By all accounts, 2018 was a monumental year for investment in esports. According to a report published by Deloitte and The Esports Observer in April 2019, investments in esports increased from $490 million in 2017 to $4.5 billion (!!) in 2018. Also in 2018, 53% of the industry’s 380 million-person global fan base was comprised of fans aged 21 to 35. This is one reason investors are attracted to the market, as this demographic is widely considered a valuable audience for advertisers.
Additionally, investors also see this as an opportunity to get an early stake in an industry that is growing at an unprecedented rate and is expected to continue to mature in a similar manner. In February 2019, NewZoo’s 2019 Global Esports Market Report projected that revenues for the esports industry would increase from its estimated $1.1 billion in 2019 to anywhere between $1.8 and $3.2 billion by 2022. The report also anticipates the total audience to nearly double by 2022 to 645 million fans. With projections like these, it is understandable that investors are pouncing on opportunities within the industry in as many ways as possible. But who are these investors and what are they investing in?
Who are the investors?
According to the Deloitte report, private equity and venture capital groups were responsible for 60 esports investments in 2018. While these groups undoubtedly dominated the investment market within the esports industry, interestingly, a significant subset of individuals involved in the private equity transactions were athletes and entertainers.
Over the past few years, athletes and entertainers have consistently continued to grow their stake in the burgeoning space. In 2015, former NBA player Rick Fox, co-founded Echo Fox, an esports organization that has grown to become one of the more popular brands within the industry. Since then, dozens of athletes (both former and current) and entertainers have joined in some capacity, including Michael Jordan, Stephen Curry, Alex Rodriguez, Drake and Diddy. In addition to their capital infusions, athletes and entertainers are in a strategic position to help grow the target of their investment by leveraging their fanbases and current brand partnerships.
What are the Investment Opportunities?
By far, the most popular investment opportunity for all investors is in esports organizations. For the unaware, esports organizations comprise multiple teams competing in several titles, most frequently under single branding. According to Deloitte, $193 million was reportedly invested into this category in 2018. This is primarily because investors see this as an opportunity to own a stake in an early stage sports business that hopefully could be as valuable as a traditional sports team in time.
Investing in existing teams has become a common approach for some professional athletes and entertainers, but others have taken a similar approach to Rick Fox by running their own organization. Los Angeles Rams lineman Roger Saffold (Rise Nation) is one of the most publicized examples, but NBA players Jonas Jerebko (Detroit Renegades) and Jeremy Lin (J.Storm) have purchased their own esports teams as well. However, running an organization may not be the most viable option for the vast majority of athletes and entertainers, as it requires them or their business partners to spend a lot of time handling day-to-day operations.
Other Opportunities: Developers, Media Platforms, Agencies, Esports Funds, etc.
While team investment may appear to be the easiest and most popular way to obtain ownership interest in esports, it is by no means the only way. As with any other industry, the esports landscape provides an assortment of opportunities. Developers, like Riot (League of Legends), Activision Blizzard (Overwatch, Call of Duty), and Epic (Fortnite), are often considered to be attractive investment opportunities, given that they essentially own the intellectual property (i.e. “the football”) behind their respective esports ventures. Individuals may look to invest in a lesser-known developer in hopes of finding the next League of Legends or Fortnite.
Additionally, media platforms have grown to be an appealing investment play within the industry since Amazon acquired Twitch for $970 million in August 2014. Recently, an up-and-coming social broadcasting platform that distributes esports, gaming, and music content, Caffeine, received a $100 million capital infusion from Fox. Though many of these investments are made by larger businesses or funds, athletes and entertainers could look to leverage their unique combination of stardom and capital in return for equity in budding platforms like Caffeine, which was cofounded in April 2016.
Some athletes have even jumped in on other big-picture plans as their way of getting involved in the esports industry. In 2018, Kevin Durant, Odell Beckham Jr., and the St. Louis Cardinals participated a $38 million funding round for Vision Esports, a holding company set up to invest in a collection of esports businesses. This is not a bad option for those individuals who may not know exactly what to invest in, and trust the industry knowledge of those individuals running the investment fund.
The examples described above are only a fraction of the endless amount of investment opportunities available within the esports industry. From teams to technology to third party tournament organizers, there is an option for every type of investor who is looking to get involved in the space. Unfortunately, as with any new industry, there are a significant number of con-artists seeking to obtain investment on false pretenses, which may be difficult to detect by those not involved readily involved in the esports industry. If you have any questions regarding potential investment opportunities or how to structure a particular transaction, please feel free to contact us.
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Over the past month, Kawhi Leonard, one of the NBA’s most iconic players, has continuously been in the news for leading the Toronto Raptors its first ever NBA championship. However, Leonard has also made news for his actions off the court. On June 3rd, Leonard initiated a lawsuit against Nike for ownership rights to a logo (seen below) that he claims Nike stole, “fraudulently” filed a copyright application for, and threatened to sue him over. The case is a great example of why individuals (in the esports context, players and streamers) must make sure that the ownership rights in their intellectual property are clearly established, expressed, and protected to the fullest extent prior to entering into sponsorships, endorsements, or other types of licensing arrangements.
In his complaint, Leonard begins by stating that he originally created his logo while in college, long before he entered into three-year endorsement deal with Nike. This is an important fact in the case because if true, under United States copyright law, Leonard would have obtained ownership rights to the logo upon its creation.
After making this assertion, Leonard explains that Nike started discussions with him about developing a unique logo to affix on its merchandise shortly after he signed his endorsement deal with the company. Since Leonard had already created a logo, he maintains that Nike repeatedly asked to revise his existing logo, and sent him multiple modified designs based upon the mark he created. After denying several mock-ups, Leonard finally approved a refined design, and authorized Nike to use it on its merchandise.
Throughout the term of their relationship, which had been extended to July 2018, Leonard believed that he retained ownership in the refined logo since it was based on his original design and he never expressly transferred any ownership rights in the mark to Nike – he only authorized Nike’s use of the mark. However, Nike also believed it was the true owner of the new refined mark, and the company even filed an application with the United States Copyright Office to register the mark. Nike’s application was granted in 2017 and its registration lists the company as the sole author and owner of the mark, and describes itself as an “employer for hire.”
Typically, these types of endorsement agreements will include language that provides the company with ownership rights in any intellectual property created by the company during the term of the agreement. This language defines the business as an “employer for hire,” which signifies that it will own any designs created by its employees or independent contractors, as these designs are considered works made for hire. Still, this type of provision would not apply to marks that were created by an individual prior to entering into agreement, which appears to be the case here. Generally, in those situations, the owner of the mark would either sell the mark outright, or agree to license it to the business at the outset of their partnership. In both situations, a written agreement would clearly define ownership rights in the intellectual property and any modifications to the mark.
Here, Nike may try to argue that the “refined mark” was completely different than Leonard’s original logo in hopes of establishing its own copyright in the mark. It may also contend that Leonard expressly transferred any ownership rights in the mark to the company once it made modifications. In either event, Nike will need to provide strong evidence corroborating its argument. While it appears the parties are approaching this matter cordially, executing a well-drafted licensing agreement at the inception of their relationship would have prevented this matter from escalating to this point.
How does this apply to esports?
As the profiles of many players and streamers in the esports industry continue to increase in popularity, these individuals need to be mindful of their intellectual property. They must take the appropriate steps to ensure that ownership of such property is clearly established in all agreements and protected to its fullest extent. This is especially necessary for players and streamers when entering into endorsement or sponsorship agreements with companies, as these businesses may look to use or further develop an individual’s existing intellectual property. As seen with the Leonard case, this is particularly critical with any associated logos or marks. Clearly establishing and expressing ownership rights in a mark will make it apparent to the business that an individual owns the mark it wishes to use.
In order to do so appropriately, individuals should first ensure that they legally own their mark. Oftentimes players and streamers hire parties to design their mark for them. In this case, individuals must make sure that they receive a written work-for-hire agreement from any party who designs their mark. This agreement will state that any rights to the design have been assigned from the artist to the streamer or player. Without this agreement in place, the designer may still have ownership interest in the mark.
Players and streamers should also look to register their mark with United States Copyright Office and United States Patent and Trademark Office. In most cases, proof of copyright and trademark registrations will provide a party with strong evidence of ownership rights in a mark, and also provide them with a number of other benefits.
Once these measure are taken and retention of ownership is firmly in place, individuals can express their ownership rights in mark to any company that wishes to enter into an endorsement deal and proceed to license their mark effectively.
Distinguishing ownership rights to intellectual property can become increasingly difficult when multiple parties begin to use such intellectual property, like a logo. Since companies executing endorsement or sponsorship deals may look to use or further develop a player or streamer’s mark in the activation of these agreements, individuals must make sure that their ownership rights in the mark are clearly defined and expressed to the company at the outset of their relationship. By doing so, companies will be aware of the individual’s rights in a mark and look to license the mark appropriately. Effectively executing this type of agreement should prevent any ownership confusion and/or subsequent litigation, saving both parties time and money.
Quiles Law is an esports and sports law firm based in New York City.
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