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Media & Entertainment

Legal barrier hobbles esports in game-crazy Japan

Prize-money cap preventing country from joining global video-game-competition boom

Japan Amusement Expo x Tokaigi 2017, a joint gaming event held in February, attracted some 70,000 fans at Makuhari Messe in Chiba, near Tokyo, and was streamed to some 4 million fans over the internet.

TOKYO -- Japan is warming to esports -- multiplayer video-game competitions that can draw big crowds and offer cash prizes -- but industry insiders say legal barriers are keeping a potentially major industry in the minor leagues.

Esports -- short for electronic sports -- is already big business in the U.S., Europe and parts of Asia, where purses for some events can soar to the tens of millions of dollars.

The prize money in Japan is pocket change by comparison. That is because of the act against unjustifiable premiums and misleading representations, which puts a 100,000 yen ($895) cap on cash prizes for events deemed to be aimed at selling a specific product.

Billion-dollar potential

Hirokazu Hamamura, president of newly established game company Gzbrain, says the cash prize limit is stifling business opportunities.

"If it weren't for that law, we could hold as many big-prize events as we like," said Hamamura, whose company was launched on July 3 by Kadokawa Dwango.

Hamamura, who long served as chief editor of gaming weekly Famitsu, is now director of multiple esports associations. He said he was disappointed by how slow Japan has been to embrace esports, and sees it as a missed chance.

"Esports significantly changes the way we enjoy games, and it creates new opportunities to make money," Hamamura said.

He said the legal issue was the biggest barrier, but Hamamura thinks there is another reason esports is not bigger in Japan. "Esports is mainly about games played on PCs, and Japanese gamers are not that familiar with this genre," he said. 

Watching esports is not much different than watching seasoned gamers show off their skills at home or in an arcade, only the games are played in front of huge crowds or broadcast to large audiences over the internet.

Seiichiro Kakehi, who heads the Japan e-Sports Association secretariat, established April 2015, said large esports events began cropping up globally in the late 1990s. It did not take long for professional teams and leagues to spring up.

"Top professional players now earn tens of millions of yen in cash prizes and contract money," Kakehi said.

According to a Japanese industry ministry report on the online gaming business published in February, the size of the global esports market -- the total amount of money businesses and fans paid to gaming events, teams and individuals -- reached $750 million in 2015. The ministry estimates the figure will grow by 13% a year and eventually exceed $1.2 billion. 

Opportunity knocks

Esports competitions encompass a broad range of genres, from martial arts and car racing to soccer to war games. The top players are stars among their swelling fan bases, mainly younger game enthusiasts. It is these fans that are attracting businesses, which see prime targets for their ads.  

Industry insiders say esports events need bigger cash prizes to take off in Japan.

That is why the National Basketball Association, teams in European soccer leagues, Porsche, McLaren and consumer goods makers have been snapping up esports teams or investing in related businesses.

FIFA, soccer's international governing body, now invites the best players of its namesake soccer game to the awards ceremony for the prestigious FIFA Ballon d'Or, given to the best player of the year.

According to Kakehi, a former Brazilian professional soccer player began earning hundreds of millions of yen annually after taking up professional soccer gaming.

Some are even predicting that esports will become an official medal sport by the 2022 Asian Games.

If so, Japan might be able to field a strong team. The Japan Esports League, launched last November, now has six teams, including one operated by Tokyo Verdy, a popular second-tier Japanese professional soccer club.

A big damper

But for esports to truly take off in Japan, bigger cash prizes are likely necessary. And until recently, that is where the industry appeared to be headed. In 2016, for example, Tokaigi, a major gaming event held by Dwango, had players battling for 20 million yen in prizes over Mixi's "Monster Strike" game.

But the trend toward bigger purses quickly ended last summer, following the Consumer Affairs Agency's response to an inquiry about whether cash prizes paid to winners in a planned competitive event held to promote a particular game constituted a reward to lure people to spend on products or services -- in this case, any fees or purchases related to games featured in the event.

The agency's answer was a clear "yes." It said that prizes in such cases can never exceed 100,000 yen.

The highly public response spooked potential sponsors, Hamamura said.

Possible solutions

One way to get around the 100,000 yen cap is to have the sponsors, not the game companies, put up the money for cash prizes. That, in fact, was the tactic employed by the organizers of the Monster Strike Grand Prix in 2016, where the 20 million yen in prizes was offered.

But attorney Shohei Furukawa, an expert on compliance with the law in question, warned that even that strategy carries risk.

"The decision about who is providing the products or services is made comprehensively, so even if you separate the payers [of prizes] in practice, it is possible that they will be considered part [of the organizers]," Furukawa said.

What if the gamers themselves contributed to a pool of money used for paying prizes, leaving the gaming companies and sponsors out of the picture? Alas, that may not work either, as it could be deemed gambling under the penal code.

Leave it to the pros 

For many forms of competition, not just esports, events with big cash prizes tend to come with a lot of legal restrictions, regardless of the format in which they are provided. Will that ever change?

One possibility is to revise the act itself to exempt esports. But Furukawa said doing so would be difficult. "I don't think revisions not directly aimed at enhancing consumer protection are likely," he said.

Takaaki Someya, also an attorney, shares Furukawa's skepticism. "I don't think esports would be given a special treatment," he said. 

"I would imagine it would be necessary to build a good track record, like holding legal events again and again -- to show the organizers' good intentions -- before lobbying for legal changes," he said.

Furukawa said one possible way around the payout cap is to limit esports events to professional gamers. The act is mainly designed to protect consumers, making it unlikely that prizes paid to professional gamers would be capped at 100,000 yen.

"Now that it has become a law to protect consumers, it would seem rather strange if it were applied even to events played by pros," he said. Furukawa said that any cash rewards given to pros should be considered exempt from the act.

"We're looking to the Japan Shogi Association as a model," Gzbrain's Hamamura said, referring to the association for the traditional Japanese board game, which offers large cash prizes for title matches. "We hope to explore the possibility of establishing a licensing system for professional gamers."

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