Dentons – Smart contracts in esports: revolutionising the game

Esports has evolved from a niche subculture into a global phenomenon, with millions of fans and a market size of more than US$1 billion. As the industry continues to expand, so does the need for efficient and transparent contract arrangements for player contracts, tournament winnings and fan engagement. Smart contracts powered by blockchain technology have emerged as a game-changer in the world of esports, promising greater transparency, security and administrative efficiency.

A smart contract is a legally binding contract in which some or all of the contractual obligations are defined in code and performed by a computer. Blockchain technology is used to generate a smart contract, which is a decentralised technology. A smart contract can be written in natural language or code, or a mixture of the two. The contracts are generally “self-executing” meaning that once a predefined condition is met, the corresponding contractual obligation will be implemented automatically.

Smart contracts are going to become increasingly more common in esports:

Smart contracts streamline common contractual arrangements such as player contracts and transfers by automating certain processes. For example, when a team signs a new player, the smart contract can automatically release the player’s salary and sign-on bonus.

There are numerous benefits to using smart contracts as a sponsor. Take the example of a sponsor who has sponsored multiple teams in an esports tournament. At a single tournament there can be hundreds, if not thousands, of competitors competing in ranked matches. Sponsors can find it administratively difficult to track progress of each of their sponsored athletes in each of the many rounds in which they compete over the course of a tournament, and link their results to an agreed payment. In multidisciplinary tournaments where more than one game is played, the point system will differ between each game and in each game mode. For example, an esports athlete competing in the annual global Call of Duty: Warzone tournament may have their performance tracked against a variety of key performance indicators such as the amount of XP, how long their team survives in the Warzone or, more simply, whether they come first at the end of the tournament. The parties will need to track each athlete’s results across various games and benchmark this against the terms of the contract, before calculating an agreed sum to pay to that athlete.

By using a smart contract, the code will track a team’s progress and use the official results achieved by that athlete to benchmark against the contractual terms, before releasing payment automatically. This saves time and administrative hassle of keeping track of each athlete’s performance and progress, and reduces the scope for dispute.

Smart contracts can also be used to create records of match results and player statistics, which can be relied upon by the tournament hosts, fans, athletes, teams and their sponsors.

Esports organisations are increasingly using tokens (a currency) as a means by which to engage with fans. Smart contracts enable the creation of tokens to be redeemed in return for exclusive merchandise and access to special events.

Whilst smart contracts can benefit the esports industry, it will be some time before they are readily used. Smart contracts require code which cannot be drafted by (most) lawyers and will require the parties to hire professionals proficient in drafting code to work with the parties’ respective legal teams, therefore adding cost.

Once drafted, there is a risk that the code leads to unintended consequences as the code may not adequately capture complex legal nuances or evolving circumstances. Take the example where a smart contract is drafted to issue payment if a specified result is achieved at a tournament. As the smart contract is dependent upon external data (the tournament’s ledger), it is possible for inaccurate results to be entered into the ledger, leading to an incorrect payment being made to an esports athlete automatically. A potential solution would be to change the code so a delay is applied to any payments to give the parties an opportunity to verify the data, but that then obviates the need for the code.

Smart contracts are a powerful tool that can revolutionise various aspects of contract management and execution. The efficiency, accuracy and automation offered means in certain use cases, such as in the esports industry, they can be a real game-changer. That said, however, their use outside certain scenarios may cause more problems than they solve as not all scenarios can be dealt with by a “one-size-fits-all” approach. Traditional contracts will still be used in the vast majority of circumstances given their legal recognition and ability to handle nuance and complexity.

The choice between a smart versus traditional contract should come down to the specific needs of the parties and circumstances of each contract, ensuring that the best solution is achieved.

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