Private Equity in Esports: Regulatory Risks and Solutions

Brandon Chicotsky
Nov 15, 2025
11 min read

Updated: Jan 6

Esports is booming, with revenues projected to hit $4.8 billion by the end of 2025. Private equity investors are drawn to this fast-growing industry, but the regulatory landscape is a maze. Here’s a quick breakdown of the key challenges and how to navigate them:

Publisher Dominance: Game developers control competition formats, licensing, and revenue sharing. This creates risks for investors as publishers can change terms unpredictably.
Fragmented Oversight: Esports lacks a unified regulatory body. Federal agencies like the FTC and state laws impose overlapping and sometimes conflicting rules.
Intellectual Property Risks: Publishers hold exclusive rights over games, tournaments, and streaming. Sudden changes in licensing terms can disrupt investments.
Consumer Protection Scrutiny: In-game purchases, loot boxes, and digital currencies face increasing regulation, especially with a focus on minors.
Data Privacy and Cybersecurity: Compliance with laws like GDPR, CCPA, and COPPA is critical, especially as esports platforms often collect data on younger audiences.

Key Solutions for Investors:

Thorough Due Diligence: Review publisher agreements, intellectual property rights, and compliance with privacy laws.
Diversified Investments: Focus on third-party platforms and infrastructure companies rather than team ownership alone.
Contract Protections: Include clauses for regulatory compliance and safeguards against sudden publisher changes.
Monitoring Regulations: Stay updated on state and federal laws, especially in high-enforcement states like California, Texas, and New York.
Expert Guidance: Engage legal, compliance, and valuation professionals to navigate risks effectively.

Navigating esports investments requires careful planning, legal expertise, and constant vigilance. By addressing these challenges early, investors can position themselves for success in this dynamic sector.

Main Regulatory Risks for Private Equity Investors in Esports

Private equity investors stepping into the esports world face a maze of regulatory challenges that can shape both their financial returns and operational stability. Unlike traditional sports, esports lacks a centralized governing body, creating a fragmented environment where different stakeholders wield control over various aspects of the industry.

Fragmented Oversight and Publisher Control

One of the biggest obstacles is the absence of a unified regulatory framework in U.S. esports. Instead, game publishers like Riot Games and Activision Blizzard dominate their respective competitive ecosystems. They have the authority to make unilateral decisions - changing rules, revoking licenses, or restricting access to intellectual property. For investors, this publisher-centric model means that maintaining a strong relationship with game developers is critical to ensuring investment stability. Adding to the complexity, federal agencies like the FTC and CFPB, along with varying state regulations, create additional layers of compliance hurdles. This fragmented oversight makes navigating intellectual property rights particularly tricky.

Intellectual Property and Licensing Risks

Game publishers hold exclusive control over their intellectual property, which includes competitive events, streaming rights, and licensing agreements. For private equity investors, this poses a significant risk. Publishers can modify licensing terms or restrict third-party events without notice, potentially jeopardizing the profitability of tournament organizers and esports teams. Such sudden changes can disrupt long-term investment strategies and revenue streams.

Consumer and Financial Regulation Issues

Recent regulatory actions, like the FTC’s $20 million settlement with HoYoverse over Genshin Impact loot boxes in January 2025, signal growing scrutiny of in-game purchases. This case set new standards for parental consent and transparency around loot box odds, broadening oversight of these mechanics. Additionally, in-game purchases, loot boxes, and digital currencies are increasingly being treated as financial products under U.S. law. With the FTC and CFPB ramping up their focus - especially on microtransactions aimed at minors - investors must carefully evaluate their exposure to regulatory actions, compliance costs, and potential lawsuits tied to consumer protection.

Legal and Litigation Risks

Legal challenges in esports are on the rise, with class action lawsuits targeting issues like loot boxes, privacy breaches, and unfair business practices becoming more frequent. High-profile cases, such as the HoYoverse settlement, have emboldened both state attorneys general and private litigants to pursue claims under state unfair business practices laws. Data privacy is another major concern, as esports platforms often collect information on minors and must comply with overlapping regulations like GDPR, CCPA, and COPPA. On top of this, the growing consolidation of the industry has sparked antitrust concerns. Large publishers and platform operators are facing increased scrutiny for their market dominance, and portfolio companies could find themselves entangled in antitrust enforcement or litigation over market concentration. Investors need to stay alert to these evolving risks.

U.S. Esports Investment Challenges

Investing in esports in the United States comes with its fair share of hurdles, thanks to a maze of regulations that differ widely between states and federal authorities. Unlike industries with clear-cut federal oversight, esports investors face a tangled web of rules that can shift depending on where and how they operate. These complexities introduce unique risks at both state and federal levels.

State-by-State Regulatory Differences

One of the biggest challenges lies in the inconsistent regulations across states. Laws governing gaming, gambling, and other esports-related activities vary dramatically. For example, while some states allow esports betting, others have outright bans. Adding to the complexity, privacy laws such as the California Consumer Privacy Act (CCPA) impose stricter requirements than federal guidelines, forcing companies to meet state-specific compliance standards[3][2].

In 2025, states like New York, Texas, and California ramped up enforcement of privacy and gaming laws, driving up compliance costs for esports platforms operating within their borders[3]. The introduction of the Online Gaming Act 2025 further shifted the landscape, prompting investors to back away from real-money gaming (RMG) bets in favor of less risky esports ventures[5]. These rapid regulatory changes highlight how quickly investment strategies and capital flows can be reshaped.

Governance and Contract Vulnerabilities

Another significant issue for investors is the lack of standardized governance within the esports industry. Unlike traditional sports, esports lacks consistent contractual frameworks, leaving teams and players exposed to sudden changes in publisher policies or employment terms[4]. Publishers hold a dominant position, controlling the competitive ecosystem and retaining the ability to modify league structures, participation rules, or licensing terms at will. These abrupt changes can disrupt operations and revenue streams, creating instability for investors[4].

For private equity firms, this presents a dual challenge: managing financial risk while ensuring operational stability. Publisher agreements often grant developers the power to terminate or alter leagues, tournaments, or licensing deals with little notice, making long-term financial planning more difficult[4]. The absence of standardized player contracts adds yet another layer of complexity, requiring investors to carefully assess each deal on a case-by-case basis.

Federal and State Agency Overlap

The regulatory challenges don’t stop at the state level. Federal and state agencies often have overlapping authority, creating a compliance nightmare. Agencies like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) oversee areas such as digital assets and betting platforms, while state regulators focus on gambling, consumer protection, and privacy[3][2]. This overlapping jurisdiction leads to conflicting rules and redundant requirements.

Take digital currencies or tokens introduced by an esports platform, for example. These could simultaneously fall under SEC, CFTC, and state money transmission regulations, creating a labyrinth of compliance hurdles. In 2025, states like New York, Texas, and California are expected to take a stricter stance on privacy and cybersecurity, using new state laws and existing unfair or deceptive acts and practices (UDAP) statutes to enforce more punitive measures than federal agencies[3].

High-profile enforcement actions in recent years have underscored these challenges. For private equity investors, due diligence must go beyond current compliance requirements to anticipate potential clashes between overlapping regulatory bodies, each with its own priorities and timelines. This layered complexity demands a proactive and highly detailed approach to navigating the U.S. esports investment landscape.

Solutions to Reduce Regulatory Risks in Esports Investments

Private equity investors looking to safeguard their esports investments from regulatory pitfalls need a proactive approach. By establishing strong safeguards early and maintaining constant oversight, they can better navigate this rapidly evolving industry. Here’s how they can tackle these challenges head-on.

Conducting Thorough Due Diligence

One of the most critical areas for scrutiny in esports investments is publisher agreements. These agreements are the backbone of any esports venture, and investors must carefully review key aspects like intellectual property licensing, revenue-sharing terms, termination clauses, player transfer restrictions, and performance-based conditions that could lead to penalties[7].

Publishers hold significant power in esports, often controlling competition rights. They can revoke team participation with little notice, putting investments at risk[7]. To mitigate this, an intellectual property audit is essential. This audit ensures proper authorization for using game titles in tournaments, media rights, and sponsorships. Additionally, compliance with data privacy laws such as COPPA, GDPR, and CCPA must be verified to avoid regulatory issues[3].

Structuring Flexible Investments

To reduce exposure to publisher-driven risks, many investors are diversifying their portfolios. Instead of focusing solely on team ownership, they are exploring investments in third-party service providers that operate across multiple publishers and games[1]. Examples include esports infrastructure companies, media platforms, and player development academies. These areas are less dependent on the policies of a single publisher and contribute to the broader esports ecosystem.

Another effective strategy is to opt for minority or passive investments. These types of stakes often face less regulatory scrutiny and don’t require publisher approvals. Investors can also include revenue guarantees and backstopping provisions in their contracts. These mechanisms ensure steady revenue flows from media rights, sponsorships, and tournaments, even if publishers alter licensing terms or tournament structures[1].

Using Expert Networks

Given the complexity of esports regulations, assembling a team of specialized advisors is crucial. This team should include legal counsel with expertise in esports, regulatory compliance professionals, and data privacy specialists who are well-versed in COPPA, GDPR, and CCPA requirements[3].

Specialized business brokerages can also be invaluable. Firms like God Bless Retirement offer access to CPAs, valuation experts, tax advisors, and private equity professionals, helping investors navigate regulatory hurdles and structure transactions effectively[6]. These networks are particularly useful for handling NACVA-certified valuations, which are widely accepted by buyers, courts, and regulatory bodies, ensuring fair pricing and compliance throughout the investment process[6].

Setting Up Contract Protections

Strong contractual protections can shield investments from unforeseen risks. For instance, publisher relationship protections should clearly outline intellectual property rights, competition authorizations, and revenue-sharing terms. These agreements must also include provisions for handling changes or terminations initiated by publishers[7].

Investors should also include regulatory compliance clauses that require target organizations to adhere to federal, state, and local laws. Indemnification clauses can protect against pre-closing violations, which is particularly important as states like New York, Texas, and California ramp up privacy and cybersecurity enforcement in the coming years[3].

Other key contract elements include arbitration frameworks for dispute resolution, change of control provisions to maintain operational stability, and data protection indemnities to ensure compliance with privacy laws[3].

Monitoring New Regulations

Staying ahead of regulatory changes is non-negotiable. Regulatory intelligence platforms can help track updates from agencies like the FTC, CFPB, and state attorneys general, especially in areas like data privacy, consumer protection, and gambling regulation[3].

Regular quarterly compliance reviews of portfolio companies are another essential step. These reviews ensure ongoing adherence to laws like COPPA, GDPR, and CCPA, as well as state-specific regulations[3].

Investors should also keep a close eye on state-level developments and monitor their relationships with publishers for any shifts in licensing terms or policies. Additionally, they must stay informed about regulations tied to emerging technologies like AI-driven anti-cheating systems and biometric wearables. These innovations generate sensitive data, which could fall under evolving privacy rules[2]. Assigning a dedicated compliance officer to track these changes and adjust strategies ensures investments remain protected.

Conclusion: Managing Regulatory Challenges in Esports

The esports industry is on track to hit $4.8 billion by the end of 2025, offering exciting opportunities for private equity investors. But with this growth comes the challenge of navigating an increasingly intricate regulatory landscape, especially as authorities ramp up scrutiny of gaming companies, particularly those appealing to younger audiences[2][3].

Investors must tackle several hurdles unique to esports. Unlike traditional sports, where rules and operations are relatively stable, esports ventures are heavily influenced by publishers who can alter competition rights or licensing terms with little warning. Add to that the fragmented regulatory oversight at federal and state levels and the tightening consumer protection laws, and it’s clear that a one-size-fits-all approach won’t work here.

The key to success lies in thorough due diligence. This involves carefully analyzing publisher agreements, conducting intellectual property audits, and staying compliant with ever-evolving regulations. With state regulators stepping up their enforcement of privacy and cybersecurity laws through 2025, understanding and adhering to state-specific requirements is non-negotiable[3].

Expert guidance is becoming indispensable in this space. Firms like God Bless Retirement connect investors with professionals - CPAs, private equity experts, and valuation specialists - who understand the complexities of gaming law. These experts can help structure deals to reduce regulatory risks while optimizing potential returns.

As the regulatory environment continues to shift, ongoing monitoring is critical. Regular reviews, staying informed about regulatory changes, and maintaining flexible investment strategies will help investors stay ahead of the curve and seize new opportunities in this fast-moving industry.

Ultimately, preparation, specialized knowledge, and the ability to adapt are what will set successful esports investors apart. Those who embrace these principles will be well-positioned to tap into the immense growth potential of this dynamic sector.

FAQs

What challenges do private equity investors face due to publisher control in the esports industry?

Private equity investors in the esports world often face a tough hurdle: the control wielded by game publishers. These publishers, as the creators and owners of game titles, hold a lot of sway over the ecosystem. They dictate tournament structures, licensing terms, and even how revenue is split. This level of control can create uncertainty, as publishers might introduce sudden policy changes or restrictions, potentially affecting the stability and profitability of investments.

To manage these risks, investors need to dig deep during due diligence. This means examining a publisher's history, analyzing contractual agreements, and assessing the long-term potential of the game itself. Partnering with seasoned advisors - especially those with expertise in mergers and acquisitions - can provide valuable insights for navigating these challenges. Additionally, staying informed about the regulatory environment and building strong industry connections are crucial steps to reduce the impact of publisher-related risks.

What strategies can private equity investors use to manage regulatory challenges in the U.S. esports industry?

The U.S. esports industry faces a unique set of regulatory hurdles, thanks to its patchwork of state laws and the involvement of various governing bodies. For private equity investors looking to dive into this rapidly growing market, navigating these complexities requires a strategic approach. Here are three key steps to consider:

Dive deep into due diligence: Every state has its own rules affecting esports, from labor laws to intellectual property rights to gaming regulations. Before making any investment, it’s crucial to fully understand how these regulations will impact operations in the target states.
Seek expert advice: Partnering with professionals who specialize in esports and regulatory compliance can make a world of difference. Attorneys, CPAs, and private equity specialists with experience in this space can provide invaluable insights. Even working with specialized firms, like family-run business brokerages, can connect investors to the right resources.
Prepare for the unexpected: Regulatory landscapes can shift, so having a solid risk management plan is essential. This includes keeping an eye on legal updates and being ready to tweak investment structures to stay compliant.

By staying informed and leaning on the expertise of seasoned advisors, private equity investors can navigate the challenges of the esports industry and position themselves to thrive in this dynamic market.

How can private equity investors safeguard their investments from unexpected changes in intellectual property or licensing terms by game publishers?

Private equity investors in esports can safeguard their investments by taking a hands-on approach to managing intellectual property (IP) and licensing risks. Start by having all agreements with game publishers carefully reviewed by legal professionals to pinpoint any areas of vulnerability. It’s also wise to negotiate for licensing terms that are either long-term or renewable, reducing the chances of abrupt disruptions.

Spreading investments across different game titles or publishers is another smart move to avoid over-reliance on a single entity. Staying up-to-date on industry trends and regulatory changes is equally important, as these factors can directly influence IP and licensing agreements. Partnering with seasoned advisors, such as private equity experts, can further bolster your risk management efforts.