Whether it is via new non-endemic investment, sponsors, teams/organisations or business ventures with other sectors, it is becoming increasingly clear that the esports sector is expanding. Whilst this is fantastic, there are dangers associated with such expansion which can create problems later down the line. One such problem has manifested itself in Blizzard Entertainment’s (“Blizzard”) premiere Overwatch competition - the Overwatch League (“OWL”).
Conflicts of Interest
It's apparent that there are a small number of ‘core' companies that make up the sector - companies like Twitch, ESL, FaceIT, Valve, Riot Games and Activision Blizzard. One of the dangers of expansion in an ecosystem dominated by a small group of 'core' companies is the potential for conflicts of interest.
Following the inaugural season of the OWL in 2018, the league expanded and added eight new franchises. However, it turns out that a stakeholder in the OWL itself is also a shareholder of not one but two of the new franchises competing in the very same league!
The shareholder in question is none other than Tencent Holdings (“Tencent”) - one of China's largest conglomerate holding companies specialising in various internet-related services and products, entertainment, artificial intelligence and technology. Tencent owns a 5% stake in Activision Blizzard, the parent company of OWL operator Blizzard as well as a minority shareholding in two of the new franchises entering the league, the Chengdu Hunters and the Hangzhou Spark.
Is this a Problem?
The short answer is not yet, although there may be issues that have already arisen that we are unaware of. For example, it might be the case that (and this is purely hypothetical of course) the Chengdu Hunters and Hangzhou Spark received preferential treatment (because of their ties to Tencent) over other franchises when it came to granting slots in the expanded league.
Additionally future conflicts could arise in relation to aspects of the competition such as preferential treatment when organising which teams play each other and when or if certain 'home games' are scheduled to one team’s advantage. Other issues include questions about the integrity of the league if the outcome of a game is decided by a questionable call that goes the way of the Chengdu Hunters or Hangzhou Spark.
What happens next?
Whether any of these issues will actually manifest themselves remains to be seen, but the potential certainly exists, so at this moment in time we don’t really know what happens next. Blizzard may feel that the potential for conflict is not substantial enough for any action to be taken.
However, there are a number of things they could do if they wanted to be proactive on this front. One approach would be to allow aspects of the competition to be governed by third parties. For example, the tendering process for new franchises entering the OWL, could be dealt with independently of Blizzard or the refereeing and regulation of OWL matches could be undertaken by an independent body such as the Esports Integrity Coalition.
Case Study: Conflicts of Interest in Traditional Sport
Esports as a sector has often followed the conventions of traditional sports in various aspects. Therefore it may be useful to briefly examine how some traditional sports leagues deal with conflicts.
Under the rules of both the Football Association (“FA”) and the Union of European Football Associations (“UEFA”), it is prohibited for an owner of a football club to have power of influence over the management of another football club.
Under the FA rules, a director or an individual or legal entity with direct or indirect control (a shareholding of 30% or more) over a football club must adhere to the ‘fit and proper test’. To pass the ‘fit and proper test’, the person/entity in question must declare that they do not have a significant interest and/or do not have power or influence over another football club.
Under the UEFA rules, the same entity or person cannot directly or indirectly own two or more clubs participating in a UEFA club competition.
What is different from the FA rules is that under UEFA rules, ownership of a football club is defined as 50.1%. This means that technically, an entity could hold 100% shareholding in one European football club and a 49% shareholding in another European club competing in the same competition and the owners would not be caught by the conflict of interest rules. In order to counter this, UEFA added a further stipulation that prohibits the owner of one football club to have the ability to exercise ‘decisive influence’ in the decision-making of another club in the same UEFA club competition.
Looking at the FA and UEFA Rules, it seems that Tencent as a minority owner of two OWL franchises wouldn’t be caught by the rules (if they applied), although the issue of Tencent’s stake in the OWL itself remains questionable.
Ultimately, all we can do is wait and watch as the new season of OWL unfurls on 14th February 2019. It may be that the competition runs smoothly and Blizzard won’t have to worry about integrity and unfairness claims. However, it could just as easily become an issue that causes a PR/social media nightmare and needs to be dealt with immediately. In any case, conflicts of interest is certainly a topic that will arise again, especially if the trend of a handful of companies dominating the sector continues.
The organizer of the Overwatch League (Blizzard) and two individual franchises within the league (Huya and Bilibili) all share a common stakeholder (Tencent Holdings). Another franchise (Netease) publishes the game in partnership with the game developer (also Blizzard).