Non-fungible tokens (NFTs) have opened new opportunities in the esports, streaming and gaming sectors in creating fresh ways for fans, players, and teams to engage with esports athletes, teams, and competitions.
NFTs are not new, but they are raising new legal and regulatory issues. This article will take a closer look at some of the questions that can arise with digital assets in the esports, streaming and gaming sectors including intellectual property issues, financial regulations and gambling law.
Digital tokens have had a place in video games for decades, but blockchain technology has increased their use cases considerably, whether this is through cryptocurrencies that can be traded in game or NFTs as a means of trading in-game items, selling unique rights to fans, or simply as collectibles.
An example of a game which uses NFTs for in-game items and loot is The Forge Arena. The Forge Arena is a first-person shooter game which relies on the WAX blockchain for in-game content, including skins which are packaged and traded as NFTs. Other games, such as Afterland, allow players to unlock unique NFTs through progressing in game.
Esports teams are issuing their own NFTs as merchandise. In February 2022, lifestyle brand and gaming organisation 100 Thieves released 300,000 collectible Polygon NFTs – so called ‘Championship Chains’ – which has sparked considerable engagement with its content.
Other novel adoptions of blockchain tech include the European esports giant OG Esports, which sold three digital artwork collections in January, March and July 2021, raising $1 million.
Conversely, Coin Poker is a poker gaming platform that is blockchain-based. It adopts the USDT stablecoin as the main in-game currency, which can be used to buy CHP, the platform’s own utility token.
This new form of engagement and merchandising is already commonplace in the wider sports industry. Football teams such as Arsenal, Manchester City, Aston Villa, Leeds, Everton, Crystal Palace, Barcelona, PSG, AC Milan and Inter Milan have minted their own fan tokens which sometimes include special rights.
These rights typically do not include management, tactical or financial rights, but rather more ancillary voting rights such as which song teams select to walk out into their stadium. These have triggered a backlash amongst ‘traditional’ fans and sceptics (particularly aimed at the Malta-based company Socios), highlighting the large prices.
Meanwhile, teams such as Manchester City and Sporting Lisbon are involved in FIFA esports leagues or tournaments. The NBA is also enjoying success with its esports league for NBA 2K and has added its branding to NFTs being sold as digital basketball cards.
You may be able to take action against the person who sold you the NFT.
Consumers who purchase NFTs and digital assets may not always fully understand the risks associated with these purchases, particularly when it comes to the potential for fraud and scams. Assets may be mis-sold and/or mis-advertised.
For example, a scammer could create a fake or worthless NFT and sell it to an unsuspecting buyer, leaving them with a worthless asset. Alternatively, genuine NFTs could be sold as an investment opportunity when there is minimal opportunity for capital growth, or the consumer falls victim to a ‘pump and dump’ scheme, where the creators of an asset inflate its price through misleading statements and/or aggressive advertising, and then sell their overvalued holdings, leaving the investors with worthless assets.
Some assets may be sold as including copyright in an original work, when they are actually just a copy of that work (licensed or otherwise).
Consumers may also have claims against sellers of NFTs for misrepresentation or breaches of implied terms under the Consumer Rights Act 2015 or the Consumer Protection from Unfair Trading Regulations 2008. The risks are being mitigated by increased regulation of digital assets.
It depends. NFTs and digital assets can raise financial and securities regulation issues.
In the UK, the FCA considers that assets will be regulated under the Regulated Activities Order (RAO) if they provide rights and obligations akin to specified investments that are already regulated. Further measures that will likely increase what is regulated are in the pipeline.
Streamers will need to consider whether they risk engaging in the regulated activity of arranging deals in investments without authorisation and/or making financial promotions.
Utility tokens such as CHP, while not usually falling under the RAO (unless classed as derivatives), may fall under the definition of e-money. They would then be regulated under the Electronic Money Regulations. These will apply where the assets are:
Thus, where utility tokens can be spent across multiple platforms, there is a chance that they will be considered a form of regulated e-money.
One benefit of using NFTs for in-game loot is the potential for players to sell items on to other players when they no longer need them, allowing new players to avoid ‘grinding’ in game and reducing the reliance of players on microtransactions. Items could conceivably even be traded across games (particularly for games with regular iterations/seasons, such as Call of Duty or FIFA).
However, the ability to trade assets will likely increase the chance of the asset being a regulated asset in the UK or other jurisdictions (particularly as regulation is likely to continue to grow). Additionally, increased tradability brings risks to developers/publishers of engaging gambling law.
Yes (but not always).
Gambling laws may be engaged where randomised tokens can be generated for real money and then sold on for profit.
A prominent example of these concerns is over the FIFA Ultimate Team ‘packs’ which include players, contracts, managers, stadia and training and healthcare boosts that can be used in game or sold on the game’s internal market.
The concerns that FIFA Ultimate Team may be introducing minors to gambling have reached Parliament.
‘FUT packs’ have recently been considered gambling in Austria where a court has ordered Sony to pay refunds to applicants as a result. This can be contrasted with the approach in the Netherlands where a 2020 ruling was overturned, since ‘acquiring and opening FUT card packs was ‘not an isolated game’ in and of itself’.
Games that fall on the right side of the law in one country may be restricted in other European countries. These concerns would be amplified if NFTs could be sold on secondary markets and may, in such circumstances, fall under UK gambling laws.
They can do. This may be a problem if you are creating NFTs from video game content, or if you are buying/investing in NFTs.
Intellectual property rights generally protect the creators of original works, including music, art, and video games, from unauthorised use and reproduction. When it comes to NFTs and digital assets, intellectual property rights can be particularly complex.
For example, if an NFT is created using an image or artwork that is protected by copyright, the creator of the NFT may be infringing on the copyright holder's rights by minting the NFT, for example where the NFT includes elements from a video game. Licences and appropriate permissions may need to be obtained.
If you have invested in an NFT and the original creator minted the NFT in breach of copyright, selling it on the blockchain may be considered distributing copies unlawfully. Additionally, even if the NFT was purchased from the game developer directly, sale of the NFT does not necessarily transfer the underlying copyright which exists off the blockchain.
Another concern is the addictiveness of online games with microtransactions. Developers and streamers need to consider the risks of problem gambling and young gamers – and whether there are safeguards or responsible marketing techniques they can utilise to prevent harm.
Whilst this article does not seek to cast moral judgment, it raises this point because such activities can be viewed by others through a moral lens and, if that view is negative, it can create a risk of reputational damage.
Developers of assets will also need to consider how third parties such as streamers may generate content using the assets. For instance, FIFA Ultimate Team pack opening streams are commonplace and wildly popular.
The popularity of these streams can be linked to the popularity of gambling streamers such as Tyler Niknam, also known as ‘Trainwrecks’, whose success streaming his gambling with Stake.com on the Twitch platform led to the site being banned by Twitch.
In conclusion, while NFTs and digital assets offer new opportunities for engagement and monetisation in the esports sector, they also raise a range of legal, regulatory, and ethical issues. Buyers and creators of digital assets alike will need to be aware of the risks, while streamers should consider the regulatory and ethical implications of sharing information about these assets.
Victims of mis-sold assets can contact our commercial dispute resolution team, who can advise on their options.