Market Overview

Esports Survey Reveals Expectations of Continued Growth and Investment, Amid Myriad Risks Facing the Maturing Industry

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Professional esports is expected to see continued revenue growth and
investment, driven by a range of factors that have pushed the industry
further into the mainstream, according to a new survey conducted by law
firm Foley & Lardner LLP and The Esports Observer. But
industry participants are also eyeing an array of concerns as they focus
on protecting and legitimizing their brands at this critical juncture in
the esports industry's development.

The 2018
Esports Survey
was completed by 124 professionals, primarily from
esports and traditional professional sports teams and leagues, as well
as technology and media companies.

What's Driving Growth?

Respondents identified several factors that have had a significant
impact on the growth of esports over the past year, including increased
interest in streaming deals from major tech companies and TV networks
(69%), the growing involvement of traditional professional sports teams,
leagues and figures (68%) and the broadening of sponsorships beyond
brands endemic to gaming (59%).

The traditional professional sports industry, eyeing ways to diversify
revenue streams, is the group respondents most expect to increase their
investment in esports over the next year (57%), followed by private
equity and venture capital firms (39%) and media groups (38%).
Meanwhile, respondents ranked advertising and sponsorships as the area
they expect to drive the most revenue growth in esports over the next
year, followed by media rights.

"Respondents' belief that advertising and sponsorships will drive growth
is a positive development for esports as these revenue streams benefit
participants across the industry, independent of the developers and
publishers that largely dominate the broader gaming industry," said Michael
Wall
, of counsel and a member of Foley's Sports Industry Team. "This
growth can be expected to accelerate as traditional sponsors become
increasingly comfortable with evolving metrics for evaluating return on
sponsorship investment."

Tobias Seck, business analyst at The Esports Observer, added that
"the near-term growth anticipated from sponsorship deals might be
explained by their relatively lower degree of complexity and duration
compared to media rights deals, which – especially considering the
impact of mobile streaming – are likely to contribute significantly to
the industry's long-term growth."

Risks Abound

Despite the significant promise of esports, survey respondents are also
cognizant of the risks facing the industry. Match fixing topped the list
of threats to the legitimacy and growth of esports, with 78% of
respondents calling it a serious or moderate risk. A substantial
percentage said the same of the recent repeal of U.S. net neutrality
regulations (71%), the lack of safeguards and protections for underage
players (60%) and illegal gambling (57%).

"When you consider the amount of money in esports gambling, combined
with the ability of one player to make or break a team's prospects for
success, match fixing is really the elephant in the room," said Mary
K. Braza
, co-chair of Foley's Sports Industry Team. "Looking ahead,
match fixing has the potential to negatively impact the popularity of
esports if fans get the impression that cheating is widespread or that
results are illegitimate."

A strong majority (69%) said their organizations are focused on staying
up to date on legal issues concerning esports and complying with current
laws and regulations. Respondents also identified a number of legal
issues that they believe pose a substantial risk to the esports
industry, including cybersecurity and malware attacks targeting gamers'
and fans' data (65%), intellectual property rights and licensing issues
(50%), cyberbullying within games (43%) and contracts that do not
provide adequate protections for players (43%).

"Survey respondents are keenly focused on legal compliance. This is not
surprising as the commercial growth of esports requires greater
sophistication across the landscape of potentially applicable laws,"
said Jon
Israel
, vice chair of Foley's Sports Industry Team. "At the same
time, the unique aspects of the esports industry makes the panoply of
legal considerations novel and complex, particularly in the absence of
laws or regulations specific to esports."

Esports Institutions – and What Else Might be Ahead

Amid this risk and uncertainty, a substantial percentage of respondents
feel there is a need for stronger esports institutions. They expressed
the greatest support for players associations that represent the
interests of professional esports players (77%), likely to bring greater
credibility to esports and to protect players from exploitation. Another
57% agreed with the need for an organized lobbying group to spur
development of esports and influence government regulations. Roughly
two-thirds of respondents expect that each would be established within
three years.

The creation of an overarching esports governing body was more
controversial, with 47% indicating a need for such a body and 34%
dissenting. Supporters indicated that such a governing body could boost
legitimacy and mainstream appeal, while opponents argued that it would
be impractical or even counterproductive, given the disparate and
evolving nature of esports.

"The survey responses indicate some recognition of a need – and overall
desire – for the esports industry to band together," said Kevin
Schulz
, co-chair of Foley's Sports Industry Team. "There's also
notable uncertainty about how that would look and acknowledgment of the
practical issues with applying a uniform standard in a constantly
changing and dynamic industry comprised of different games and
developers."

Respondents also identified other developments that will support the
burgeoning esports industry. Over the next year, the overwhelming
majority (88%) foresee the construction of more specialized esports
facilities and 47% expect virtual reality esports to grow substantially.

For more information and to download the complete 2018 Esports Survey
report, 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 24 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. Learn more at Foley.com.

About Foley's Sports Industry Team

Foley's multidisciplinary Sports Industry Team provides comprehensive,
integrated legal counsel on a full range of commercial and regulatory
issues facing organizations in the sports industry, including
professional and college sports organizations, amateur and charitable
sports organizations, sports technology companies, fantasy sports and
sporting goods manufacturers. With a long history and depth of
experience in the sports world, Foley helps clients navigate all aspects
of the dynamic and growing esports industry. Foley's sports attorneys
bring a diverse range of legal disciplines and practical industry
experience to counsel clients on a wide range of issues, including
investments, acquisitions and financing; sports facility development;
antitrust and litigation matters; negotiation of media rights deals;
intellectual property issues; and labor and employment matters. Chambers
USA
, U.S. News-Best Lawyers and The Legal 500 United States have
recognized Foley's Sports Industry Team as one of the top sports
practices in the country for more than a decade.

About The Esports Observer

The Esports Observer is the world's leading source for esports
business news and insights. TEO offers an integrated platform that
enables companies to make the right decisions when venturing into the
esports industry. We offer real-time business intelligence and reports,
in addition to planning and hosting industry events and conferences. Our
ultimate goal is to increase transparency and foster growth in esports.

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