So you want to start an esports business during the quarantine. Here's what you need to know – from a business lawyer.

Esports was already a rapidly growing industry before coronavirus shuttered most traditional sports, shifting demand toward online gaming competition. NASCAR is even “replacing” cancelled races with an eNASCAR Pro Invitational Series — televised simulation racing featuring real pro drivers like Dale Earnhardt Jr., Bobby Labonte, Kyle Busch and Denny Hamlin. Nevada and New Jersey sportbooks are allowing patrons to wager on esports tournaments. High schools and colleges across the United States are fielding teams, hosting tournaments, and offering scholarships. Considering that many young entrepreneurs grew up with video games, it’s no surprise that esports-related businesses are a popular start-up trend and many seek to get in on the up-and-coming market. Moreover, it is an industry well-suited for the current state of social distancing, and while in-person tournaments have been cancelled, the business is alive and well on streaming platforms like Twitch, Mixer, and others that allow players and their fans interact remotely.

So if coronavirus has you home and you are thinking of starting an esports business as a side-hustle — or maybe even your main gig because the traditional job market is cratering — read on. I assume you already have a specific idea and a business plan in place. That’s step one – starting any business is no easy process. But, it is easy to forget about some of the legal implications when you are focused on the business/marketing/money-making side of things. Surprisingly, while legal considerations may make or break a startup, even the big companies forget the essentials. Or, they talk to the wrong lawyers.

Here are four essential considerations to keep in mind when starting your esports business. This article is more for the general business practice – such as if you want to run an online tournament, consult, or do something other than play. If you are an esports athlete or putting together your own team, check out this other article.

  1. Intellectual property concerns are paramount. The game is the essential cornerstone of anything esports related. However, whether you buy a physical disc or a digital copy, what you are buying is a license to use a piece of software in a certain way. When you want to start a business that uses another’s intellectual property, it is critical to ensure that you have the proper licenses from the software owner. For example, does the licensing agreement for your copy of Fortnite allow you to stream your gameplay to others? To charge money for it? To use it in organized tournaments? Do you need a special license for what you are planning to do? If you don’t know, you may find out the hard way. Intellectual property lawsuits are not only costly, but threaten to derail your entire business model.
  2. Streaming and cross-marketing. If you are going to be using a streaming service like Twitch or Mixer or have your own YouTube channel, review the service’s license agreement carefully. What are you allowed to do? What are you not allowed to do? How do you monetize your streaming content? Does the service take a percentage, a flat fee, or what? And most importantly, who owns the content that you create and broadcast? The last thing you want to do is to create something that goes “viral” and then find out that there is a competing intellectual property claim out there that impedes your rights.
  3. Appearances and contracts. As your business takes off, you may get appearance offers and be asked to sign contracts for various things, including sponsorships. Like any professional entertainer and any other business owner, it is critical to have an attorney review any such contract. Even if you understand the fee structure, there are terms and provisions like choice of law, indemnification, and other “legalese” conditions that can trip you up. Again, the last thing you want to do is to find out that the Mountain Dew sponsorship contract you signed is silent on who owns the video footage from that Tekken tournament you created, and you unwittingly agreed to litigate all disputes in the Isle of Man applying the laws of Iceland. Might seem far fetched, but know what you sign.
  4. Marketing and growing your business. The intellectual property and contract concerns only become more pronounced as you gain sponsors and expand your marketing efforts. For example, can you use the Fortnite logo on your poster advertising your business? Probably not. If Mountain Dew sponsors your channel – are you going to get sued if you accidentally have a case of Surge sitting in the background?

Esports is a hot startup industry – it is global and growing. The internet allows the industry to be especially flexible during this time of quarantine. But as with any business, a consultation with a competent business attorney is a must. Contact Dan Artaev at dartaev@fb-firm.com to set up an initial consultation and discuss all your esports industry questions.

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