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Are gamers being exploited?

August 2019

Esports is one of the most dynamically developing branches of the entertainment industry. Global market revenue is breaking records – in 2019, the revenue from esports has already exceeded USD 1bn, overtaking many live sports.

Revenue is flowing from diverse sources – streaming and social platforms, tournament winnings, sponsorship and media appearances – sometimes amounting to millions of dollars per gamer and often leading to disputes between teams and their rising star members. A case in point is the legal dispute brought by prodigious Fortnite gamer Tfue against his former team, Faze Clan. Under the terms of their contract, Faze Clan was entitled to 80% of earnings from its brand deals featuring Tfue. This has shocked many leading esport gamers and Youtubers, who are demanding that regulators protect gamers from being exploited.

Why do gamer contracts matter?

Gamer talent is the heartbeat of esports. Professionals and their teams should pay close attention to their contractual arrangements so they avoid any pitfalls or disputes stemming from unexplored or inaccurately drafted terms.

Esports-related agreements, by definition, are designed to employ a gamer’s performance and fame as effectively as possible. But with esports regulation still in its infancy in most countries – and not regulated at all in some – these contracts offer the only route for the parties to regulate their legal relationship, define their rights and obligations.

Gamer contracts usually include provisions on marketing and merchandise, exclusivity, the gamer’s services, competitions, training, absence, and termination of the contract. Additional agreements and policies, which may supplement the gamer contract, usually focus on social media behaviour, sponsorship and the ethical aspects of team member cooperation. Without these contracts and policies the parties would have major legal and business risks and would struggle with uncertainty.

Gamer rights and obligations

The list of the gamer’s services is a key part of the contract. These services generally require the gamer to take part in tournaments and training sessions, make marketing and social media appearances, and be available for streaming on a regular basis and as reasonably instructed by the team. Sometimes teams even require gamers to live together during training sessions or for longer periods to bolster teamwork and gaming skills. Gaming companies usually expect gamers to wear the company’s or sponsors’ merchandise, and often prohibit the promotion of third party brands.

Another important contractual issue is the question of gamer absence. The parties must agree on the conditions when the gamer can have time off, what constitutes valid absence and which kinds of absence are considered to be breach of contract. 

Equipment and training expenses – remuneration and cost bearing

Remuneration is a key issue. Gamers may be entitled to various fees under industry standards –  through a regular, fixed amount of fees, like a monthly salary, or performance-based rewards such as qualification- or ranking-based bonuses. Setting the conditions of payment and performance-related factors should be handled with great care, as these give grounds for most legal disputes.

Gaming equipment costs and expenses add up to significant sums, and should be addressed in the contract. Costs include: equipment – PCs, consoles, gaming chairs, monitors, other IT equipment and accessories, clothing, etc.; training-related costs; nutrients; and psychological and other counselling services. Expenses – largely related to sponsorship and marketing events, and competitions – include travel and accommodation costs, and entry and participation fees.

As in the world of live sports, the gamer may be entitled to a share of the merchandising revenues made by the team, especially if the gamer contributed to generating those revenues or brought in a particular deal.

For their part, teams look for a split of some of the gamer’s income to cover the costs of talent management and to meet their goal of making a profit from their gamers. Splitting rules usually cover streaming revenues, tournament winnings, in-game merchandising, as well as name and likeness usage. The exact games and types of appearances that entitle the team to receive a split must be precisely regulated in the contract because, along with tournament winnings and sponsorships, the greatest source of gamer income stems from social media and streaming revenues. This means gamers may have the right not to split some types of revenue, and these have to be clearly spelled out in each contract. For example, if a professional Fortnite gamer streams Call of Duty in their free time, it would be unreasonable for the team to claim streaming revenues unrelated to the gamer’s Fortnite career. Unless the parties have agreed otherwise, 100% of unrelated streaming profits would stay in the gamer’s pocket. On the other hand, the team would reasonably expect to split streaming revenues from tournament games. The precise amount of splitting depends on the agreement and generally ranges from 20-50%, but earnings largely made by one party may attract an even higher percentage.

Penalties and other sanctions

In esports, as in live sports, the gaming companies often apply penalties and other sanctions if the gamer fails to fulfil their obligations. Penalties are typically triggered if the gamer fails to attend agreed marketing events, competitions, or training sessions. They often take the form of a share of the gamer’s revenue – such as 50% of the monthly salary or 30% of the marketing revenues – as specified in the contract.

Termination clauses

Gamer contracts often apply sophisticated termination clauses, regulating term extension, negotiation or free agent periods. Conditions leading to termination usually include: breach of contract; incapacity of the gamer; infringement of moral rights such as the good reputation of the gaming company, the team or the sponsors; and breaching the rules of competitions, tournaments, or matches.

Playing hard but fair

Exploitation is an emotive word. As with any contract, the best way to avoid claims of imbalance or exploitation is for both sides to ensure that they take full account of all the key issues when entering into the agreement. Like the games themselves, contracts are a balance between risk and reward.


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Authors

Katalin Horvath
Katalin Horvath
Senior Associate
Budapest
Necz Daniel
Daniel Necz
Associate
Budapest