By Lynda A. Bennett and Alexander B. Corson, of Lowenstein Sandler
Video game tournaments have come a long way from teenagers crowding around televisions in college dormitories. Today, enthusiasts pack the world’s most popular stadiums, such as Madison Square Garden, to watch professional gamers compete for millions of dollars in prize money. In 2022, Forbes reported that the top ten most valuable eSports companies were worth a combined $3.5 billion and the industry’s total global revenue that year is estimated to be $1.3 billion.
Insurance companies have begun to take an interest in this burgeoning industry by targeting eSports teams and gaming companies in marketing materials for “eSports insurance.” However, as evidenced by ever-shifting cyber insurance policy language, there are rarely uniform policy forms issued by the insurance industry for emerging risks. Often times, early “industry-specific” offerings simply repackage existing insurance products that are insufficiently tailored to protect against the risks these businesses face.
eSports risks are both straightforward and nuanced. Filling stadiums with enthusiastic fans would naturally lead event organizers to purchase general liability policies to cover bodily injuries and property damage sustained at an event. The Astroworld Festival tragedy illustrates that such losses can result in claims against a wide array of parties – including organizers, promoters, security, and even on-stage talent – seeking hundreds of millions or even billions of dollars in damages for alleged negligence and recklessness. However, associated but less obvious risks like terrorism and mass shootings (which unfortunately are becoming all too common today) may not be covered by a traditional general liability policy. Crowded arenas are a prime target for bad actors and specialty products such as Active Assailant Insurance should be considered. Stakeholders reliant on eSports event revenue should also consider acquiring event cancellation coverage in a post-pandemic world.
Cyber insurance is also imperative for businesses in the eSports industry, considering the numerous potentially relevant coverages afforded by these policies. The collection of information personally identifying consumers attending offline and online events adds to the potential for security and privacy liability above the pre-existing risks associated with maintaining game user data. Additionally, Distributed Denial of Service (DDoS) attacks disrupting gaming events and services have become a scourge on the industry. Companies should secure cyber insurance with a dependent system failure component – typically covering business interruption losses caused by a bad actor taking down necessary third-party systems – and many forms expressly include DDoS attacks as a covered cause of loss. Cyber policies may also cover data recovery and other costs associated with the breach or failure of an insured’s own systems.
Additionally, consideration should be given to unique risks associated with monetizing eSports. Unlike traditional sports – where nobody owns the games being played – developers and publishers of eSports verticals typically retain exclusive ownership over the many forms of intellectual property associated with their game titles. Event organizers and eSports teams will need to carefully manage their use of game-publisher-owned intellectual property to avoid breaches. This is particularly fertile ground for liability given the popularity among gamers of using open-source streaming platforms such as Twitch and YouTube to broadcast gameplay and the fact that many streamers are young individuals with limited sophistication when it comes to advertising and intellectual property laws. Teams and advertisers sponsoring these individuals should evaluate whether they are adequately protected against copyright and trademark infringement. While general liability policies may offer limited coverage for claims arising out of an insured’s advertisement, broader coverage may be available through media liability insurance. These policies also typically cover claims alleging that content is offensive or defamatory – another potentially high-risk area where sponsored streamers often engage in unscripted, “off the cuff” conversations with viewers. This risk may be exacerbated by the global nature of eSports, where sensibilities about what is offensive can vary widely across geographic and cultural borders.
Another area that game publishers and developers may wish to examine for potential risks is their relationships with end users. In the early days of online gaming, a company’s userbase was comprised solely of ordinary individual consumers. Now, teams worth hundreds of millions of dollars and professional gamers pursuing millions in prize winnings are among those users. Decisions impacting the end-user experience may have downstream effects on teams, players, and their major advertising sponsors. For example, banning a professional player could financially impact companies with significant resources if that player were sponsored by major advertisers. Gaming companies could conceivably even be sued for patching a game during an ongoing tournament or for failing to put adequate system redundancies in place to ensure that game server outages do not occur during events. Directors & Officers (D&O) insurance may respond to corporate strategic decision-making that results in claims against game company directors and officers, as well as the company itself.
Finally, the complicated web of supply-chain surrounding eSports justifies careful consideration of additional insured and indemnification requirements in contracts between market participants. By imposing additional insured requirements on downstream vendors and service providers, companies can add to the available pool of insurance coverage in the event of loss and more effectively transfer risk across the entire eSports platform. Adding additional insured requirements to such contracts is important because the scope and enforceability of contractual indemnification provisions may vary widely across jurisdictions.
As the scope and types of risks associated with eSports expands in tandem with its surging popularity, the need for insurance solutions tailored to those risks will likewise continue to rise. Understanding these risks and the types of policies available to cover them is an important first step in protecting a company’s market position. The second step is to understand and evaluate what coverage is actually being afforded by these policies. Here, utilizing experienced coverage counsel and knowledgeable brokers to compare the needs of dynamic market participants against the various insurance offerings is especially important. History teaches that policy forms available in the early days of a maturing market are often under-inclusive, widely varied, and subject to negotiation on terms and conditions. As insurers continue to catch up, those staking a claim in the eSports market should stay on the front end of the broad insurance implications surrounding this multi-billion-dollar industry by making sure they have the “best in class” insurance and risk management program in place.
