Esports Investment and Deal Activity on the Rise in 2022 as Many Call for Industry Regulation, Fourth Annual Esports Survey Finds

10 January 2022 Media Contact: Jen Dilworth News

As esports viewership and revenues continue to climb, it’s no wonder industry insiders are bullish about the market’s potential this year. In fact, nearly nine out of ten esports professionals surveyed in the fourth annual Esports Survey Report expect esports investment and deal activity to increase in the first six months of the year; building on the bullish sentiment shared in the third annual survey where nearly three-quarters expected investment and deal activity to increase.

Conducted by Foley & Lardner LLP, Sports Business Journal and The Esports Observer – and based on responses from 430 professionals involved in esports – the report identifies the opportunities and challenges ahead for this burgeoning industry, highlights the continuing impact of the pandemic, and examines why skyrocketing viewership numbers have not yet translated to an equal boon in monetization.

Key takeaways from the esports survey report include:

Growth and Investment

A large majority of survey respondents (88%) expect investment and deal activity to increase in the first six months of the year. Much of respondents’ bullishness stems from their expectations for esports dedicated investment funds, a group that saw a 21-percentage-point increase in our latest survey and was selected by respondents as most likely to increase its investment in esports this year – a spot held previously by traditional sports teams and leagues, athletes and celebrities.

“What we’re seeing might be a recognition that esports is complex – a different and, in some ways, more complicated ecosystem than traditional sports,” said Bobby Sharma, special adviser to Foley’s Sports & Entertainment Group. “As such, it’s taken some time, but the primary investment vehicles in the space have begun to develop a very specific level of expertise and portfolio, and it seems the marketplace may now be recognizing and understanding that better.”

When asked what would drive the increase in investment in the first half of 2022, the highest number of respondents (61%) cited the continued growth of online streaming platforms. Ranking second and third among expected drivers of investment were COVID-19 friction at live events and the declining appeal of traditional sports with younger generations, respectively.

“While the pandemic evidently has had a net-positive impact on the growth of esports, it certainly has had a dramatically negative impact on traditional sports leagues and teams,” said Michael Wall, of counsel and business lawyer at Foley. “Attempts to recover from this devastating blow may have affected traditional sports stakeholders in their esports investments, at least in terms of immediate and short term focus and priority.”

Increased Regulation

As esports enters the mainstream, it appears industry executives are seeking heightened regulation. 72% of surveyed respondents agree or somewhat agree that esports needs a single overarching governing body for regulation and rule setting, up from 44% in 2020.

Moreover, as the esports betting market continues to grow and the stakes become higher, professionals in the industry seem concerned about the possibility of manipulation. Survey respondents ranked a lack of adequate detection systems and monitoring tools for fraud and cheating, and a lack of oversight of esports from an overarching governing body, as the greatest threats to the industry’s betting market.

However, even with these concerns, respondents saw a number of opportunities for the growth of the esports betting market: Natively digital media consumption topped the list of opportunities for the market at 54%, followed closely by increased adoption of regulated gambling in the United States, inherently global fan and consumer bases, and legacy integration with cryptocurrencies – all of which fell within 11% of the top spot, perhaps a sign respondents are bullish about 2022.

“By many objective metrics – whether the persistently rising number of gamers, continued growth in consumption and participation, increased online activity, or the accelerated mainstreaming of its culture during the pandemic – as an industry, esports continues to thrive,” said Kevin Schulz, co-chair of Foley’s Sports & Entertainment Group.

Legal Risks

Similar to our 2020 survey, respondents view cybersecurity and malware attacks (42%) and intellectual property rights and licensing issues (40%) as posing the greatest legal risk to the esports industry. However, there was no runaway winner. Following close behind was cyberbullying within games, contracts that do not provide adequate protections for players, and labor and employment issues.

“Labor and employment issues regarding harassment and toxic environment have surfaced within the esports industry in the wake of the #MeToo movement, and beyond,” said Jon Israel, co-chair of Foley’s Sports & Entertainment Group. “Despite changing work environments stemming from COVID-19, the pandemic hasn’t pushed labor issues to the side – in many cases, they’re just percolating underneath the surface, and in some, they have reached a boiling point.”

Meanwhile, publishers are facing different obstacles. When asked which issues facing major game publishers were potentially negatively impactful, survey respondents rated cultural and/or political shifts away from youth video gaming and challenges with the franchise league model and system as paramount first and second.

NFTs

Survey respondents highlighted another area of opportunity for the esports industry – Non-Fungible Tokens, or NFTs. Nearly four out of five surveyed expect NFT’s prevalence to increase this year. When asked to specify the use-type that would become increasingly prevalent in the coming year, respondents’ top choices were digital player cards of professional gamers, streamers or content creators (64%), followed by new unique “skins,” animations, characters or songs (54%) and virtual merchandise related to specific esports organizations and teams (51%), with unique highlights from esports competitions (44%) trailing close behind.

“Cryptocurrency and NFTs are made for a digital world,” said Laura Ganoza, litigation partner at Foley. “What we’re seeing in traditional sports is the creation of digital assets to become NFTs, whereas in esports, assets are digital from the very beginning.”

The fourth annual Esports Survey Report was completed by 430 professionals primarily based in the United States. Respondents included esports and traditional professional sports teams and leagues, technology developers, media companies and more. To read the complete report and methodology, please click here.

About Foley & Lardner LLP

Foley & Lardner LLP looks beyond the law to focus on the constantly evolving demands facing our clients and their industries. With over 1,100 lawyers in 25 offices across the United States, Mexico, Europe, and Asia, Foley approaches client service by first understanding our clients’ priorities, objectives, and challenges. We work hard to understand our clients’ issues and forge long-term relationships with them to help achieve successful outcomes and solve their legal issues through practical business advice and cutting-edge legal insight. Our clients view us as trusted business advisors because we understand that great legal service is only valuable if it is relevant, practical, and beneficial to their businesses.

About Foley’s Sports & Entertainment Group

With a broad and deep history, experience and multidisciplinary reach, Foley has been a market leader in sports and entertainment law for decades. Our attorneys have held high-profile positions at leading sports, entertainment and media companies, from the President and COO of Major League Baseball to Founding Partner of Electronic Sports Group. With an unmatched level of client service, innovation and value, we counsel clients on the full range of commercial and regulatory issues, including mergers and acquisitions, league and team operations, intellectual property issues, financing and investments, negotiation of media deals, labor and employment matters, and medical and health care issues for players. Our team of industry insiders and seasoned practitioners is consistently ranked among top-tier practices by U.S. News – Best Lawyers, Legal 500 and Chambers USA.

About The Sports Business Journal / The Esports Observer

The Sports Business Journal/The Esports Observer is the world’s leading source for essential esports business news and insights. Embedded within a new esports channel on SBJ’s website and richly integrated within SBJ’s daily and weekly content, TEO continues to provide its award-winning coverage of esports with breaking news, executive profiles, and reports. As the esports business authority of the western world, SBJ/TEO enables companies to make informed decisions for their business. We offer a comprehensive industry database covering entities from personalities to companies and games, real-time business intelligence, and insight reports. Through SBJ/TEO’s business conferences and events, we connect industries and individuals alike. Our ultimate goal is to increase transparency and foster growth in the industry we love: esports.