Debate: What does a fair esports contract look like? It’s complicated.

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The advent of esports and competitive gaming has bred plenty of questions with answers that appear to be constantly evolving. Most basically, what is a fair contract for an esports athlete? That issue has moved front-and-center as the esports star Turner “Tfue” Tenney recently brought a lawsuit against his organization over what he and his legal representation believe to be an unfair and illegal contract.

As the world of esports continues its rapid and remarkable growth, it has spurred no shortage of philosophical questions that have produced different answers, even from similar parts of the industry. In the wake of the Tfue lawsuit, Esports Bar Association board members Bryce Blum and Ryan Morrison engaged in a Twitter debate over the broader issues facing the esports world as it continues its march towards mainstream acceptance. Last week, the Washington Post invited the attorneys to make their cases in a more nuanced, moderated debate format. What follows is an edited transcript of their email discussion. Their responses have been lightly edited for brevity.

In Tfue’s contract with FaZe Clan and in several others, we’ve seen teams claiming the right to:

• Bring in sponsorship opportunities for players in exchange for a percentage of the deal

• A percentage of sponsorships brought in by the player

• The right to deny a sponsorship brought by the player to the team if it conflicts with an existing team sponsor

Given that sponsorship revenue is the biggest driver of esports revenue, how much power should teams have when it comes to sponsorships?

Blum: This question cannot be answered in a vacuum. Esports players typically allow teams to control their sponsorships for one basic reason: they get things they want more in return, especially increased compensation. This doesn’t mean teams “should” have such rights; it simply means they’re bargaining for them.

This is the norm for the esports industry, in contrast to most traditional sports where a team can be sponsored by Nike, but a superstar on that team is sponsored by Adidas. Esports team businesses were born well before individual esports players obtained a level of popularity that is compelling to a major brand. Teams therefore bundled player IP rights in order to reach a scale that is attractive to sponsors and developed the capabilities to actually sell those sponsorships. Teams pay for these rights. In fact, it’s the majority of what they’re paying for because esports teams don’t have access to many of the major revenue streams available to their traditional sports counterparts.

These dynamics will undoubtedly continue to shift as the esports industry continues to grow and evolve. But the status quo is not inherently fair; it’s basic capitalism at work.

Morrison: To answer whether teams “should” be able to negotiate individual sponsorships on behalf of a player is an easy question: No. Especially in California, where most players reside, you need to be a licensed talent agent to negotiate and bring deals to these players. None of these teams are.

Additionally, the defense of “this is how it’s been done,” is a weak one given that the vast majority of players signed their original deals without a lawyer or representation of any kind, with some teams even going so far as to pull offers if the player considered legal review of the agreement.

This industry is evolving more quickly than any other, and stars in esports are reaching celebrity status traditionally reserved only for the Hollywood elite. If Tfue says to buy something on his stream it carries far more weight than the same sponsor having a logo on a FaZe jersey.

Your boss should never be your exclusive representative. An easy and mutually beneficial solution exists, it just requires throwing out “this is how it’s been done,” and reevaluating how relationships work in esports.

Should a court find it illegal for teams to preside over player sponsorships in this manner and teams then lose revenue from players’ sponsorships, where could they try to recoup that revenue in future player contracts?

Morrison: The main issue protruding through the industry right now is exactly this question of what else players can give up so teams can generate more. Team valuations skyrocketed, but their profits did not. To ask players to yield another benefit (which I’m not sure they even have any left to yield) is just not a sustainable model.

Esports is not a thing. It’s a catchall term for competitive video games, and especially for games that generate massive viewership and profit. It’s the same as “sports,” meaning basketball and baseball, but both have very different models between team and player. “Fortnite,” a game that has its top competitors serving more as entertainers than athletes, is very different than “League of Legends,” which has a league, franchises, etc.

However both games have nearly identical agreements and deal terms between the team and the player.

That is the crux of the problem. As players grow, their original contracts should allow for scaling salary, sponsorship rights, media rights, and everything else that shifts as the power in the relationship shifts.

Success should be dreamed of in the original deal.

Blum: The bleak picture Ryan paints about player treatment in the esports ecosystem is divorced from reality. The average League of Legends Championship Series (LCS) player makes more than $300,000 per year, which is triple the average salary from two years ago [editor’s note: this information is according to LCS Commissioner Chris Greeley in April 2019]. Player compensation in virtually every game has mirrored this trend, but revenue growth for teams hasn’t matched the same blistering pace. Ryan admits as much in his response, but still frames the situation as if players are being exploited. They are not.

There could be some more game-by-game nuance to the industry standard deal, but its disingenuous to frame the typical team-player relationship as anything less than mutually beneficial. Teams provide incredible amounts of financial, logistical, and promotional support to their players in exchange for their services. This is the free market at work — simple as that.

I also want to respond directly to the original question, because there is virtually no chance that a court will find an esports team’s core sponsorship practices illegal. Tfue’s challenge attacks a team’s right to secure individual deals for players without registering as an agency.

The team-wide deals that represent the overwhelming majority of team sponsorship revenue are not subject to legal challenge, and therefore are not at risk.

How can esports orgs most effectively increase revenue, considering they don’t have access to traditional sports team revenue streams such as mass ticket sales, local market TV deals, etc.? Related to this, should teams be able to profit from a player’s social media streams on platforms like Twitch or YouTube?

Morrison: While mass ticket sales and television deals may not exist yet, teams can and have negotiated their own media deals and have taken a share in other online revenue that would equate to traditional ticket sales.

This promotion and the copious amount of sponsor activations and content creation players are asked to do for teams is standard, and not the issue. The conversation seems to be always be looking downwards with, “What else can we take from the players?” rather than looking upward and trying to negotiate better media and sponsorships deals, where the teams should be trying to increase revenue. That turns many of these teams into media companies more than athletic clubs, and the standard contract is just no longer applicable.

Players are open to sharing profits from their streams and YouTube channels, but teams should be sharing profits back with them. Working out a standard salary, even if it’s “higher than you would expect,” for a long term duration is always going to cause problems. Either the player underperforms and is not worth their pay, or the player continues to grow and succeed and then is trapped in a salary that is far less than they would be making if they were solo.

Sponsors used to work with teams and the teams shared that revenue with the players by paying salaries, covering living costs, and everything else the player needed on a basic level. Now sponsors have realized there is far more return on their spending if they sponsor individuals rather than teams, and the contracts these individuals are trapped under, or being told is industry standard, no longer reflects that.

Blum: Ryan’s response is filled with conclusory and inaccurate statements about core aspects of the esports business. I’m not aware of any evidence that suggests sponsors get more return by sponsoring individuals rather than teams, or that sponsors even perceive that to be the case. Similarly, his assertion that teams fail to maximize their revenue generation from media platforms, leagues, publishers or other sources, and simply extract more and more from players is highly problematic.

Major esports teams have signed more non-endemic sponsors in the past 12 months than the previous 36, helped establish an array of “franchised” leagues whereby league revenues are shared, and done much more. Teams aren’t asking “what else can we take from players?”; they’re focused on building more robust revenue streams in order to account for ballooning player compensation, all while leveling up their support infrastructure to enhance player training and promotion.

At the end of the day, Ryan’s problem lies with his own clients. If players actually wanted to prioritize flexibility in their personal sponsorships or secure deals that scaled up or down with their success, that is all subject to negotiation — such deals are not the norm in the current market, but they do exist.

To date, the vast majority of players have simply optimized for guaranteed compensation over everything else. And even if more players were interested in monetizing independently, fewer than 5 percent of esports pros have reached a level of scale to garner significant independent sponsorship deals. There is no doubt that industry standards will evolve over time, but Ryan is trying to artificially force change over the basic operation of the free market.

What evidence do you have which suggests sponsors get more return by sponsoring individuals versus teams? Are you trying to artificially change what Bryce has called “the free market (of the esports industry)”?

Morrison: Bryce is very quick to say I have no data or basis for my statements, but then pivots to outlandish statements such as “fewer than 5 percent of esports pros have reached a level of scale to garner significant independent sponsorship deals.” This statement is so far removed from my reality of the industry that it just shows Bryce and I are operating in two different worlds. We represent nearly 400 players across esports, and the vast majority would be able to make life-changing amounts (for some that’s tens of thousands, for others it’s millions) through independent sponsorships if allowed to do so.

Now, of course, our top tier talent generates the seven figure deals and sponsorships worthy of headlines, but the talent with smaller audiences are also constantly asked to participate in sponsorships and turn their small but loyal audience on to a new product or service. They, again, are almost never allowed to.

Right now we can’t disclose anything from our side, and it makes this argument pretty impossible for talent to gain any ground on. Not once has an owner offered or accepted my offer to rescind intellectual property or sponsorship rights in exchange for a lower salary, as many of my clients would jump at that chance.

Players are signed the same way people buy penny stocks, except when they blow up and yield great rewards, there is a human being stuck in that awful relationship, making nothing compared to what they are generating for their org.

If you’re so confident these deals are fair, release the contracts to the public. Let them be the judge on what teams they want to support afterwards.

Blum: Ryan and I are on the same page about the fact that very few esports pros will generate six figure sponsorship deals independently, and I see no point in arguing the definition of the word “significant.”

This is why teams have become inventory aggregators — the players are making more money through guaranteed salaries, and the teams can generate deals where the sum of the parts is greater than what the individuals would make if they all went out to market independently. Would many players generate some kind of sponsorship revenue on their own? Of course. But shifting these dynamics will force teams to offer much smaller salaries, and only the superstar players (read: fewer than 5 percent) will make up that difference.

Ryan’s call to release the contracts is a red herring. He already knows what’s in the contracts, and what’s industry standard. So do his players. This fight isn’t happening in the court of public opinion; it’s happening at the negotiation table. And again, Ryan’s problem is with his clients. If his clients want to prioritize this issue as highly as Ryan does, all they have to do is tell him to do so.

As I said before, Ryan’s chief problem is with the free market. There is no third-party rule set oppressing player rights (as there was in the early days of most traditional sports), his players have experienced representation (him), and every issue he has raised is a matter of contract.

Ryan simply can’t always get what he wants at the bargaining table, so he’s making public noise to try to gain more leverage. That’s his prerogative, but everything he’s saying must be viewed through that lens.

Ryan Morrison is a founding partner of Morrison Rothman LLP and founder/CEO of Evolved Talent Agency. He is commonly referred to as “The Video Game Attorney” by those in and around the gaming industry.

Bryce Blum is the Founding Partner at ESG Law, a dedicated esports law firm, where he represents esports teams, talent, and institutions. He also serves as an esports consultant, advising major sports teams and owners, brands, and investors on how to successfully enter and navigate the esports space.

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