Are Real-Money Video Game Tournaments Legal?

Video games are quintessential contests of skill and online multiplayer modes are a must in most modern video games. And yes, playing skill video games for real money prizes is legal in the majority of U.S. states. Some of the most popular video games (Call of Duty, Fortnite, Magic: Arena, and others) frequently feature official in-game tournaments with real-money prizes for the top finishers. Fueled by the global popularity of esports, there is also a growing number of third-party esports tournament sites and apps. These third-party offerings are essentially on-demand, which means that there are always head-to-head challenges waiting and frequent “cash cups” with winners able to win a hundred dollars or even more.

Real-money game tournaments and contests serve as a more casual alternative to professional esports. Not everyone has the time (or the reflexes) to go pro or even compete at the collegiate level. But, you may be skilled enough to dominate your local group of friends at Call of Duty or FIFA and there are plenty of offerings to let you win real money prizes against online opponents. Some of the most innovative companies even integrate streaming (for example through Twitch) to add an exciting “audience” element to real money play. Anyone can feel like an esports pro. There is also a growing opportunity for market crossover, with streamers getting involved in real-money play and adding a whole new dimension to their entertainment potential, audience, and branding opportunities.

What kinds of legal issues will a contest or tournament organizer/developer encounter? As with any business, there are several distinct legal areas in play.

Esports competitions or tournaments are not expressly regulated or prohibited under U.S. federal or state law.

First, from a government regulation perspective, no states expressly prohibit esports or video game tournaments. However, there are several jurisdictions that prohibit any sort of real-money gaming. This is the case even if the game involves a pure contest of skill (even offline, like a hole-in-one contest). Accordingly, tournament organizers and app developers stay away from those restrictive jurisdictions.

In the remaining states, game contests, tournaments, and esports are not licensed under any sort of “gambling” or “fantasy sports” regulatory scheme. The largely unregulated market means that there are a number of service providers out there that disagree on where their product can be offered. Some are more conservative than others, but there is not a definitive list of where gaming competitions are legal or illegal. At least one state – Nevada – passed legislation to create an esports advisory board (within its Gaming Commission), to recommend best practices for maintaining integrity of esports competitions and related betting. According to Nevada lawmakers, they recognize the value in the esports competition industry and want to ensure Nevada remains an attractive investment environment for this burgeoning industry. At this time, the potential advisory committee is the closest any state has come to any sort of esports-specific legislation.

A lot depends on the specific competition and tournament model, as well as the types of games being played. For instance, are shuffled cards involved (Magic: The Gathering)? Or some other element of randomness (like team or opponent selection)? Are bots or AI players involved? How do all these elements interact and do they introduce a significant chance element that may affect the outcome? Does the randomness element render the game illegal “gambling”?

Third-party video game websites and apps implicate the intellectual property rights of the underlying game’s developers and may be subject to DMCA takedown notices or federal trademark lawsuits.

Second, esports competitions and tournaments do implicate intellectual property rights, specifically the rights of the game developers. A game’s developer (like Blizzard, Riot, or Epic) owns the copyrights in its games and underlying code. Third-party apps and websites operate without any sort of license from the developers, which may be a violation of copyright or trademark law. Disclaimers alone may not be enough – using game imagery, logos, or even gameplay footage may constitute copyright or trademark infringement. A player or streamer may be protected by the “fair use” copyright law exception, but a company that organizes and monetizes game tournaments is unlikely to prevail on this argument. At the same time, a properly run game tournament organizer may not have sufficient interaction with the game itself to violate IP rights. After all, the players are the ones playing. Each situation is highly fact-specific and there is certainly no bright line rule.

As real-money video game tournaments become more widespread, expect to see pushback from the game studios. At least one studio – Epic – has announced an aggressive stance towards third-party platforms that facilitate playing Epic’s games for real-money prizes (particularly Fortnite). However, as of the date of this article, no lawsuits have been filed.

Combining real-money tournaments with streaming is an attractive business model, but may involve complex licensing and contract issues.

Third, streaming tournaments and competitions, as well as partnering with known streamers, involves a number of contract law and licensing issues. Each streaming service has its own set of terms. Players (and organizers) streaming real-money game content must ensure that they are compliant with the terms or risk being banned from the platform. Further, who owns the streaming content? Normally, the creator has the intellectual property rights to their own content, but it is not so clear-cut when streaming a tournament or other organized contest. Tournament organizers should ensure that rights and expectations are clear from the outset, especially if a well-known esports streamer or player is involved. If the streamer is granting the organizer a license to showcase their gameplay, the license should at a minimum be in writing. Any royalties, cross-promotions, and sponsorships likewise need to be negotiated ahead of time. Even the best intentioned relationships go awry when money becomes involved.

For developers looking to launch a new esports or game tournament app or website, an experienced gaming attorney is a must-have. Artaev at Law has worked with a number of gaming companies from across the world and has the expertise you need. Reach out today to set up a meeting with Dan.

Contact Dan Artaev by email or call or text to set up your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal, investment, or tax advice. Every situation is different and faces its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.

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2 Comments Add yours

  1. Zach says:

    Question: I’m wondering about the legality of the licensing fees charged by game developers to people who want to hold tournaments. In my opinion, this is equivalent to the manufacturer of baseballs telling customers they can’t organize a professional baseball league. Imagine if the manufacturer of footballs said only the NFL can hold a competition. You wouldn’t have alt leagues like the XFL. How can video game developers hold a perpetual license over competitions? How does it not rise to the same level as other sports? I think this needs to be challenged legally. I bought the game, I should be able to host a prize competition without needing to pay thousands to the developer. That seems legally dubious and perhaps and area of law that hasn’t been tested in court. Thoughts?

    1. Hi Zach, thanks for reading! It basically comes down to the rights of the game developer to dictate the terms of how they want their product used, which is a right is protected by federal copyright law, as well as state-level contracts law.

      Video games are creative works protected by the Copyright Act, which grants significant rights of control to the creators. License agreements are contracts that dictate the terms on which the developers delegate some of those rights to the consumers. What is allowed and what is not allowed in this area is a matter of contract law – and courts have consistently upheld the rights of software developers to dictate the terms. For example, there are ample cases that uphold the validity of “clickwrap” or even “browsewrap” agreements, which spring into existence just through use of a certain piece of software or website.

      So, from a contract law standpoint, the courts presume you agree to the developer’s terms when you use their software. This includes restrictions on use – for example, you cannot copy software and sell copies of that software – that amounts to theft and piracy. The same goes for using that software for purposes other than personal in-home entertainment. The courts would uphold this restriction because the game developer gets to decide how its product is used. As the consumer, you get to vote with your wallet and choose not to play a game if you find their licensing agreement objectionable.

      From a policy standpoint, game developers are reluctant to associate their games with any sort of wagering or money-making activity. A lot of people still find gambling (or anything the remotely looks like gambling) morally objectionable. Furthermore, video games are not an adults-only industry (like casinos for example). Many game developers strive to maintain a certain image and protect their brand as family-friendly – making them especially sensitive to any operation that threatens that image.

      In short, while you may disagree with the terms of the license, your remedy is to not buy that product. That being said, there are significant exceptions to copyright under the “fair use” doctrine – for example, to use video games in the context of education, critique, or commentary – but “fair use” is not a concept that has been extended to competitive money tournaments. Perhaps that’s something that could be litigated in the future!

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