An introduction to esports – Part 2

See part 1 in our esports series for a general “all you need to know” overview of the esports industry.

Employment and regulatory oversight

Esports is a relatively young industry and, generally speaking, there is little regulation or specific government attention over player contracts (although France and South Korea are jurisdictions leading the way). Depending on their contractual terms, players could be considered contractors or employees. If contractors, players may not be entitled to typical employment protections such as sick pay, however organisations should also be aware of their obligations if their players are found to be employees instead.

At present, contracts with gamers tend to contain more commercial terms (rather than those usually seen in traditional employment or individual contractor agreements). The level of control that teams, sponsors and publishers have, which result in such terms (partially driven by the need to address concerns about reputational risk and protect their commercial interests), raises questions about the exact employee or contractor status of the individual gamer.

There are also increasing concerns, reflected in litigation activity, about the uneven bargaining power between sophisticated organisations and individual players, resulting in potentially unenforceable contract terms. Compounding this, the organisations that exist to guide and protect (particularly young) players from exploitation, such as the British Esports Association, are still working to increase their visibility and influence.

A case in point: TFue v FaZe Clan

In 2019, Turner Tenney (aka TFue) brought a landmark and much publicised claim in the USA against the esports team FaZe Clan Inc (FaZe), which has sparked further discussion around the enforceability of certain terms in esports player contracts.

Specifically, Tenney, who is a successful Fortnite esports player, claimed that his contract with FaZe:

• contained anti-competitive restraints of trade purporting to prevent Tenney from providing certain services, working or being employed in certain spaces;
• purported to contain a finder’s fee for FaZe of up to eighty percent of the revenue paid by third parties for Tenney’s services; and
• formed the basis of unlawful or unfair business practices by FaZe.

In response, FaZe counter-sued for:

• breach of contractual payment obligations by failing to share revenue with FaZe;
• breach of contractual non-disparagement obligations by making public statements;
• breach of confidential information by disclosing his contract; and
• disclosure of trade secrets.

At the time of writing the case is still ongoing, however Tenney’s core allegation in his complaint is that FaZe’s intention was to “essentially own Tenney and other creator/streamers and professional gamers”, which shines a spotlight on the nature of terms in esports player contracts in general.

Enforceability of terms in player contracts

Without commenting on the specifics of the TFue v FaZe Clan dispute, the rising popularity of esports has meant that there is no shortage of young talent eager for the chance to compete professionally, who may be quick to agree contractual terms (such as non-competes or lock-ins) without fully considering the legal implications.

To minimise the likelihood of disputes about the enforceability of these terms later down the line, professional organisations should actively consider whether their terms are likely to be “fair��� (and thus enforceable) and flag to individual counterparties that they should seek support and legal advice before entering into them.

Partly fuelled by concerns about the number of players who are on contractual terms they did not negotiate, there is a wider discussion on whether teams and professional organisations owe their players a duty of care to ensure their players’ wellbeing, mental health and financial security.

These issues are not going to go away. Due to the increasing professionalism and money involved in esports, players are often required to live and train in one place, sometimes far from home. Players may also be required to stream training sessions and other content, filming for long periods of the day. There is increasing concern that players waive their rights to privacy without giving full consideration to the consequences of giving such consent as a data subject. Other significant contractual issues arise such as maintaining standards of player conduct, the use of illegal substances or drugs and making public statements.

What is the esports industry doing about player contracts?

There are very encouraging signs that the industry as a whole is maturing with large esports organisations enforcing fairer terms. Riot Games for example has a three-year cap on contracts for players participating in their League of Legends championships and ensures that players are not constricted by non-compete clauses. Activision Blizzard set out their rules for the new Call of Duty Global League: players must be guaranteed a salary of $50,000 and their contract should also cover healthcare and other benefits. Furthermore, the Global League rules stipulate that teams must award at least 50% of the prize money to their players, and must submit a plan to the Global League detailing how they will assist their players to find suitable housing during the season.

As another example, the Italian Association of Videogames Publishers and Developers (AESVI) set up a specific branch in September 2019 dedicated to the esports industry, with a mandate to work with the main tournament organisers and esports teams in the country. One of their main goals is to regulate the market by providing best practice standards, sample contracts, and addressing common legal issues.

Player contracts should offer protection for esports players, particularly young gamers, but also provide certainty for teams with the staffing of their roster. For teams, managing the players on their roster is essential to their success and financial security. Increased governance and scrutiny, including by league organisers, publishers and even governments, is a crucial step towards ensuring players’ welfare and the continued growth and sustainability of esports.

“Considering both the opportunities and risks involved with partnering in esports, sensible advice should be sought by traditional sports bodies and commercial brands on the one hand and, equally on the other, the esports industry. The first group needs to be properly guided in their investments and projects, while the second still suffers of a lack of organisation and effective business planning.”
SportsGeneration, October 2019

Visas

Esports competitions are global events, held at different locations worldwide with team rosters made up of international players, which has often led to visa complications for teams hoping to compete. Jurisdictions such as the UK still have work to do to adapt fully to the rapid rise of esports and the need for a transparent visa system for esports players.

In the UK, esports are not officially recognised as professional sports and players are not viewed as sportspeople for visa purposes. The visa process can take time and this had led to difficulties for teams to recruit players and coaches to train and compete in the UK. For example, Yoppa, a rising Serbian League of Legends star signed to the Mad Lions team, was barred from the EU Masters competition in Leicester as he was not granted a visa in time.

Outdated visa restrictions could hamper the competitive nature and growth of esports in the UK. Publishers may seek to host competitions in countries with a more visa-friendly approach. In contrast, many esports players in the USA are able to obtain a P-1 professional sportsperson visa to compete. Furthermore, teams adapt to this commercial and competitive uncertainty by bolstering their team rosters and also applying for visas speculatively. The sheer number of esports (which raises understandable issues for visa categorisation) and the lack of a centralised governing body through which teams can organise visas is part of the issue.

The UK government should consider the talents of the players and the significance of the esports industry to the UK economy in future policies around skills and immigration. Creating an efficient and transparent visa system for esports players should be a priority to encourage the continued growth of esports in the UK.

Intellectual property licensing

The innate global and online nature of esports offers both opportunities and legal complications for the publishers of games, event organisers, leagues, teams and other non-endemic companies looking to partner with the esports industry.

Publishers control the distribution of rights (including intellectual property rights) to the underlying games and license these rights to broadcasters, platforms and leagues to host live tournaments and competitions. These intellectual property rights will need to be the subject of carefully defined licensing agreements to protect the parties’ competing interests.

Generally, deeper cooperation with publishers by esports teams and tournament organisers adds cohesion and stability to the esports ecosystem (particularly while discussions are in progress with the International Olympic Committee on the potential recognition of esports as sports activity). However, the industry is fragmented for many practical reasons, for example although publishers may own the intellectual property rights in the underlying games, their income from esports activity is usually just a percentage of their total revenues from sales to traditional consumers and casual gamers.

As a result, in certain cases, the interests of publishers may not be aligned with the broadcasters and platforms, where publishers want to control views of their game with those sales to traditional consumers in mind. However, many esports leagues are indeed closely associated with the underlying game’s publisher, and this arrangement allows them to offer esports teams places in their league for up to tens of millions of dollars.

Warranties and indemnities in licence agreements

Due to the issues raised above, companies in all parts of the often complex esports licensing chain should give serious consideration to any warranty or indemnity protection that they may be asked to give in respect of intellectual property.

For example, if a publisher provides a knowledge qualified warranty to a broadcaster that the copyright in its game does not infringe the intellectual property rights of another party (perhaps seeing the majority of such copyright as the underlying code base and developed assets), however knows that players are uploading user generated content, it risks being in breach of this warranty if a player uploads infringing content.

Team and player branding

Despite the careful consideration required throughout the licensing chain, there is no doubt that the growth of esports has been assisted by a forward thinking approach to brand collaboration, organic social sharing and a platform-agnostic approach to broadcasting.

This has allowed other entities involved in esports, not just the ultimate rights holder in the game and broadcasters, to create, grow and monetise their own brands. Even beyond corporate teams and organisations such as Evil Geniuses, individual influencers such as Ninja (who in 2019 moved from streaming on Twitch to Mixer) have fostered worldwide brands by promoting their image and monetizing their competitive or casting success. As a result, professional players are often their team’s most valuable asset not only in terms of pure gaming success but importantly also through lucrative sponsorship and branding deals.

Teams should ensure that intellectual property rights authored by the players during the course of their duties (and relevant existing rights relating to their image, alias and avatar) are assigned or licensed as applicable to them. Teams should also look to put in place contractual provisions which mean they have a reasonable level of control over the branding or sponsorship deals that the player may enter into with third parties. This control, as long as fair and not a restraint of trade, can enable teams to manage a strong overall brand and strategically consider which players to promote at particular times.

Political protests in esports

After a match in the 2019 Hearthstone Grandmasters season, Chung “Blitzchung” Ng Wai, a professional Hearthstone esports player, put on a gas mask and made political statements in relation to Hong Kong during his post-game interview. The tournament organiser stated that Blitzchung’s behaviour broke the Hearthstone Grandmasters official competition rules and had brought the game into disrepute.

According to the relevant section of the competition rules, which Blitzchung had signed up to, the tournament organiser reserved the right to remove and withdraw all prize money from any player who, in the organiser’s sole discretion, offends a portion or group of the public or damages the organiser’s reputation. As a result, Blitzchung was originally issued with a 12 month ban and stripped of any prize money from the Grandmasters season, although the severity of these penalties was later reduced.

Bliztchung’s ban attracted a large amount of news coverage, with some Hearthstone fans and players calling for a boycott of the game.

Mitigating reputational risk

This incident raises a number of issues around reputational risk for investors, sponsors and teams in esports. Part of the attractiveness of esports is the proximity of esports players and influencers to their fans, and the interactive nature of streaming whereby fans can pose questions to players and influencers in real time. In conjunction to this, esports players and influencers are increasingly streaming to huge numbers of fans worldwide.

Managing on-stream behaviour can be very difficult due to the inherently spontaneous nature of streaming, however the risk of losing sponsors and fans is real. First, player agreements should include non-disparagement clauses, discouraging players from engaging in an activity or practice that could bring themselves, the team or sponsors into public disrepute.

Second, formal education and training to players on reputational risks and the required standard of conduct should be provided and attendance monitored. Investors and sponsors should conduct due diligence where necessary into the team’s standard player contracts, education framework, and even the behavioural/temperamental history of the team’s players (for example involvement in any “swatting”) before investing or entering into partnerships, and set out their requirements clearly.

This article was authored by Kireth Kalirai and Gabriella Simon, with additional input from Marco Tieghi and Edoardo Revello, managing directors & co-founders of SportsGeneration, an intermediary business and consultancy agency in the sports, media and esports industries.