Introduction
The popularity of electronic sports (“esports”) has been mounting for years, leading to a now captive worldwide audience of 532 million, which is projected to be over 640 million by 2025.[i] In Canada, the gaming industry has enjoyed strong growth, contributing an estimated $5.5 billion to the country’s GDP in 2021, which represents a 23% increase from 2019.[ii] Recent advances in the licensing of sports betting in many U.S. states and Canada have given rise to a wide range of new business opportunities as well.[iii] Despite soaring engagement levels and the overall development of the gaming industry, current esports revenue streams are “only” generating around $1.38 billion per year, with some predicting that this figure will reach $1.86 billion by 2025.[iv] Although nothing to sneeze at, these numbers are relatively low in comparison to other industries that generate income from viewership. It is clear that even with such drastic growth, revenue has failed to keep up. Where is the stakeholder buy-in that is expected to follow these advancements? The following is a discussion on how regulatory concerns are impacting esports.
Esports and Gambling
Presently, there is uncertainty about whether an esports game is one of skill, particularly within the context of gambling. In Canada, skill-based gaming carries on in an unregulated fashion while those games that include any element of chance are quick to be categorized as “gambling.” The U.S. has taken a more calculated approach as courts apply the “Dominant Factor” test to determine whether a game is one of skill or chance, suggesting that if the game is primarily one of skill, it will not be subject to gambling laws. In Canada, however, courts have held that if there is any chance at all, then it is in fact deemed gambling, which falls within the more restrictive ambit of the Criminal Code.[v] On a global scale, the lack of clear and uniform standards as to whether a game is one of skill or chance may continue to suppress commercial opportunity and limit market growth in esports.
Variability – Matchmaking: “The Chess Conundrum”
Another critical concern is what is referred to as the “Chess Conundrum.” The ability of an experienced gamer to dominate a gaming space deters inexperienced players from participating. Inconsistent and unverifiable matchmaking operations that currently exist on a myriad of skill-based esports platforms lead to high turnover and attrition rates for casual and less experienced players. A gaming atmosphere that dissuades amateur gamers serves to weaken the platforms’ growth potential and thwarts any prospective scalability. This, in turn, may cause stakeholders to pause when considering investment opportunities in esports.
Regulatory Vehicles
Self-Regulation
The concerns outlined above underline a need for more regulation in esports. One way to address this need is to establish a self-regulator that will create uniform standards and allow the industry to meet its untapped potential. A self-regulator, referring to an entity within the industry that regulates itself without external or government oversight, relies on the belief that industry insiders are best equipped to understand the nuances and specific needs of their field. Leveraging their deep knowledge of the esports landscape, they can formulate rules and standards that are well-informed and aligned with the industry’s unique needs and nuances. Self-regulation often garners more acceptance form the esports community as it represents regulation by the industry, for the industry, thereby fostering stronger compliance and support.
Among other things, a self-regulator could potentially provide for a skill-wagering gaming ecosphere that would bolster integrity, inclusivity and transparency. It would effectively provide a match-making process that establishes a fair chance for gamers to win through a level-playing field.
Regulatory Body
A regulatory body, typically an external organization or government agency, assumes the responsibility of overseeing and enforcing industry rules and regulations. By design, these bodies maintain their independence from industry stakeholders, a crucial factor to ensure impartiality. This impartiality, in turn, assures that regulations remain centered on the broader public interest, thus acting as a more robust mechanism for consumer protection.
Although this path may seem like an attractive regulatory path, it carries the risk of subjecting esports and the skill-based gaming sector to oversight by an entity that may not have a deep understanding of the industry or buy-in from applicable stakeholders.
Why now?
Implementing a regulator for esports in Canada would bolster the industry in light of the following key considerations:
- Standardization and Consistency. A regulator would establish standardized rules and guidelines for esports competitions and events. This would ensure consistency across different tournaments, decrease opportunities for disputes to arise and foster a fair playing field for all participants.
- Player Protection. Esports athletes, just like traditional athletes, require protection from exploitation, unfair treatment and health risks. A governing body can serve to implement regulations that address player contracts, working conditions, health and safety measures and more. This would contribute to the overall well-being of players.
- Youth Development. Esports has a growing appeal among young individuals. A regulator can play a role in ensuring that youth participation is balanced with educational and developmental priorities. This could involve setting age restrictions for certain competitions, ensuring adequate time for education and promoting responsible gaming.
- Financial Transparency. The esports industry involves significant financial investments, including sponsorships, prize pools and broadcasting rights. A regulator can enforce transparency in financial dealings, discouraging fraud and ensuring that players and teams are fairly compensated.
- Intellectual Property and Licensing. With the growth of esports, intellectual property rights become increasingly critical. A governing body may help manage licensing agreements, prevent unauthorized use of trademarks, and protect the intellectual property of players, teams and event organizers.
- Community Standards and Ethics. Esports communities can sometimes face issues relating to harassment, cheating and toxic behavior. A regulator may establish codes of conduct and ethical standards, creating a safer and more welcoming environment for participants and spectators alike. Implementing this regulatory system could support the quality of esports events, broadcasts and productions. By setting certain standards for production values, event organization and broadcasting, the overall viewing experience can be improved.
- International Alignment. Many esports events are international in nature. A Canadian regulator could work with international counterparts to harmonize rules, standards and best practices, allowing Canadian players to compete globally and foreign players to participate in Canadian events seamlessly.
- Industry Growth. As esports continues to expand, having a regulator could enhance the credibility of the industry. This could attract more investments, sponsors and partnerships, ultimately contributing to the growth of the esports ecosystem in Canada.
A self-governing body for regulating esports in Canada is essential to establish a structured framework that safeguards players, promotes fair play, ensures ethical behavior and contributes to the overall growth and development of the industry in Canada. If the skill-based gaming sector continues unregulated, external authorities may label skill-wagering gameplay as “gambling,” thereby restricting or prohibiting the activity. The enforcement of new guidelines and regulations by those who understand the space will afford the esports industry the greatest opportunity to achieve its commercialization potential. In doing so, the market would see growth and scalability, which in turn, should enhance stakeholder buy-in.
[i] Hugo Tristao, The Esports Audience Will Pass Half a Billion in 2022 as Revenues, Engagement & New Segments Flouris (April 2022), online <https://newzoo.com/insights/articles/the-esports-audience-will-pass-half-a-billion-in-2022-as-revenue-engagement-esport-industry-growth>
[ii] Nordicity, The Canadian Video Game Industry: Entertainment Software Association of Canada Final Report (October, 2021), online: <https://canadasvideogameindustry.ca/>
[iii] Pete Evans, Canada legalizes single-game sports betting, opening up billion-dollar market (August 2021), online: CBC News <https://www.cbc.ca/news/business/canada-sports-betting-1.6138865>
[iv] Rachel Kaser, Newzoo : Esports will generate $1.38B in revenue by the end of the year, (April 2022), online <https://venturebeat.com/2022/04/19/newzoo-esports-will-generate-1-38b-in-revenue-by-the-end-of-the-year/>
[v] Criminal Code, R.S.C., 1985, c. C-46
