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Jessica Feil Quoted by Law360 Regarding Riot ESports Adopting Franchise Structure

Riot ESports League Looks To Align With Traditional Sports

Law360, New York (June 2, 2017, 8:19 PM EDT) — The developer and publisher of the popular eSports video game “League of Legends” said Thursday its U.S. league will adopt a franchise model and make other reforms, signaling that eSports companies are beginning to position themselves similarly to traditional sports leagues as they look to draw investors.

ESports, or professional competitive video game playing, has exploded in popularity in recent years, led by leagues centered on games such as “League of Legends” and others like “Counter-Strike” and “Hearthstone.” The global eSports industry is projected to grow to $696 million, a more than 41 percent increase from last year, and could reach nearly $1.5 billion by 2020, according to projections by market researcher Newzoo.

But with the industry growing so quickly and so many different stakeholders, an instability of teams, and the imbalance of power between game publishers and teams and the professional players, or athletes, some experts are describing the state of the industry as a sort of “Wild West.”

But changes are on the way for at least one of the major eSports leagues. Riot Games Inc., the developer and publisher of the game “League of Legends,” said Thursday it will transition its North American League of Legends Championship Series to a franchise model by next season, eliminating the relegation of teams and instituting revenue-sharing, reforms that experts say could create stability and encourage further investment.

“As far as what has played out publicly — and that I’ve seen — investors haven’t really been a problem for the NA LCS,” said attorney Aaron Kelly of Kelly Warner Law, who represents internet businesses and startups. “But there is little doubt these changes will make the league more alluring to investors. It seems as though they have taken the best components of various ‘real-world’ sports leagues and merged them into one, which, as the sport continues to grow, will make franchises more and more attractive.”

“The announcement … displays a strong commitment to being as respected as the big sports leagues, like the NBA or NFL,” Kelly said.

Riot has begun taking applications from prospective teams to become “permanent partners” in the NA LCS league beginning in 2018, removing the system of relegation where teams could be dropped and replaced by others based on performance. Currently, the league has 10 teams.

The prospective teams will be judged on their plan to develop a brand, fans and a team strategy, as well as on the prospective ownership group, including their finances, as Riot Games said it is “looking for organizations that will be stable, professional, well-funded and committed to creating a rewarding environment for the pro players that work for them.”

“Removing relegation makes things less uncertain, unlocks long-term investments and hopefully makes the league more competitive from the inside out,” Riot said.

The franchises will then be entitled to a share in a pool made up of 32.5 percent of league revenues, half of which will be distributed equally to each franchise. The other half will be allocated based on the performance of the teams in competition and fan engagement in order to incentivize teams to play better.

Attorney Jessica Feil of Ifrah Law, whose practice includes eSports, said the change to a franchise model will “go a long way to professionalizing and growing the eSports industry” and positions Riot as one of the leaders in the change.

She said the current “ad hoc system of leagues, competitions, tournaments, and professional and amateur organizations” has “hindered the ability of the industry to reach out to and grow a new fan base and has left many potential investors uneasy about eSports.”

“Before, sponsors might invest in a team only to have that team fail to advance in a tournament as promised,” Feil said. “However, with a franchise system akin to other professional sports, investors know the level of competition they will be involved with at every stage, which makes it a much more attractive option.”

The changes should set up the league to better sell broadcast or digital media rights, as well as raise other forms of revenue.

“I think that this hedges a lot of the perceived risk attached to the rapid, steady growth of the eSports industry,” said sports and entertainment industry attorney Darren Heitner of Heitner Legal PLLC. “It should spawn enhanced interest among high-net wealth individuals, particularly owners of traditional professional sports teams, who may have been sitting on the sidelines in the past, waiting for a more conservative opportunity to arise.”

But while the change to a franchise model had been rumored for a while and follows a similar announcement by a Chinese league, Riot unexpectedly announced it will fund the launch of a Players’ Association to act as “an independent voice of the players to work with Riot and the teams” amid questions over the treatment of and compensation provided to the professional players. The league will also institute a $75,000 per year minimum salary for the players and guarantee that player pay be 35 percent of league revenue.

However, Ryan Morrison, an eSports attorney with Morrison & Lee LLP, said that while the changes for the players seem “well intentioned,” he questioned whether a players’ association is premature. He said Riot and other publishers should focus on advising players to seek legal counsel and establish minimum contract standards.

“But a players association itself is too soon because they are going to collectively bargain for a bunch of players who are not going to care, who are not actually going to have input, and it is going to leave a lot of problems on the table,” Morrison said.

He said the players’ association could be used to protect NA LCS from an antitrust lawsuit and enable it to institute things like a draft or salary cap, which are not necessarily good for players. He further questioned Riot’s plans to present proposed representatives to the players for their approval.

But both the franchises and players association show a move by at least one top eSports league toward the business model of traditional sports leagues.

“This is a big step and positions Riot to shape the development of the eSports industry moving forward,” Feil said.

–Editing by Philip Shea and Kelly Duncan.