E-gaming 2021: State of play

By Trevor Zeyl and Nader Hasan

Law360 Canada (February 2, 2021, 1:33 PM EST) --
Trevor Zeyl
Trevor Zeyl
 Nader Hasan
Nader Hasan
The e-gaming industry is primed for increased expansion and activity in 2021 as the COVID-19 shock has accelerated an already dynamic and innovative sector. Indeed, as a result of the pandemic and the accompanying lockdown restrictions, at-home entertainment has become increasingly prevalent and, for at least a portion of the population, e-gaming has become the primary form of entertainment and social interaction.

This increased demand has generated immense value for e-gaming companies, who will undoubtedly look to obtain and increase their share of the growing market in 2021. As such, we can expect to see a significant uptick in financings and offerings in the industry in 2021, both in value and volume, with the proceeds being used to fund the expansion of these companies. This expansion may be done organically but can be accelerated through strategic mergers or acquisitions. Consequently, we can expect to see a significant uptick in M&A activity, especially in novel and growing sectors of the industry, such as streaming platforms, as companies look to stay ahead of trends.

Accordingly, lawyers in the e-gaming industry must stay ahead of the curve on regulatory or legal developments as lawmakers and regulators attempt to keep pace with the growth of the industry. Indeed, the fast-evolving legal landscape can lead to missed opportunities for some as well as large non-compliance costs for others, including e-gaming companies and investors looking to engage in M&A activity. More specifically, lawyers should monitor the legal developments in the following areas in 2021.

First, the e-sports gambling industry faces different regulatory approaches across jurisdictions and these rules continue to change as the industry develops. Indeed, recent legislative and regulatory amendments in North America have primed the e-sports gambling industry for development; however, it important to note that these changes are occurring in a non-uniform manner across the Canadian provinces and the United States.

Second, the rise of virtual economies for e-sports games has created an opportunity for, among other things, money laundering. Many popular games provide access to in-game currencies that are tradeable for fiat currency and have related secondary markets for video game items, thereby allowing for the concealment of illicit proceeds. Over the next year this potential problem area may attract the increased attention of anti-money laundering regulators and policy makers.

Finally, as e-sports leagues have increased in size and value, with large tournament winnings and gambling markets, these leagues have become more susceptible to corruption and cheating. As such, regulators may begin to impose anti-corruption or other similar regulation in e-sports leagues that is increasingly similar to that of traditional sporting leagues.

This next year will be a period of transformation and growth for the e-gaming industry. Lawyers who advise e-sports companies will need to develop a comprehensive understanding of the evolving regulatory framework in order to provide relevant advice in real time as financing and M&A opportunities in this industry will likely move faster than ever before.

Trevor Zeyl practises corporate and securities law, with particular emphasis on public and private mergers and acquisitions, financings and corporate governance. He is a member of Norton Rose Fulbright’s special situations team, which encompasses Canada’s leading hostile M&A, shareholder activism and complex reorganization transactions. Nader Hasan is an associate in the M&A and securities group and a member of the Canadian special situations team at the firm. The authors would like to thank articling student Aaron Chahal for his help in writing this article.

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