By Jeffrey Levine, JD, PhD, Associate Clinical Professor, Department of Sport Business, Esport Business Program Lead, Drexel University
(Editors’ Note: The following appeared in Esports and the Law, a complimentary periodical produced by Hackney Publications.)
In a recent Esports Insider article, industry thought leaders outlined their expectations for 2025 (Daniels, 2025). Revenue diversification emerged as one of the most frequently discussed issues, particularly in light of ongoing financial instability in the post-esports-winter era. As traditional revenue streams such as sponsorships and advertising become increasingly volatile, and therefore unreliable, organizations are forging alternative strategies to ensure financial sustainability. These individuals identified three key revenue streams poised to reshape the industry: esports betting, user-generated content (UGC) monetization, and AI-driven gaming experiences (Daniels, 2025; Takahashi, 2025).
However, while promising, these emerging revenue models introduce significant legal and regulatory concerns that will shape the industry’s trajectory. Esports betting raises compliance challenges related to gambling laws, match-fixing, and protecting younger consumers. UGC monetization presents unresolved intellectual property (IP) disputes regarding content ownership and compensation models. Meanwhile, AI-driven esports tools introduce complex questions related to fair competition, data privacy, and content ownership. As esports organizations attempt to regain financial stability and transition into what some industry insiders are calling an “esports spring” (Waananen, 2025), it is imperative that they proactively address the evolving legal landscape surrounding revenue diversification.
Esports Betting: Expanding Legally but with Risks
Esports betting is becoming a significant emerging revenue stream in competitive gaming. For instance, one major sportsbook reported that esports wagering grew by 13% in 2024, far outpacing the 4% growth seen in traditional sports betting during the same period (D’Elia, 2025). This surge in betting activity signals increasing consumer demand and suggests that gambling may play a pivotal role in esports’ financial future. Riot Games’ recent decision to lift restrictions on betting sponsorships for its leagues further underscores the industry’s growing acceptance of esports gambling as a legitimate revenue stream (Fudge, 2024).
However, while esports betting presents lucrative financial opportunities, it also invites heightened regulatory scrutiny and integrity risks. The industry continues to face potential legal exposure associated with its popular, yet unregulated “skin gambling” market, which emerged in the mid-2010s and remains prevalent today (DeSena, 2024). Skins, cosmetic in-game items, became widely used as de facto virtual currency for betting, fueling a multibillion-dollar underground gambling economy that operated with little legal oversight and frequently involved underage users (McLeod v. Valve, 2016). While no federal statute exists that directly regulates skin gambling, this may change as the esports gambling economy matures.
Beyond the betting component, there are governance concerns. Unlike traditional sports, where leagues such as the National Football League and governing bodies like the International Ice Hockey Federation enforce strict gambling policies, esports lacks uniform oversight. Instead, as the primary intellectual property rights holder, this responsibility likely falls upon the developer. Thus far there is no dominant approach to regulation as each developer acts based on its own interests. This regulatory inconsistency heightens the risks of match-fixing, fraud, and other integrity concerns as developers and regions enforce varying standards.
If developers eschew regulatory responsibility, such burden likely falls to government. But the regulation of gambling varies significantly across jurisdictions, making compliance a formidable challenge for esports companies operating internationally. In the United States, for example, individual states police sports betting, with each jurisdiction having their own statutes that may differ materially. Few seem to have enacted esports-specific legislation, with Nevada and New Jersey leading the way and adding to the ambiguity. In contrast, countries like the United Kingdom and Australia have well-established gambling laws, allowing esports betting to flourish under clear guidelines. However, the industry’s younger audience creates an added layer of scrutiny, as regulators seek to prevent underage gambling and promote responsible gaming practices. This fragmented regulatory approach leaves esports betting operators navigating a complex and often ambiguous legal environment.
User-Generated Content and IP Ownership Battles
UGC is emerging as a transformative force in the 2025 esports landscape, redefining how players interact with games and how developers monetize their platforms. The rise of UGC-focused platforms such as Fortnite Creative, Roblox, and other sandbox-style environments has empowered players to create, share, and monetize in-game content in ways that were previously limited to modding communities. However, while UGC presents new monetization opportunities, it also blurs traditional legal boundaries between developers, content creators, and esports organizations. As more companies integrate UGC-based business models, legal disputes surrounding intellectual property rights, derivative works, and revenue-sharing models are likely to emerge.
The central legal issue in UGC is ownership, a question that remains largely unsettled in video game law (Chau, 2023). The uncertainty surrounding who holds rights to user-created content affects modders, developers, and players alike, creating an emerging legal framework that has yet to be standardized across jurisdictions. UGC often constitutes derivative works based on pre-existing copyrighted material, raising questions about copyright ownership and the extent of an owner’s exclusive rights, including control, distribution, and monetization. However, copyright law does not protect gameplay mechanics, general ideas, or elements considered standard within a genre (Maitra, 2015), making it difficult to define what exactly is protectable in a mod. This lack of legal clarity also complicates efforts by modders and independent creators to assert ownership over their work.
AI in Esports: Legal and Ethical Risks
As esports organizations continue to push the boundaries of innovation, AI-driven tools are poised to reshape competitive gaming and business models in 2025. AI-powered coaching systems, predictive match simulations, and automated broadcasting enhancements are already being integrated into training, strategy development, and content production (Harper, 2025; Olavsrud, 2024). While these technologies offer unprecedented advantages, they also introduce legal and ethical challenges.
The legal landscape surrounding AI is in its early stages, with courts only beginning to define the scope of AI-generated works under existing intellectual property law. In an important 2025 decision, a court ruled that training an AI on copyrighted material does not qualify for the fair use defense, setting a critical precedent for AI-generated esports content (Soni & Levy, 2025). This ruling signals that AI-driven content creation in esports is likely to face increasing legal scrutiny in the near future. Additionally, 2024 saw more than 30 lawsuits filed against AI companies, with courts intensifying their examination of how AI models are trained on copyrighted works without explicit authorization (Madigan, 2025). These cases could profoundly influence how AI-generated strategies, game analysis, and highlight reels are regulated in esports.
Beyond copyright disputes, AI’s role in esports also raises serious concerns about data privacy and player protection. AI-powered analytics systems process vast amounts of player data, ranging from in-game performance statistics to biometric tracking. Without clear regulatory frameworks, this data could be misused or exploited, leading to potential legal challenges under evolving AI and data privacy laws. As AI becomes more embedded in competitive gaming, regulators may need to establish stricter guidelines on data collection, consent, and the ethical use of player information to ensure compliance with emerging legal standards.
Conclusion
These 2025 esports industry predictions highlight revenue diversification as both a solution and a challenge for long-term sustainability. While esports betting, UGC, and AI-driven innovations offer new financial opportunities, they also introduce substantial legal risks that must be carefully navigated. Courts and legislators may begin to play a major role in defining the rules governing these emerging revenue streams. The industry must prepare for potential court cases that could set precedents for gambling liability, intellectual property rights in UGC, and the role of AI in competitive gaming. As the legal landscape continues to evolve, esports stakeholders must stay informed and take a proactive approach in crafting forward-thinking policies rather than reacting to legal challenges as they arise.
References
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Maitra, S. (2015, March 1). It’s how you play the game: Why videogame rules are not expression protected by copyright law. Landslide. American Bar Association. https://www.americanbar.org/groups/intellectual_property_law/resources/landslide/archive/why-videogame-rules-are-not-expression-protected-copyright-law/
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Olavsrud, T. (2024, June 17). Team Liquid tackles esports data with AI. CIO. https://www.cio.com/article/2144065/team-liquid-tackles-esports-data-with-ai.html
Soni, A., & Levy, A. (2025, February 12). AI fair-use ruling lays first marker as OpenAI, Meta cases loom. Bloomberg Law. https://news.bloomberglaw.com/ip-law/ai-fair-use-ruling-lays-first-marker-as-openai-meta-cases-loom
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