If I had a dollar for every time I've heard this question, let me tell ya! Here's the reasons I don't personally create fan art. These are, I think, about as unbiased as you can get when it comes to fan art and to do or not to do. This is usually a pretty heated topic and a lot of artists who create fan art feel they aren't respected by those who do not. I've actually seen a lot of fan art that was incredibly well-done. I've also seen a lot of fan art that wasn't very good, but I've seen a lot of bad art in general. There is bad art in every genre! So with that out of the way...
Disclaimer: Property or company names are used only as examples.
- Original Property - It's not a dirty word! I don't make fan art because I am already busy developing my own original properties and I don't have time for fan art. I can't give fan art to the companies I work with to produce products or merchandise. I can't for legal reasons. If I gave them fan art of Doctor Who, for example, and the BBC decided to sue them for making Doctor Who figurines, I would probably be liable depending on the contract terms. Not to mention my reputation would be ruined forever!
My more marketable artworks will probably continue to yield royalties until I'm an old woman, maybe even for my son after I'm gone. If something happens to me and I can't paint, I will still have a whole body of about 700 artworks that I can dust off and re-market if I have to. I also have a lot of things that I can develop into bigger projects, like graphic novels. I couldn't get a Dragonball graphic novel published, no matter how good the fan art was.
- The Risk - You may or may not get sued. It depends on the company and how you use their property. Every company is different. Some companies won't sue you and some will sue you for the smallest infringement. If a company comes under new ownership, the new owners may have a different opinion and may go after everyone who has ever sold a Pokemon doodle.
The law is also different in other countries and you may need to spend a lot of time researching the property you want to make fan art of and the laws of the country from which it originates. That can take a lot of time. I have been researching US copyright law for 10 years and I don't think I even have a good idea of how the whole system works. Copyright law is usually pretty enormous and complicated, and there are a lot of nuances. Your best bet is to ask a lawyer, but they will probably only be familiar with US copyright law and may not be able to give you good advice, either.
Overall, finding the information you need may be very time-consuming. This is why I don't bother with it. I am already short on time to develop my own properties.
I like what I do a whole lot, and I want to keep doing it. I also want to keep living in a house and driving a car, so I don't put my legal butt on the line.
- What If - This may sound like a long-shot, but it's happened before. What if the creators of a property like your work so much, they decide to use your ideas? They may, or may not, owe you anything for using them. Even if they did, do you have the money to take on Blizzard in a legal battle? The answer is no, you don't. Unless you are coming into the fan art game a multi-billionaire, you do not have the resources to fight that fight.
I like to get compensated for my work and ideas. I'm sure you do too. I'm not going to bank on my art being so awesome that Square Enix hands me my dream job of creating Final Fantasy characters. My time would be better spent building up a kick ass resume and portfolio so they can't refuse when I apply.
- Inspired By - Be inspired all you want! Nobody can touch you for being inspired. Just don't plagiarize or directly trace or copy a trademarked or copyrighted property and you're fine. Chances are if you're inspired by something, the people who like that thing that inspired you will also like your art. I have seen it before when I've been inspired by a movie, someone bought the print, and told me it reminded them of the exact thing that inspired it.
I'm definitely not claiming to be the authority on this by any means, these are just my reasons for why I don't create fan art and I don't recommend it when I'm asked. I realize that a lot of people have very strong feelings about this, and while I accept that others may have different opinions, I will delete any inflammatory or disrespectful comments on this post.