Play the Game but don’t be Played - A Guide to Esports Player Contracts
More than 40 years ago, Stanford University organised the very first electronic (esports) sports tournament for the game Spacewar!, and the top prize for that tournament was a year’s subscription of ‘Rolling Stone’ magazine. Fast forward to 2011 when video game developer, Valve, funded an esports tournament with US$1 million in prize money, The International. The prize money pool would grow exponentially, finally breaking the US$20 million mark in 2016. To put things in perspective, the winning team for the 2017 edition of the tournament, ‘Team Liquid’, took home about US$10.8 million out of the US$24.8 million prize pool, while Manchester United Football Club, winners of the FA Cup, took home approximately US$2.2 million for winning the 2016 FA Cup Final. Newzoo, a leading provider of esports market intelligence, estimates that esports will generate US$922 million in revenue in 2018. This makes the formation and running of an esports team an increasingly lucrative proposition.
Safeguarding an Esports Team’s Assets
A typical esports team generates revenue from product sponsorships, advertising deals, broadcasting rights, and prize money. However, the team’s ability to clinch such deals and prize money depends significantly on the players on the team’s roster and on how well the team manages to exploit such players’ personality rights and intellectual property rights (“IP”) and performance at key tournaments. Just as with professional soccer teams, basketball teams and baseball teams, esports players are an esports team’s most valuable assets or among its most valued assets. This is why esports teams around the world compete to sign hottest players or develop bright new talent. Given the costs of recruiting established or star players, many esports teams and owners choose to invest money and time to develop talented young players, some of whom are as young as 13 years of age. Given the huge monetary and other investments by esports teams and their owners and sponsors, there is a legitimate interest in protecting the team against losing their key assets (i.e. the players), and commercially exploiting the personality and intellectual property rights of the players. This is where the value of a well-designed and written contract between the esports team and its players, cannot be overstated.
Contracting with Minors
For the purposes of this article, we have assumed that the nature of the relationship between esports teams and their players would usually be characterised as one of employer-employee, though this would of course depend on the specific circumstances of the level of control that the team asserts over the player, whether or not the team or the player owns the “factors of production” (i.e. the esports equipment), and economic considerations such as how and when payment is made and if the player shares losses with the team.
At the age of 17, Singaporean Gavin ‘Meracle’ Kang Jian Wen was the youngest ever captain in the professional scene for the popular ‘DOTA 2’ game. Sumail Hassan Syed was just 16 years old when he became the youngest gamer to earn US$1 million in esports earnings. It may not be immediately obvious to esports team owners and sponsors but the ability for them to legally bind young esports players is not something that should be glossed over.
Thankfully, Singapore law provides some clarity to esports team owners and sponsors on how to enter into legally binding contracts with young persons.
Any esports team looking to add a talented young player must bear in mind that it can only legally employ a child who is 13 years old and older. Next, esports teams looking to employ players under 16 years in age need to limit the hours of training and introduce timely breaks, as Singapore law requires that no child or young person shall be employed under working conditions “injurious or likely to be injurious to the health of that child or young person”. Due to the nature of esports, esports players are prone to sustaining repetitive stress injuries, particularly in relation to their wrists, back and spine, so esports team owners need to bear this in mind.
The Employment Act (Cap 90) states that an individual below the age of 18 can enter into a contract of service (i.e. an employment contract), but that contract is not enforceable against that individual, and damages or indemnity is recoverable from the individual unless it is for their benefit. In other words, a person below 18 years of age can enter into an employment contract to enjoy the benefits promised under the contract, but the employer cannot enforce the contract against him or her. Thankfully, the Minors’ Contracts Act (Cap 389) tells us that a guarantee given in favour of a minor is enforceable against the guarantor.
Therefore, if a minor breaches the terms of the employment contract with an esports team, the team’s owners will have to enforce the player agreement against the guarantor of the minor, who will often be the parent, guardian or close relative of the minor.
Termination or loss of a Player
There are numerous instances in esports, as with other professional sports like soccer, basketball, cricket, hockey, car racing and baseball, where star players are poached by other teams, leaves abruptly, or is fired by the team for misconduct. In such unilateral, and often hostile, terminations, the team loses a valuable asset and potential revenue. In more extreme situations, the team could possibly suffer a loss in reputation, lose sponsors, or end up forfeiting hard earned tournament invites. Therefore, to prevent the unplanned departure of a player or to mitigate the consequences and financial losses from such departure, esports owners should make sure they have a well-designed and written contract entered into with their players, which includes or provides for provisions such as:
- Transfer Provisions (to prevent poaching or to provide for compensation for poaching);
An esports team will want to have the right to trade or transfer players with and to other teams, based on its commercial and sporting needs. The team will therefore want to make sure that a player reports to a new team once a trade or transfer has been concluded with another team, because the transfer fee or rights to the other team’s player will be contingent on the player’s transfer completing. The player contract should therefore have the appropriate provision to address all the steps and issues in relation to the trade or transfer.
- Compensation within the Termination provision (to mitigate losses)
If during the term of a player contract, a player chooses to leave the team for reasons not provided for in the player agreement, including to join another team, an esports team will want to be compensated, given the investment of time and money in the departing player and the opportunity costs it has incurred. This is often paid for by the team that wants to recruit the player, but is in some cases paid for by the player himself, whether or not the player is reimbursed by the new team. A good player contract should therefore spell out the amount that the team is to be compensated, and to make sure that this amount is not construed as a penalty, in which case it may not be enforceable.
Also, it is advisable to include specific provisions describing the unique skills of the esports player, and the difficulty in replacing him or her, as compared to regular employees such as an accountant, human resources executive, as this helps to support the team’s right to demand compensation of a certain amount, along with other specific legal remedies, that will not be enforceable with regular employees.
- Exclusivity Provisions
Because teams might invest a substantial amount in a player, the team might wish to limit the player’s physical activities to exclude activities that could possibly cause injuries to the player or disruption to the team’s performance.
- Dispute Resolution Mechanism
There should be a dispute resolution mechanism in the player agreement so as to resolve any disputes amicably, thereby preventing the team from losing players due to disputes.
- Extension Provision
It is common for teams or clubs to have an option to renew or extend the player contract, and this is usually stated to be entirely at their discretion. This allows the team to be able to secure limit its liability if a player does not perform or retain the player if he exceeds performance.
- Other Key Provisions
Given the nature of esports, it is highly recommended that esports players are contractually prohibited from gambling or match-fixing, and that the team has the right to summarily dismiss a player found to have participated in such activities, especially when the rules and regulations governing the sport and the industry are not fully developed or universalised, compared to other more developed professional sports scenes such as professional soccer, basketball and ice hockey.
Intellectual Property Rights and Players’ Responsibilities
An esports team needs to be able to freely exploit the player’s IP rights, and this will also require the players to cooperate with the esports team’s sponsors, including attending interviews, media appearances, photo and video shoots and other events, as well as to assist the esports team to generate content to maintain and improve the team’s rapport with and revenue from fans. Therefore, the player contract needs to clearly state what the player’s content generation responsibilities are, so as to enable the team to fulfil its sponsorship obligations at the same time as growing its revenue. Setting out the player’s responsibilities clearly in writing will also let the players know what is expected of them, and to reduce the risk of them thinking that they are unfairly exploited or subject to onerous and ambiguous responsibilities, or that they should be paid more for these responsibilities.
For example, the provision could state that the player should participate in live streams on the Twitch platform for a minimum of two hours a day, 5 times a week, and during that period, the player should at all times display the sponsor’s advertisements or logos prominently during the stream, or that the player cannot be publicly seen to be using products made or marketed by competitors of the team’s sponsor. The player contract should also clearly state that the team has the exclusive rights to the players’ name, likeness, signature, voice or photograph for the purposes of marketing and merchandising purposes.
In this nascent industry, there is a range of issues that esports teams need good, practical and commercially-focused legal approach. Besides the provisions that are mentioned in this article, there are many other key rights and risk management mechanisms that should be included into a player agreement to safeguard an esports team or sponsor’s interest, especially when so much time, money and effort is invested by them into grooming esports players. By safeguarding and securing the team’s assets (i.e. the players), teams will be more attractive to sponsors and investors, and be able to build and improve the trust and rapport with its players, which will incentivise a team’s best players to remain with the team.
How I.R.B. Law Can Help
– in preparing or review esports player contracts;
– to prepare or review esports sponsorship, merchandising, licensing and other types of key commercialisation-related contracts, and
– advising on other key aspects of the development, establishment, funding, management and commercialisation of esports teams and players’ rights,
to help their esports teams grow, receive funding, partner with third parties, and focus on what they do best: playing the game and winning!
If you would like to speak with us on how we can help you, please contact our esports law partner, Bernard Chung, at email@example.com.