A sport lawyer’s view from a post COVID world: Is eSport the new “sports”?
The enduring impact of COVID19 resulting in the repeated cancellations and postponements of live sporting events across the globe, has forced many “traditional sports” to look towards the dynamic of esports as a measure to control some of the financial damage being inflicted on them, because of this pandemic. While some sporting codes like Formula 1 were quick to jump on this gravy train, by succeeding in leveraging the already popular F1 Esports Series to create the Virtual Grand Prix, other sports were noticeably and considerably late in adapting themselves to the changing environment. For instance, though the much-fancied Premier League has dabbled in esports, a more sustained focus on digital offerings and content has only been kickstarted very recently with the announcement of a virtual tournament in FIFA 2020.
The overarching reason behind this sudden boom of esports offerings by multiple sports organisations worldwide is the organisational need to provide a continuous stream of sporting content to fans, as public lockdowns become tighter and stricter across the globe. In fact, the only form of sports that has considerably escaped the damage induced by this pandemic is the sphere of esports. SVG News has reported that only 8% of live esports events have been cancelled as a result of Covid-19. While 26% have been postponed, a sizeable 53% have simply been converted into online events. Why so, you ask? As has been previously argued across sport business academia, the nature of esports as a digital first product is central to its burgeoning status in the midst of the COVID19 pandemic. It is
This article examines whether esports can help mitigate the impact of Covid-19 on traditional sports in three particular spheres, namely:
- Sponsorship
- Gambling
- Sportsperson safety
Sponsorship
The brand spend on sport sponsorship in 2019 was predicted to be £35 billion globally. As a result of Covid-19, IEG have predicted that a sports and entertainment shutdown in the US of six months could cost the sponsorship industry $10 billion. How these losses will be managed is unclear. While 64% of properties believe that they will eventually succeed in making up the lost exposure, only 45% of sponsors agree. As a result, 31% of sponsors expect “protracted agreements and refunds” compared to only 11% of properties. This is a sizeable minority who expect valuable recompense for their lost sponsorship opportunities. Around a fifth of both expect sponsorship agreement lengths to be extended to compensate. The report also indicates that, going forward, a majority of sponsors and properties will seek to mix their marketing differently. As Brian Gordon, CEO of Engine Shop (marketing strategists) noted:
The COVID-19 crisis is casting a light on an existing problem in how brands and rights holders were working together. Both sides have been too reliant on assets like signage and media that exists around the live event itself; instead the focus should be on how the two can work together to engage and add value to the community and fan base outside of a game day. If that partnership strategy is already in place, there’s no need to pivot when the play stops, only the need to develop new tactics and messaging.
A high proportion of esports revenue is similarly tied to sponsorship. Of the $1.1 billion total esports revenue predicted by Newzoo for 2020, $614.9 million is estimated to come directly from sponsorship. While these figures have been dented by Covid-19, the loss is comparatively minor: pre-Covid-19 estimates for sponsorship were $636.9 million. This accords with both the small number of cancellations of esports events, and the considerable uptick in viewing figures at both the competitive and community streaming level.
It is this continued capacity for sponsorship that traditional sports can capitalise on to provide some current value for existing sponsors. Particularly in circumstances where there is a dearth of such opportunities, flexible responses utilising a fresh approach will be rewarded. The consequences otherwise are stark: for example, the Formula 1 racing team AlphaTauri have reported that it is seeing up to $2 million in losses per Grand Prix missed. By seeking agreements with sponsors to move some of the focus from traditional live events to the esports arena, properties will be able to provide some value, and demonstrate a willingness to innovate in a way which will deliver a more diversified sponsorship product.
Indeed, as Deepen Parikh, partner at Courtside Ventures explained in a recent interview with SportsPro Media, esports rewards “endemic relationship[s] with fans”. Building such close relationships with the consumer, in circumstances where the demographic of those viewing esports is younger than traditional sports, will provide multiple benefits. In the short-term, it will provide an additional stimulus to reduce the financial impact of Covid-19, particularly by reference to lost sponsorship exposure. In the long-term, it will provide an important avenue for introducing a new demographic to traditional sports and may facilitate the development of endemic relationships with these new fans, drawing them deeper into the sponsorship and merchandising ecosystem.
Of course, the current reaction of those advising the sports industry will be to consider ways of minimising losses and passing risk to others. This has already been addressed by Nick De Marco QC on LawInSport, where he has discussed force majeure and frustration. However, while this may provide some legal respite, the damage caused to the industry by pursuing this nuclear option could be considerable. The loss of business goodwill between properties and sponsors would be huge. Negotiation, dialogue and a pragmatic approach to pro rata refunds and extensions of existing contracts will provide a more palatable way of managing the Covid-19 fallout for sponsors than protracted legal action.
Gambling
Gambling is inextricably linked with sport. Betting on sport makes up 30–40% of the global gambling market. With the loss of traditional live sports events, bookmakers have seen a considerable drop in sports betting, with some reporting a loss of 75% in sports wagers. While some bookmakers have had success in relying on their online casino offerings, others have pivoted to the growing esports gambling market. This is particularly the case in Asia and Europe where esports gambling has become more rooted in the last decade.
In contrast, any similar move in the US is inherently limited by the complex legal rules surrounding gambling. It is for each individual state to authorise games, and historic rules against online gambling still exist. An added difficulty in the US is that some gambling is restricted to casinos, which itself is problematic because of social distancing rules. However, Nevada is a notable outlier. The state has begun authorising betting on a number of esports competitions. Beginning with CS:GO and Dota 2, the move now includes betting on LoL, Overwatch, and Call of Duty.
Some bookmakers are still reluctant to fully invest themselves in esports gambling. Much of this stems from the historic problems that the fledgling industry has had with cheating. This is exacerbated by the lack of professional sports and disciplinary bodies, and the considerable diversity of video games on which esports can be played. However, as professional play has become more valuable in esports, there is now a considerable drive to stamp out cheating. With esports still thriving in the Covid-19 pandemic, and with much of traditional sports pivoting to rely on this resilience, it is now desirable for bookmakers to push hard into the field. To do otherwise would be to ignore an important source of live events which could make up some of the shortfall caused by cancellations and postponements in traditional sports. It is also in the esports industry’s interests to see such a push: its recognition as an important part of the gambling industry may be a further catalyst that facilitates esports move into the mainstream.
Sportsperson safety
Cancellations of esports events have been a necessary but costly aspect of managing the pandemic. This is no more so than with the English Premier League. Since the postponement of league matches in March, there has been a persistent drive for games to continue “behind closed doors”. Were the league to return, such a move would be necessary as a matter of law because of English regulations concerning Covid-19, but would also be an important step in protecting staff and sportspeople from large numbers of fans who may spread the virus further.
However, simply playing matches behind closed doors will still occasion risk. Aside from players being in close proximity to each other, the number of support staff required to play is still in the hundreds. There are numerous legal problems which the sports industry may face if it requires staff and sportspeople to return to play. As an employer, they may be in breach of the implied duty of trust and confidence to require work in circumstances where conditions are not safe, or it may be a breach of duty in contract or tort. Furthermore, in the UK legislation provides that employees are not to face detriment nor dismissal if they refuse to work for reasons of safety. The industry may open itself up to claims of constructive dismissal if it is seen to be pressurising workers or sportspersons to return to work while feeling unsafe.
Clearly, esports cannot replace the Premier League. However, it can provide a mechanism for remote digital play which provides a way of utilising staff and sports talent without exposing them to health risk. Having sportspeople play televised esports will provide some replacement content and will allow for the industry to derive some financial benefit safely. From a commercial perspective, it also opens doors that would not be available in normal circumstances. For example, at the Vietnamese Virtual Grand Prix, Ben Stokes represented Red Bull. This provided a massive cross-over audience which would simply be impossible in traditional Formula 1 racing. Such an approach will likely provide some financial relief and maintain some brand exposure in difficult times.
Summary
In these difficult times, esports’ differences must be turned to the strength of the whole sports industry. This will provide an important lifeline for traditional sports, who need the finance and exposure, while also providing further impetus for esports to pivot further into the mainstream. It will be interesting to see how traditional sports and esports interact in the coming months.
