Dr. Nepomuk Nothelfer | Gaming Meets Law: We Need Esports-Specific Regulations!

Welcome everyone to episode #77 of Gaming Science.

As an expert in the field of esports and gaming law, I am very happy to have Dr. Nepomuk Nothelfer sharing his insights and expertise in this episode. His main focus in the industry is civil, employment, and gaming law and has advised various legislators (e.g., the EU Parliament), ministries, and federations on esports. Beyond that, he is working for one of the leading law firms for esports in Europe.

👨‍⚖️ Who is "Responsible" for Esports?

With regard to traditional sports, most legal systems clearly stipulate which legislative authority is authorized to pass state laws on traditional sports. In Germany, for example, the federal states are responsible for most legislative matters concerning traditional sports. The federal government is only responsible when sports represent the whole country (e.g. in the Olympics). The European Union, on the other hand, is only entitled to take supportive, coordinating or complementary action (Art. 6 s. 1 e) Alt. 4 TFEU and Art. 165 (1) s. 2, (2) lit. 7 TFEU).

In this context, regulation does not necessarily mean restriction by the state. Particularly regarding traditional sports, many state laws are legal privileges, thus granting sports and their stakeholders certain rights and advantages that other industries cannot claim for themselves.

With regard to esports, however, the allocation of legal competences is often unclear. Esports has emerged from digitization and is therefore inherently international.

Consequently, the question arises as to whether esports should be classified as a subset of another term (e.g. “sport”, “culture” or “economy”) or whether esports require its own legal competences (and thus its own regulations).

This can be handled differently depending on each country and its jurisdiction. Particularly relevant here is the question of how a conceivable generic term (e.g. “sport”) is defined by the respective state law. To put it simply: the broader the definition of “sport” in a law, the greater the chance of at least certain esports titles being able to be subsumed under said definition.

It should be noted that just because a sports federation recognizes esports as a sport this does not automatically mean that state laws do so. The legislator is still the state, not a sports federation.

❓ Is Esports a Sport (from the Perspective of the Law)?

The question of whether esports is a sport has been around since the term “esports” was coined as a neologism for electronic sports in the late 1990s. Before that, what we now call esports was simply called “competitive gaming” or, in the professional context, “pro gaming”. With the emergence of the term esports, the question arose, for semantic reasons alone, as to whether this “electronic sport” was a "real" sport at all. However, this question does not provide any value without a specific frame of reference, because without the definition of “sport” one can not answer this question.

Also, due to the great heterogeneity of the esports industry, it is generally not beneficial to subsume the entirety of the esports industry under any sports definition, but only a specific esports title.

For the question to make sense at all, a specific frame of reference is therefore required. Regarding the question of state regulation of esports, the question must therefore be: “Is esports title X a sport within the meaning of state law Y?”

An example: § 52 (2) s. 1 no. 21 of the German Fiscal Code stipulates that an entity that promotes ‘sport’ can receive non-profit status and thus enjoy a variety of tax benefits. The case law of the Federal Fiscal Court defines sport as follows: “Any physical activity that goes beyond the usual extent, which is characterized by externally observable efforts or by the art movement attributable to personal skill” (BFH Urt. v. 12.11.1986 - I R 204-85, BFH-NV 1987, 705, 1. b).). In this context, it is at least conceivable that certain esports titles could be classified as sports in this sense, since the Federal Fiscal Court decided that darts and ballooning also meet the physical requirements. Of course, the physical element is not the only one that opponents of subsuming esports under sports bring into discussion.

©️ The Problem of Regulating Esports

In the opinion of the author, a suitable regulation of esports nevertheless requires its own state laws. This is justified by the fact that esports and sports are similar, but also have differences. It is these differences that justify the need for esports-specific regulations.

The most striking difference is the structure of esports ecosystems (especially competitions). At first glance, the ecosystems of professional esports appear to be similar to those of traditional professional sports. As in traditional sports, in esports there are players who either play for organizations, or on their own. In professional esports, the competitions in which the individual players or clubs participate are organized and carried out by tournament organizers.

But while in traditional sports these are incorporated into a federation structure, in esports the publisher, as the rights holder, determines the structure of the competition. The publisher combines all exclusive rights of use (relevant for esports) of the intellectual property 'video game' and thus influences all downstream stakeholders in the respective ecosystem.

There is no such party in traditional sports (not even the sports federations). Without the consent or at least the tolerance of the publisher, it is therefore not possible for others to organize competitions in the respective esports title at all. It is important to understand, that each publisher has its own philosophy and strategy. Some publishers organize all competitions themselves (publisher model), while others allow a third-party company to organize them by means of licensing or tolerance (third-party provider model). There are also various hybrid systems combining the publisher and third-party models (e.g. Riot Games with regard to Tier 1 and Tier 2 competitions).

↔️ Possible Regulatory Approaches

The implementation of esport-specific state laws is a question of the individual case. In the following, the various possibilities will be illustrated on the basis of the already described § 52 of the German Fiscal Code. In its para. 2 sentence 1 no. 21, the legal privilege is found due to the “promotion of sports (chess is considered a sport)”.

1. Option: Extending the existing fiction for chess: “promotion of sport (chess and esports are considered sport)”.
2. Option: Inserting a provision related to sport: “the promotion of sport (chess is considered sport) and esports”.
3. Option: Inserting a completely new provision for esports (in a new number 27): ”the promotion of esports”.

Each of these approaches has advantages and disadvantages (which go beyond the scope of this newsletter).

🗺️ How other Countries handle it

Internationally, the picture is fragmented. In the vast majority of the world, there is no esports-specific state regulation. There are, however, some laws.

In South Korea, for example, there is the “Act on the Promotion of E-Sports (Electronic Sports)”, which is a dedicated law for esports. The same is true in France, where three esports-specific laws were passed in 2016 and 2017 (Law No. 2016–1321 of October 7, 2016 for a Digital Republic "Loi pour une République Numérique“ and Decree No. 2017–871 on the organization of video game competitions ”relatif à l'organisation des compétitions de jeux vidéo" and Decree No. 2017–872  on the status of professional players in paid competitive computer games “statut des joueurs professionnels rémunérés de jeux informatiques compétitifs”). In Germany, there is esports-specific § 23 No. 5 of the Employment Ordinance, a visa exemption for professional esports athletes. In Arab countries, however, esports is subordinate to the state sports system.

⏪ Conclusion

While it is clear where the legislative competence lies in relation to traditional sports, this is often unclear in the case of esports. On the one hand, it is conceivable that esports could be subsumed under “sport” (or another generic term). This would mean less work, but due to the differences between esports and sport, esports would be forced into a category in which it does not fit.

The esports industry would undoubtedly benefit from esports-specific regulation. However, the question of how this can be implemented in individual cases is highly complex and may differ in each jurisdiction.

However, the similarities between sports and esports suggest a certain approach: in general, any legal regulation of sports can be taken as a basis and then adapted to the specifics of esports.

A big "thank you!" to Nepomuk for contributing and his valuable insights into the world of esports law. If you want to follow his journey or stay up-to-date with his work, make sure to follow him on LinkedIn.

And as always, I read all of you next Sunday.

Christian 🙂