Esports: What happens when the regulator comes in?

19 October 2018

The esports ecosystem has often, and at times unfairly, been described as like ‘the wild west’. This is a tongue in cheek swipe at its lack of structure and governance, and the easy entry into the market by various speculators from the serious to the curious. Nevertheless, this flexibility and encouragement for entrepreneurial spirit to step into the market at will, has underpinned the significant growth of the market over the past two to three years. The seemingly unregulated nature of this part of the entertainment business, has facilitated its growth on a global scale, and it shows no sign of slowing down.

Revenue raises profile

The lack of barriers to entry and ability to be agile in the market, has led to many successful organisations now turning in significant revenue and obtaining some decent valuations on their businesses. This in turn has led to greater potential to secure further investment and attract mainstream sponsors. The recent MasterCard partnership with Riot Games is one such example. This is a real coup not only for Riot but for the industry as a whole. Many in the ecosystem will feel the benefits of such a high profile partnership.

Alas, where there is revenue there is profile; and where there is revenue and profile the gaze of the would-be regulator bares down upon it.

This is not necessarily a bad thing. The introduction of regulation (which can, and will, come in many forms), is a complementary pat on the back for recent success, and the blood, sweat and tears that many have put into the evolution of the esports industry. Provided it is introduced gently and has culture and the community at front of mind, there are many benefits to be gained from some regulation.

Regulation a good thing?

Regulation can help organisations adhere to certain frameworks ensuring compliance with authorities protecting their businesses, players, investors and commercial partners alike.

Any form of sport or entertainment is only as good as the sports people or entertainers on show. Regulation supporting player welfare can surely only be a good thing? If the top athletes are supported to always be in top condition to perform, you achieve a greater level of professionalism. This simply enhances the product - a win for all.

Evidence of this is already seen with the kind of rules (for rules also read regulation) that publishers impose upon their tournaments. Some of the rules governing Blizzard’s Overwatch league, has player wellbeing at their core.

So there is already regulation?

It will also be no surprise that tax and legal requirements have long been in existence. Some interpretation of existing schedules, clauses and laws certainly need some consideration by authorities around application, by better understanding context; in order to find a fit for esports. Nevertheless, the principles outdate the esports ecosystem by some way. Esports organisations have to be compliant with fiscal and governmental authorities just as any other industry does. The cross-border nature of the sector further complicates matters. However, this is where increased interest from governmental departments and would-be regulators can help direct the focus of esports organisations to solving these problems. Early adoption to regulation will in turn help minimise any unexpected issues down the line, as well as protect against unwanted negative publicity, so future-proofing further investment.

Regulation: a driver for change and growth

Higher profile sectors benefit from strength in numbers when lobbying for legislative change. This could be a matter of reclassification of esports in a jurisdiction to better fit with its culture and to help find a place for esports within existing legislation - pressure on regulators helps drive efficiency and fairness. This can also help maintain the agility and freedom that is enjoyed today.

With continued investment and higher valued, longer-term, strategic partnerships being key requirements for the sustainability for many esports organisations, certain regulation would make investing more attractive; provided businesses can remain agile and not be bogged down by red tape - it is a fine balance. Assurance would be provided to the many voyeur investors out there concerned about risk management as well as returns, not to mention bad press about player welfare, corruption and social responsibility. This would stop the voyeur investor circling the sector and allow them to jump in.

So a bit of well-placed regulation could tip the balance of the market to weigh more heavily towards the serious longer term investor, rather than the curious speculator.

For more of my views on what's happening in the esports industry, check out my blog on the growing presence of the UK in esports and get in touch.

Andrew Fahey | Director
Profile | Email +44 (0)7738 845455

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