NFT Law: An Introduction to NFTs in the Esports and Video Gaming Worlds
By Justin M. Jacobson, Esq.
Today’s entertainment, sports, art, esports and gaming industries are buzzing about NFTs or “non-fungible tokens.” This includes musicians earning millions of dollars through releasing their own NFTs, professional athletes launching their own NFT companies, and the trending NBA Top Shot taking over social media and press outlets everywhere. In fact, there has also been a rapid expansion and usage of NFTs in the entertainment and sports collectibles market, the art world and most recently in the esports and gaming space. This might include utilizing NFTs to secure rights to a particular piece of artwork, an “in-game” digital character or a “skin,” a digital “racing horse,” or even a video “moment” or other highlight of a professional athlete or wrestler.
What is An NFT? NFTs and Crypto-token in Esports and Video Games
An NFT is a type of cryptographic token that is not mutually interchangeable with something else that exists. This means that there is only one “original” copy that cannot be replicated or otherwise divisible no An NFT is a type of cryptographic token that is only one “original” copy that cannot be replicated or otherwise divisible no matter what. In fact, NFTs are “coded to have unique IDs” and underlying “metadata” that another token cannot reproduce which is where much of the value lies. This unique crypto token is managed on a “blockchain,” which acts as an official transfer ledger to trace and delineate the ownership and the full transaction history of an associated NFT.
What Makes An NFT Valuable?
A unique feature of an NFT is the ability to be easily transfer it from one owner to another through the existing blockchain technology. Generally, when a user earns an “in-game” item or any other digital asset, it is usually difficult to assign, trade, transfer or otherwise sell the item; however, an NFT solves this problem as the digital item can now be easily managed and transferred through a secure platform, such as a “Trust Wallet.” The owner’s asset can be traded or sold in various “marketplaces,” such as OpenSea and the Worldwide Asset eXchange (WAX).
Two dominant forms of NFTs in today’s entertainment and gaming marketplaces are “fully digital” NFTs as well as those that exist as digital “placeholders” for actual “real world assets,” such as a painting or a signed jersey. In some cases, such as in the entertainment world, an “NFT Drop” might actually be a combination of both of these types. For example, the token might be for a purely digital item such as a digital song or character “skin” playable or usable in-game or through the purchaser’s digital “wallet” as well as those NFTs that act as a digital “placeholder” for a signed item, a concert ticket or some other fan “experience” that is also managed in the owner’s “wallet.” There currently exists established marketplaces such as CryptoArt.io and SuperRare to purchase and sell artwork as well as other NFTs related to unique physical memorabilia such as NFL player Rob Gronkowski’s limited edition “digitally hand-signed” NFTs, Pokémon cards, stamps, digital artwork, autographed items, virtual and physical concert tickets, songs and even unique “in-game” items such as a limited edition or unique weapon, avatar, sticker, badge or anything else that is earned or purchased within a particular gaming title. This means that existence of an NFT permits the item purchaser to acquire “digital ‘collectible’ versions of a record” or other “fan experiences (either looks backstage or during the artistic process itself), all of which the buyers could ‘own,’ sell, display, [or just] revel in, how cool it is” to own this exclusive item.
As a result of the existence of the fully “digital tradeable tokens” as well as “hybrid” NFTs, many traditional entertainers, sports leagues, professional gaming entities and creative artists are starting to offer them for sale. For instance, some companies have created “branded NFTs” that are similar to traditional physical collectibles but are now a fully digital version. In fact, some of these have been extremely successful, such as the recent Kings of Leon album that generated $2 million from its sale. The musical artist Grimes sold nearly $6 million dollars’ worth of a “one-of-a kind video” as well as sold other “short videos.” EDM producer, 3LAU made over $11 million through the sale of “digital-tokens” exchangeable for “special edition vinyl 3LAU albums, unreleased music [and other] special experiences.” The NBA has licensed its various basketball game highlights to Dapper Lab to create the NBA Top Shot product, which operates with multiple levels of rarity for specific NFTs (a highlight) with different market values based on the different “levels” and scarcity of the “Moment” in the marketplace, including a LeBron James Top Shot that recently sold for “over $387,000.” There also have been some other unique athlete driven NFTs such as Sorare’s digital soccer cards as well as MLB Champions as well as Topps’ digital baseball cards. In fact, one of Sorare’s digital trading cards sold for $65,000 and is an example of how sports, esports and other entertainment properties can expand their reach and further diversify their revenue streams.
NFTs in Esports and Video Games including Play-To-Earn (P2E) Gaming
With the success of NFTs in other entertainment and sports fields and with the concept of digital items already engrained in the gaming world; these digital assets are prime for growth and expansion in esports. In this regard, an NFT could apply to any “in-game” purchased item such as any collectible, skin, weapon, “champion,” “hero,” “card” or any other in-game playable “character” or avatar. For example, a highly successful NFT is CryptoKitties, which is administered by Dapper Labs and permits a user to “breed and trade digital kitties using Ethereum-based smart contracts.” This was so successful that it led to a collaboration with Warner Music for the creation of a “rock-inspired” CryptoKitties NFT line. Another unique gaming NFT use is that of Axie Infinity, the creator of a “digital pet universe,” wherein an individual purchases “larva” and then evolves and grows the creature over time. The creation of this digital metaverse caused a company to spend $100,000 to purchase 88 digital “plots” within the Axie Infinity universe, which has many unique available monetization avenues. There has also been the creation of a sleuth of mobile gaming apps that permit the transfer and sale of various in-game items to other players, such as World of Ether, God Unchained, Chain Clash, and Esports Fight Club.
Similarly, some esports content rightsholders, such as game publishers and esports organizations, are exploring the integrations of NFTs into their consumer offerings. For example, a unique highlight of an iconic League of Legends match or play owned by Riot Games could be “minted” and sold to the consuming public. There are also opportunities for digital player cards, similar to those that currently exist in other sports, such as unique “1 of 1” or other limited-edition collections of a professional gamers, streamers or content creators. Some esports teams, such as 100 Thieves, Misfits Gaming, and Simplicity Esports have begun exploring incorporating NFTs into their business through the use of digital “gamer” cards and potentially with creating NFTs linked to iconic images or other photographs that the esports organization owns rights to as well as for purely virtual merchandise. Additionally, previously, esports organization, OG Esports “minted” their own NFT for a 2018 Dota championship ring digital collectible that was available for purchase by fans. Furthermore, esports organizations, Natus Vincere (Na’Vi) and Team Heretics have each launched their own “fan” digital token available for purchase by the team’s supporters. For example, a fan can purchase of one of these digital tokens can earn “exclusive digital and real-life rewards” from the team. More recently, esports organization Sentinels minted and released their own NFT to commemorate their “Valorant Masters Crown.” ESE Entertainment also announced the creation of a “Virtual Pitstop” tied to its new digital “motor sports simulation platform” for the creation of “animations [and] skins,” among other computerized items. Finally, top gaming streamer and content creator Turner “Tfue” Tenney just released his own limited edition NFT that included rights to “3 Bobblehead NFTs that bring Tfue to life.”
As more and more dominant content owners in the esports and gaming space begin understanding and further utilizing NFTs as part of their business model, the more legal and business considerations come into play. It will be interesting to see how professional gamers as well as more esports organizations, game publishers, event organizers and any other individuals who own rights to material begin in esports and competitive gaming start offering NFTs or other blockchain linked assets.
This article was originally posted on The Esports Observer.
This article is not intended as legal advice, as an attorney specializing in the field should be consulted.
© 2022 Justin Jacobson Law, P.C.