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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.

A Lesson in Licenses and Why You Own Nothing.

In 2019, Fortnite went offline. No one could play, stream, compete, or access their account. This was part of an in-game “event” known as the Fortnite Blackout or The End. Can Epic Games do that? What rights do you even have as a player, team owner, or competitor? It all comes down to the End User License Agreement (EULA) – so leave it to a gaming lawyer to use Fortnite to teach you about the critical role of licensing in the digital age!

By way of background, Fortnite is certainly one of the most –if not the most popular video game in the world. The game, which is available as free download on modern consoles, PCs, and even iPhones, is a hit with kids, teens, adults, professional athletes, celebrities, and even Prince Harry (the Duke of Sussex) who got so addicted that he called for the game to be banned in Britain. True story. It has also evolved into an international eSport phenomenon, with this year’s World Cup Finals winner taking home a cool $3 million check. There are hundreds, if not thousands, of professional gamers and streamers across the world that make this game their career. Epic Games, the game’s owner and creator, is estimated to have earned between $2.4 and $3 billion from the game in 2018 alone. This is particularly impressive given that the game is free to download and play, with all of the revenue coming from in-game cosmetic content, such as different character outfits.

Now imagine if one day all of that was suddenly gone. Epic shuts down the servers and Fortnite no longer exists. Well, this actually happened (at least for about 24 hours)–during the Fortnite Blackout or The End event. The hundreds of hours you spent playing, earning points, and ranking? Gone. Did you spend all of your birthday money on new outfits so you could look like a James Bond villain in the game? Gone. Even worse if you are a professional gamer who made Fortnite a career. Or a team owner who invested hundreds of thousands of dollars into building the next world champion. What can you do? Who can you sue?

The simple answer is NOTHING and NO ONE. Because you have to understand licensing. And the fact that the traditional concepts of ownership–i.e. I pay money for something therefore I own it–do not transfer to the digital world. Did you read the EULA that you have to accept before logging into Fortnite? I didn’t think so. Yet it contains important rights and obligations–especially if you play professionally. The reality is, by playing Fortnite and even paying real money to “buy” in-game characters, weapons, etc., you own nothing. In simple terms, Epic Games grants you a license to play the game at its sole discretion, but Epic Games owns and controls everything and anything within the game, even the content that you paid real money for.

The Fortnite EULA is a license, which is a right to do something, or access something. Think of it like a ticket to go see a football game or a concert, but in this case it is a ticket that gives you access to a video game. In legal terms, what distinguishes a license is the fact that it is a “revocable” right, meaning the licensor (the owner of the license) can terminate the licensee’s rights of access at any time, subject to any conditions of the license. So what terms do you agree to when playing Fortnite?

Epic grants you a “personal, non-exclusive…limited right and license to install and use the Software…for you personal entertainment use.” Also, ” The Software is licensed, not sold, to you under the License. The License does not grant you any title or ownership in the Software. ” Ok, but can Epic just shut down the game? Yes–read on–” You also acknowledge that any character data, game progress, game customization or other data related to your use of the Software or Services may cease to be available to you at any time without notice from Epic….”

What about all the real money you paid for skins, custom characters, etc.? You get that back, right? Nope. Read on–” Epic, in its sole discretion, has the absolute right to manage, modify, substitute, replace, suspend, cancel or eliminate Game Currency or Content, including your ability to access or use Game Currency or Content, without notice or liability to you.” Meaning, you do not really own any “game currency” or the “content” that you bought–in fact, all you are acquiring when you are “purchasing in-game content” is another license to use the currency or the content that you purchase with the currency for as long as Epic wants.

It’s not really so confusing. When you downloaded and played Fortnite, you agreed that Epic owns everything and you own nothing. If you paid any money to Epic for skin or custom parachute, Epic gave you a license to use that particular skin or parachute. You paid for the “experience”–not a tangible item itself. That’s licensing.

Of course, this reality creates a whole host of follow-up questions. What happens to content I create using Fortnite’s creative mode? Does Epic own that too? Short answer is YES. What about streamers who make a living playing Fortnite? Professional gamers? Team owners? Fortnite World Cup sponsors? There is no easy answer there, as each situation is fact-specific and depends on the various terms of the license agreements, any sponsorship agreements, intellectual property law, etc.

The Fortnite Blackout was a lesson in “ownership” in the digital age. Traditional concepts of ownership do not apply or transfer to to the digital realm. Music, video, games, and even photos that you upload or post on social media–are not “yours” in the traditional sense. Rather, there is an increasingly complex web of rights that becomes even more complex when gaming is a business.

So, like any business owner, if you are investing time, money, and effort into a game–with the idea to play professionally, make streaming revenue, or to otherwise make it in the gaming business–engage and consult with an eSports attorney. Understanding your rights and obligations will help you craft an effective business strategy going forward, and plan for contingencies and er…singularities.

Have more questions? Contact Dan Artaev at dan@artaevatlaw.com or 269-930-0254 to set up your free initial consultation.