almost inevitably attract sponsors. Such a fast transformation may not always be followed by building the proper structure, including the principles of governance, risk and compliance. 

For instance, many professional teams operate what is known as a “gaming house.” This means that players are actually living together — using the same quarters as their living and training facilities. While this may be the optimal solution from a sporting perspective, the labor risks associated with overtime, weekend work, etc., should be understood and managed. The same goes to acknowledging the risks associated with harassment and other forms of intimidation that may occur in this environment.

What is more, esports teams should learn from the mistakes of their counterparties in traditional sports (risks associated with fraud and corruption, conflicts of interest and poor governance) that can easily bankrupt a team and are also a constant threat.

At the same time, sponsors must be aware of the risks associated with partnerships with esports clubs, which again is similar to what happens in traditional sports. Ethics scandals, the misuse of social media and sports-specific fraud risks, such as doping and match fixing, are all elements to be assessed, monitored and taken into consideration when partnering with clubs.

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