(This post is the third in our series on sponsorship considerations. Our first post, on defining expectations and payments, can be found here and our second post, on defining exclusivity, can be found here)
The last topic we will discuss in our sponsorship essentials series is intellectual property rights in sponsorship agreements. Just like the concerns we’ve already covered, intellectually property rights can easily become convoluted if not explicitly addressed in the terms of the agreement. These rights are at the core of a sponsorship agreement and are essential to its successful activation. The very nature of sponsorship centers around the usage of another brand for promotional purpose. A standard agreement will grant the sponsored party (licensee) the right to use the sponsoring party’s (licensor) name and logo in a specified manner (like a patch on a team jersey) and for a defined period of time. However, there are other intellectual property concerns to be aware of with respect to sponsorship agreements.
Defining control and ownership
Any sponsorship agreement should also precisely outline any rights associated with control over the licensed brand usage. In these agreements, parties will typically want control over: (1) the message being expressed in specific sponsorship activations, and (2) ownership of any content created as a result of an activation.
Control over the message being expressed in an activation is important to sponsors because it gives the sponsor the ability to determine whether any specific content being utilized for the activation is appropriate or in line with the brand image that the sponsor wishes to convey. An involved sponsor may negotiate for approval rights before any sponsored content is posted to ensure that the appropriate message is being delivered in conjunction with its branding. An established sponsor may not want to risk receiving any potential backlash from an inexperienced sponsee who posts controversial content. However, there are also many sponsors who don’t have the time to vet and approve potential sponsor content, so this may not be of concern to them. Instead, they’ll simply hold the sponsee accountable after any problematic content has been posted.
A sponsor may also want to own all IP rights associated with the content created during the activation of the sponsorship. This is particularly evident in streamer sponsorship agreements. Sponsors will want to own the content in which its IP or product is being used so that it can potentially utilize the video for promotional purposes at a later date. For an ongoing, “use on stream” deal, this equates to essentially owning the content of someone’s stream for the duration of the sponsorship agreement. Sponsees should be aware that granting this type of control to a sponsor would be problematic because it would effectively eliminate many of the rights the streamer had in the content of their stream, and their potential monetization of the stream.
As the streaming and esports industries continue to grow, companies will continue to flock to the market to align with new and trendy brands. Whether the sponsor is a well established company or not, it is important to consider all of the terms included in any potential agreement before entering into it. The specific provisions discussed in this series of articles are a good place to start when deciding whether you are being adequately protected in a sponsorship deal, but they are by no means the only terms to consider. Every provision in an agreement is significant and should be evaluated independently and within the context of the agreement as a whole. If you are a business, a player, streamer, or influencer, feel free to contact us to assist with your sponsorship agreements.
(Image used via creative commons, courtesy of BusinessSarah)
(This post is the second on our series on sponsorship considerations. Our first post, on defining expectations and payments, can be found here)
In all sponsorship negotiations, the issue of exclusivity is perhaps the single most important topic of discussion. Exclusivity is significant because it prohibits a sponsee (the company/individual being sponsored) from entering into other sponsorships, whether at large or in specified categories. Sponsors will often push for complete exclusivity over broad sponsorship categories because this protection provides the sponsor with an uninterrupted spotlight for their brand. For example, a drink sponsor like Cola-Cola will not want to pay top dollar for a sponsorship deal if the sponsee can simultaneously enter into an agreement with Pepsi. It is easy to see why a sponsor would want this type of protection, but a sophisticated sponsee should be aware that exclusivity can be tailored to better reflect the desires of both parties to the sponsorship.
An effective exclusivity provision starts with detailed communication. Both parties need to know what each side expects the exclusive product category to include. Sponsors will want the product category to be as broad as possible in order limit the amount of competitors. For instance, a company that offers nutritional supplements may try to expand its product category to include nutritional bars, protein shakes, and other types of supplements. In response, sponsees should try to limit the scope of the exclusive product category to be as narrow as possible. Using the above example, if a sponsee can limit the category to only include nutritional bars, it will have more flexibility when soliciting additional sponsors for the protein shakes and other supplement categories. This flexibility allows for potentially greater sponsorship revenue.
However, newer organizations, players, or influencers, may find it difficult to negotiate the scope of the rights to their advantage. Nonetheless, sponsees should at least make sure the categories and exclusivity are thoroughly defined to curb potential sponsor overreach. A sponsor may believe its deal as a sponsee’s “exclusive camera” would preclude a sponsee from entering into another deal with a company like Panasonic, who sells a variety of products including cameras, headphones, and televisions. A sponsee should insist that any obligation it has to not enter into a deal with a competing sponsor (exclusivity) is limited to the category that the sponsorship is in. Unfortunately for sponsors, a sponsee would still be able to enter into a deal with Panasonic as long as it only agreed to endorse a Panasonic product that did not fall under a protected category. While this may not be ideal for the current camera sponsor, an explicitly defined product category would inform sponsors of any limitations and hopefully clear up any potential confusion or issues that may arise down the line when partnering with multiple sponsors.
Another matter the parties to a sponsorship should be aware of is whether any restrictions are imposed by third parties. Frequently in traditional sports and esports, leagues will prevent teams, and teams will prevent players, from entering into sponsorship agreements within its own defined “Reserved Categories.” A Reserved Category is effectively a sponsorship category in which the restricted party is contractually required to not obtain sponsors in. For example, if a league has an exclusive sponsorship with Alienware and it has specified in its league participation agreement that the PC category was protected or reserved from teams, then a team could not enter into a sponsorship which would include PCs. This also occurs between teams and players in their player contracts, with players having certain sponsorship categories closed off to them. Importantly, it is in everyone’s best interest that these Reserved Categories are well defined, so as to avoid any possible confusion and disputes.
Negotiating exclusivity rights can be difficult but it is in all parties’ best interests to have a clear picture of what specific products are being protected and the associated rights/obligations. Without this, a number of potential problems can exist, which may ultimately harm the sponsorship relationship.
Our next post will discuss the various intellectual property concerns when entering into a sponsorship agreement.
Sponsorships are integral to the esports and sports industries as they provide a vital stream of revenue to their recipients. As 2018 is shaping up to be the biggest year for non-endemic sponsorships in the history of esports, it is important to keep in mind some basic sponsorship considerations when reviewing any sponsorship agreement. Specifically, the agreement’s expectations/obligations, payment, intellectual property, and exclusivity terms are key areas of any sponsorship agreement that you should pay close attention to. This post will address the expectations and payment provisions of a sponsorship agreement, and subsequent posts will discuss considerations regarding intellectual property and exclusivity.
When executed correctly, a sponsorship is a valuable arrangement because it is designed to benefit both parties. The foundation of a sponsorship is the expectations and obligations involved, and here we begin to see the mutually beneficial arrangement comes in to view. What is the sponsoring company asking of me? What are you receiving in exchange for the sponsorship? These questions are the starting point for an analysis of the expectations and obligations involved in a sponsorship agreement.
The key to an effective sponsorship agreement starts with both parties’ expectations being clearly defined. Without a precise description of each party’s obligations, the parties will, at least partly, be unaware of what is expected, making it difficult to properly fulfill their obligations. This ambiguity can often lead to arguments, terminations, or even breach of contract lawsuits. Considering that it’s in the best interest of both parties to develop a long-standing business relationship, avoiding conflicts through precise wording is beneficial to everyone.
Both parties should articulate its goals for the deal and explain how they plans to achieve their goals. For example, if a company wants to sponsor to a team and its players, requiring the players wear clothing with the company logo prominently displayed, it is imperative to specify when the company wants the team, and its players, to do this. With teams constantly pushing out content on various social media platforms and players doing the same on their individual accounts, a sponsor may expect to see its logo on team gear at all times. This may be broader than the team anticipated, who solely wanted the items’ usage to be while the players are streaming. A clearly defined provision would eliminate any confusion amongst the parties and provide a solid foundation for the sponsorship by eliminating any unknown intentions.
Payment terms are also of critical concern in evaluating a sponsorship agreement. Unfortunately, failed sponsorship payments are routine within the esports industry, and oftentimes create further issues for the sponsored party. For instance, if a team doesn’t get its sponsorship payment on time, it may have trouble paying its players’ salaries. At its most base level, payment provisions are what the sponsored entity or person receives in exchange for the sponsored promotion. Of course, the sponsorship agreement should specify the amount to be paid (or the specifics as to how a variable amount is determined) and when the amount will be paid. However, the payment terms of the agreement can also be used to incentivize proper payment. Savvy negotiators will seek to add penalties, termination rights, or other things that would disincentivize late/failed payments. In the event that payment is late or does not occur, these additions would provide you with greater flexibility to offset some of the impact incurred.
When it comes to sponsorship agreements, clarity and precision are key. This is especially true when defining each party’s expectations and obligations with respect to each other, including payment terms.
In our next post, we’ll discuss exclusivity rights and some of the considerations involved by both parties.
(This post was contributed by Alan Conklin. Alan is an intern for Roger Quiles, Esq. and a recent graduate of the Villanova School of Law)
On October 10, Epic Games filed complaints against Charles Vraspir and Brandon Broom (the “Players”) alleging the Players made and used software that allowed users to cheat in Fortnite, a co-op survival action video game developed by Epic Games.
The Players were alleged associates of the website Addicted Cheats, where users pay a monthly subscription of $5 to $15 for botting services that aim and kill enemies in PvP games. In order to create the cheats used to enable this service, the Players allegedly reverse-engineered and modified the game’s source code.
Cheating in video games is an important issue for game developers, as cheating typically makes games more difficult for other users to play and alters how the gameplay experience from what the developers intended., often causing those users to play the games less. For games that have only been around for a short period of time, this user exodus can be devastating.
Fortnite: Battle Royal, which was released to the public on September 26, 2017, has impressively passed the seven million-player mark in the short amount of time, but the game’s developer took swift action in response to the discovery of the cheating service. In a statement made to Polygon last week, Epic stated,
“When cheaters use aimbots or other cheat technologies to gain an unfair advantage, they ruin games for people who are playing fairly. We take cheating seriously, and we’ll pursue all available options to make sure our games are fun, fair, and competitive for players."
One of the available options was apparently taking legal action against Vraspir and Broom, who had already been banned from Fortnite at least nine times.
In two separate complaints, Epic makes four similar arguments against each individual:
First, Epic argues that the Players violated the Copyright Act by creating an unauthorized derivative work of Epic’s copyrighted Fortnite code. Epic alleges the Players used computer software to inject code into Fortnite’s code, which materially modified and changed the code. This created work was never authorized by Epic. Accordingly, Epic believes the Players infringed on Epic’s copyrights and are liable for direct and willful infringement.
For this violation, Epic seeks: (1) an injunction prohibiting the Players from using the service; (2) actual damages, including lost sales and profits as a result of the Players’ contributory infringement; (3) any additional profits made by the Players; (4) alternatively, statutory damages up to $150,000 for the Players’ willful infringement; and (5) attorneys’ fees and costs.
Contributory Copyright Infringement
In the second claim, Epic alleges the Players contributed to the direct and willful infringement of Epic’s copyrights while working in their capacity for Addicted Cheats. Epic states the Players touted the cheats to other users in online forums, actively encouraging the other users to purchase the cheats. Additionally, Epic believes the Players helped users in their use of the cheats by “providing help and support to cheaters and would-be cheaters who ask for support using the cheats.”
As a result of this violation, Epic seeks: (1) an injunction prohibiting the Players from using the service; (2) actual damages, including lost sales and profits as a result of the Players’ contributory infringement; (3) any additional profits made by the Players; (4) alternatively, statutory damages up to $150,000 for the Players’ willful infringement; and (5) attorneys’ fees and costs.
Breach of Contract (North Carolina law)
The third claim against the Players is a breach of contract claim asserting that the Players violated Epic’s Terms of Service and Fortnite’s End User License Agreement (the “EULA”).
In order to create an account with Epic, use its services, and download Fortnite, all users, including the Players, must agree to both the Terms of Services and the EULA.
Epic’s Terms of Service expressly prohibit users from ““copy[ing], modify[ing], creat[ing] derivative works of, publicly display[ing], publicly perform[ing], republish[ing] or transmit[ting] any of the material obtained through [Epic’s] services.”
Fortnite’s EULA prohibits players from ““reverse engineer[ing], deriv[ing] source code from, modify[ing], adapt[ing], translat[ing], decompil[ing,] or disassembl[ing Fortnite] or mak[ing] derivative works based on [Fortnite]” and “creat[ing], develop[ing], distribut[ing], or us[ing] any unauthorized software programs to gain advantage in any online or other game modes.”
By reversing engineering Fortnite’s source code and materially altering it to make a cheating service, the Players created an unauthorized derivate work, thus violating their agreements with Epic and Fortnite.
For this violation, the Epic seeks: (1) an injunction prohibiting the players from continuing to the use the work; (2) compensatory damages; and (3) attorneys’ fees and other costs.
Intentional Interference with Contractual Relations (North Carolina law)
The last claim against both Players also involves the Terms of Services and EULA. In this claim, Epic argues that the Players intentionally interfered with contractual relations by encouraging and inducing Fortnite users to purchase and use the Players’ cheats, despite having knowledge of the Terms and EULA between Epic and its registered users, which prohibit the use of cheats in Fortnite.
For this violation, Epic seeks: (1) an injunction to restrain and enjoin the players from continuing to use the service; (2) damages for loss of goodwill among users of Epic’s services, decreased profits, and lost profits from users whose accounts were terminated for violations of the Terms and the Fortnite EULA; and (3) the proceeds the Players received from the sales of the cheats (unjust enrichment).
Circumvention of Technological Measures in Violation of the Digital Millennium Copyright Act (Broom only)
In addition to those claims, Epic asserted another claim Broom individually. This claim alleges that Broom violated the DMCA, by using a cheat that was primarily designed for the purpose of circumnavigating Epic’s security measures used to prevent unauthorized access to Fortnite’s copyrighted work. In continuance of this claim, Epic argues that Broom, as a moderator and support person for AddictedCheats.net, materially contributed to the sale, distribution, and use of the Fortnite cheats while actively assisting other cheaters in their pursuit to circumnavigate Epic’s technological security measures.
For Broom’s suspected actions, Epic seeks injunctive relief, actual damages and Broom’s profits attributable to this violation, maximum statutory damages and attorneys’ fees and costs.
Copyright infringement suits have become one of the most common remedies for game developers in the fight against cheating services like Addicted Cheats. In March 2017, Blizzard Entertainment successfully sued the German company Bossland GmbH, famous for creating bots known as “Honorbuddy” and “Hearthbuddy”. In that suit, Blizzard was awarded $8.6 million in damages for approximately 43,000 instances of copyright infringement.
While there is no doubt game developers will continue to use legal remedies against cheating services, it is important for cheaters to recognize that in this case, Epic took action against the Players individually. Instead of suing Addicted Cheats, the service that used the Fortnite cheats, Epic decided to come after Vraspir and Broom, in hopes of holding them individually liable for any damages it may receive.
Although this may not become a trend going forward, since individuals usually do not have as much money as the companies providing the cheating services, game developers may still use this strategy as another way to deter future cheaters and maintain the integrity of their games.
A copy of Epic’s complaints can be read below:
The eSports industry at large has had difficulty curbing the problem of poaching, the practice where one team inappropriately entices a player to join its team while that player is still under contract with another team. Without fail, every few months a new poaching scandal arises. The frequency of these poaching scandals begs the question as to how teams can protect themselves from this happening. Without stricter league governance to disincentivize poaching, the only other option for a team to protect itself is through a lawsuit for tortious interference.
Currently, there is a dispute between two prominent League of Legends teams, Team Solo Mid and H2K, over whether a player entered into a binding agreement with H2K before Team Solo Mid made a counteroffer which the player accepted. However, what makes this particular incident unique is that H2K has made it known that they are considering pursuing legal action against Team Solo Mid for its tortious interference with the player’s agreement with H2K.
Many of the facts surrounding this incident are still unknown and such a lawsuit between these two international businesses raises many questions (like what jurisdiction the case could be brought in). This blog post will address one of the most basic questions involved, specifically, what is a claim for tortious interference? Although the question of jurisdiction will alter the analysis of what’s needed to prove such a claim, this post will examine the cause of action under New York law (as that is where I’m licensed to practice).
In order to prove a claim for tortious interference with a contract in New York, the Plaintiff must show:
In the esports poaching context, this means that the aggrieved team must show:
Although tortious interference can give eSports teams some protection under a poaching scenario, that protection is measured due to the difficulty of proving the claim. In New York, succeeding on such claims has become difficult for a several reasons, one of which being that the complaint asserting the cause of action must specify with particularity how each element of the claim is met (as opposed to making generalized assumptions/conclusions).
Due to the required particularity that a complaint must have in order to assert a viable cause of action, that standard effectively requires that the aggrieved team has sufficient knowledge of the other team’s actions and intentions prior to starting the lawsuit in order to allege facts which support the claim. However, there is no black and white test to determine if a team can allege a sufficient amount of facts to support the cause of action. Of course, the more facts that can be alleged the better. But, this means that bringing any such claim lacks certainty of success from the outset.
Further, such claims may be difficult to prove from an evidence standpoint, as intent and knowledge have high bars of proof to satisfy. What may be particularly helpful from an evidentiary perspective are logs of any online communications, as much of the eSports industry relies upon Skype and similar programs for communications. However, obtaining such communications during the discovery process of such a lawsuit is no easy task as well.
Lastly, it is difficult for tortious interference claims (in general) to succeed due to the availability of the Economic Interest affirmative defense. For reference, an affirmative defense is a set of facts which if the Defendant proves successfully can mitigate or negate liability. In order to prove the Economic Interest defense, the Defendant must show that it acted to protect its own legal or financial stake in the third party’s business. However, the bare fact that the Plaintiff and Defendant are competitors is not enough to justify Defendant’s alleged actions and avail them of this defense. In the context of a poaching situation in eSports, this defense would likely not be available unless a team can show a valid economic interest and not just assert that they were trying to gain a competitive advantage.
Although it may be difficult for an eSports team to pursue a lawsuit for tortious interference when another team has poached a player, it is nonetheless a viable option for a team seeking to protect its interests. Unfortunately, the few governing bodies of esports leagues have done little to disincentivize poaching, forcing teams to either accept the situation, or attempt to avail themselves of their legal rights. However, the cost of legal fees associated with pursuing a lawsuit may discourage teams from enforcing their legal rights. Unfortunately, those costs and the lack of significant league action may force teams to simply accept that their player has been poached.
Its important to remember that poaching, or tampering, is not unique to the esports industry. However, other industries have found more effective ways of disincentivizing the problem. The professional sports industry has had tampering issues arise, but set strict rules and penalties for all tampering offenses, including steep fines, the suspension of the offending person, forfeiture of draft picks, and the prohibition of signing the player being tampered with. Without stronger league governance regarding poaching, like we see in the pro sports industry, teams are left to navigate the costly and difficult road of pursuing legal action for tortious interference if they want to protect themselves.
Recently, I was interviewed by eSports Guru on the topic of player-team contracts in eSports and their importance. I've added the article to the Media tab above. Check out the article about the interview and let me know your thoughts!
Performance enhancing drug (“PED”) use in eSports has long been an issue whispered about within the gaming community. These PEDs are not steroids and human growth hormone as we know from other sports, but are instead prescription drugs known as psychostimulants or neuroenhancers. These kinds of drugs (Adderall, Ritalin, Selegiline, etc.) are abused by players as a means of enhancing focus, calmness, or to otherwise act as a stimulant. However, due to the lack of drug testing by professional eSports leagues and tournament bodies, there have been very few instances of confirmed PED use during matches. Unfortunately, there is now another example of such drug use.
On July 12, 2015, a Youtube video was posted where professional Counter Strike: Global Offensive player Kory “Semphis” Friesen asserted during an interview that he and his team took Adderall during a major ESL tournament. The relevant portion of the interview is as follows:
Friesen: “The ESL [team communications] were kinda funny in my opinion. I don’t even care, we were all on Adderall [laughs]”
Interviewer: “Really? [laughs]”
Friesen: “I don’t even give a fuck, like its pretty obvious if you listen to the [team communications]. I don’t know, people can hate it or whatever.”
Interviewer: “Everyone does Adderall at ESEA Lan right?”
Interviewer: “Just throwing that out there for the fans, that’s how ya get good”
In addition to the disappointing language encouraging others to violate tournament rules and abuse prescription medications, such PED use can impact the player and team’s contractual relationships.
Many contracts, especially sponsorship agreements, contain morals clauses. This type of clause allows a contracted party the opportunity to cancel their remaining obligations under the contract should the other party act in a way that is harmful or damaging to its own brand. The reasoning behind such a clause is that by cancelling the contract, a party can protect themselves from being associated with the brand damage caused by the other party. In the sponsorship context, this allows a sponsor to exit a sponsorship should the sponsee player or team be engaged in a scandal or otherwise illicit activity.
Although there has not been a reported contractual exodus in this matter like when Lance Armstrong was found to have been using PEDs, the use of PEDs in eSports can trigger a contract’s morals clause in the following ways:
It is unknown whether or not Friesen and his team obtained the Adderall licitly and for a valid medical purpose. However, in the event that the individuals obtained the substance for an illicit purpose such as those described above, that action would likely be enough to satisfy a morals clause. Importantly, a morals clause can also be placed in a player-team contract, thus putting the players’ livelihood at stake should they utilize PEDs.
Additionally, the team itself could face legal backlash over its players’ PED use from sponsors, as sponsorship agreements routinely contain morals clauses. Depending on how the morals clause is drafted in the team’s sponsorship agreements, the actions of all players (or even a substantial number of them) may be sufficient to trigger the morals clause and permit the sponsor to cancel the sponsorship agreement. As Friesen’s admission has caught the attention of many people in the eSports industry at large, time will tell if there is any sponsor backlash.
Eventually, the eSports industry is going to have to implement effective methods for curbing its PED problem. Until then, teams should keep in mind that any PED use can impact the sponsorships that they have worked hard to obtain, and thus discourage any PED use by its players. No team or player would want to lose their contracts because a morals clause was triggered in an effort to gain a competitive advantage. Even worse, potential sponsors or teams may be hesitant to sponsor or employ a player and/or their team due to past PED use. Statements referring to taking Adderall as how you “get good” are not only irresponsible for encouraging activities that may cost players and their teams contracts, but also because they effectively encourage criminal behavior.
Last night, Alex Rodriguez passed Willie Mays for fourth place on Major League Baseball’s all-time homerun list. Much like the baseball fans that deny Rodriguez’s achievements due to his performance enhancing drug use, the Yankees are denying Rodriguez his $6 million bonus for likely the same reason.
Rodriguez’s contract with the New York Yankees contains a rare provision known as a milestone-marketing bonus. This type of provision pays the player a substantial sum for the marketing rights related to milestone accomplishments. The only players to receive such provisions in their contracts in recent memory are Rodriguez and Albert Pujols. Following Pujols’ contract, such milestone-marketing bonuses were banned by Major League Baseball. However, to Pujols’ and Rodriguez’s delight, the ban on such clauses was not retroactive, thus allowing such clauses to remain enforceable.
Pursuant to Rodriguez’s milestone-marketing clause, he was to be paid $6 million for passing Willie Mays on the all-time homerun list. However, Brian Cashman, the Yankees General Manager, has publically stated that they will not pay Rodriguez the $6 million bonus. The Yankees argument is presumably that the bonus payment is contingent upon being able to market the milestone achievement and since Rodriguez was suspended for the 2014 season due to performance enhancing drug violations, the milestones no longer have marketability.
Interestingly, the contract is reportedly clear that the Yankees agree to pay the sum of $6 million, and that “Such payment will be made within fifteen (15) days of its designation of the Milestone Accomplishment under Paragraph 1, above.” The Yankees still have some time to make the payment as indicated in the contract, but if Rodriguez is not paid, he would have to take legal action against the Yankees to get his bonus. This matter would be especially important to Rodriguez, as he may be able to achieve additional designated milestones in his contract, and thus be entitled to more moey.
If Rodriguez were to sue the Yankees, once the fifteen day period expires, he would allege (amongst other causes of action) that the Yankees breached his contract. In order to prove a breach of contract, the following elements must be proved:
1. The existence of a binding contract
2. One of the parties to the contract materially breached the contract
3. The material breach caused damages
Rodriguez’s potential case hinges on element 2. A breach occurs when a party fails to perform its obligations under the contract. However, that definition immediately calls for clarification as to what obligations the breaching party has under the contract. Cashman’s statement, that “We (the Yankees) have the right but not the obligation to do something, and that’s it,” is particularly interesting, as such rights are usually explicitly stated in contracts. Unfortunately, it is impossible to ascertain the validity of such a statement without seeing Rodriguez’s contract.
Understandably, the Yankees are upset that Rodriguez has been implicated in multiple performance enhancing drug scandals. However, whether or not he is owed the $6 million milestone bonus is determined solely by the language of this milestone-marketing addendum to his contract. If the language is as clear as reports have stated, an argument that the bonus is not owed would have to be quite creative, and still may not pass legal muster.
Rodriguez can also file a grievance with the Major League Baseball Players Association. Greg Bouris, spokesman for the Players Association, has already stated “The Union is prepared to intervene on Alex’s behalf.” Despite Rodriguez’s past drug use, the Union would not want any team to establish a precedent of refusing to pay any player a contractually agreed upon amount.
Of course, there is still time for the Yankees to make good on Rodriguez’s bonus. The contract allows for the bonus to be paid within 15 days of the milestone being achieved. Despite Cashman’s comments, it would not be surprising for the Yankees to pay Rodriguez the bonus within the designated window. In effect, the comments would then serve as a way of publically shaming Rodriguez for his conduct. Given Rodriguez’s litigious history, the Yankees have to expect him to take action if he is not paid.
At the beginning of any relationship between an eSports player and their team, a contract should be entered into that describes the services the player is to perform, compensation, and the duration of the agreement, amongst other clauses. Depending upon how this contract is drafted, a player will either be considered an employee of the team or an independent contractor. This distinction is critical in establishing the obligations that a team has to a player and the rights that the player holds. In the eSports business, the trend has been to attempt to classify players as independent contractors.
ESports teams, like many other businesses, would prefer to employ independent contractors instead of employees for several reasons, including:
How Courts Determine Independent Contractor Status
However, what eSports teams may be unaware of is that calling players independent contractors is not enough to actually be considered such. In fact, many of these contracts, if challenged in Court, would be found to create an employee/employer relationship. Due to the overwhelming benefits to a business using independent contractors, Courts have scrutinized independent contractor agreements by utilizing tests to determine whether such a relationship is sufficiently established, or if the agreement instead creates an employee/employer relationship. New York Courts utilize two tests, the first being the Economic Realities Test, which is as follows:
The second test is the Common Law Test, which is as follows:
In both of these tests, the totality of the answers of the above questions will be examined to determine how to classify the parties' working relationship. It is worth noting that these factors are not exhaustive, and the Court may undertake additional inquiry. An example of an additional factor in the eSports context would be whether the player is required to wear a uniform.
Analyzing Player Contracts: Economic Realities Test
Teams typically exert a great amount of control over their players in a variety of ways. This could include booking player travel, requiring players to use equipment provided by team sponsors, requiring players to promote team sponsors, requiring players to be active on social media/Youtube/streaming services, requiring players to live in a team house, and more. This factor is extremely important, as independent contractors are supposed to maintain a great deal of control over their work and environment.
Secondly, players are very invested in the team. Their actions and cooperation with other players are how the players (and team) can profit by winning matches and tournaments. This factor may also weigh against eSports players being found to be independent contractors by a Court. However, the third factor supports the notion that players can be independent contractors, as the work requires highly skilled individuals who may work at their own initiative (in some circumstances).
The fourth factor is completely determined by the contract itself. Generally speaking, the longer or more permanent a contract seems, the more likely it is that they are not an independent contractor.
The fifth and final factor strongly holds in favor of finding an employee/employer relationship, as the players are a crucial component of the team's business. From the totality of the factors within the Economic Realities Test, it appears likely that a professional team would be found to create an employer/employee relationship with its players.
Analyzing Player Contracts: The Common Law Test
The Common Law Test is unclear in this scenario. An argument could be made that the first factor, whether the worker works at his/her convenience, could go either way in Court. Certainly there are things the player must do at certain times (matches, tournaments, etc.) but they may not be on a strict timetable for content creation. This factor would be determinate upon each individual team's practices.
The second factor, whether the worker is free to engage in other employment, slightly holds in favor of an employee/employer relationship. Players can be free to partake in tournaments without their team should the team not participate, but players cannot play for multiple teams in the same events. By default, in those situations a player cannot work for multiple teams.
Fringe benefits is an interesting factor in this analysis, as it can arguably be in favor of or against a finding of an employee relationship, depending upon the specific team's actions. Independent contractors technically should receive no fringe benefits (meals, company car, benefits, etc.). However, if a team allows a player to keep items that were provided by third parties, namely sponsors, or allows the player to live in team subsidized housing, then the player can be said to have received fringe benefits. In those examples, this factor would lean towards the finding of an employee/employer relationship. However, any benefits are team specific.
The fourth factor, whether the player was on the team's payroll is also team dependent, as some teams pay salaries and some do not. Generally, a salaried worker is much more likely to be found to be an employee and not an independent contractor.
The last factor in this test, whether the worker was on a fixed schedule, is very similar to the first factor. As stated in analyzing the applicability of the first factor to the eSports team/player relationship, this factor can go either way.
Importantly, the Court can examine additional factors to each test. A factor that has been employed by New York Courts was whether the worker is required to wear a uniform. In the eSports context, a uniform can be said to be a team's jersey. This factor could realistically go either way in determining whether an employee/employer relationship exists. Although players are largely required to wear team jerseys at events, many, if not most, are not required to do so when creating content.
Effectively, players who are classified by a team as being independent contractors may not be held to be independent contractors by the Court, if their contract is challenged. Should the Court find that an employee/employer relationship exists, then a team loses all benefits of hiring the player at independent contractor status and is then subject to the totality of laws involving employee/employer relations. Therefore, the team would incur increased costs and liability. Although each State's law will differ as to how these contracts are analyzed, it appears that there are strong arguments to be made under New York law that eSports players are actually employees of their teams and entitled to benefits as such.
What is one thing that all eSports players, teams, and organizations have in common? Their need for sponsorships. But once a sponsor is interested in a sponsorship opportunity, which may be difficult to achieve, a sponsorship agreement must be carefully drafted that identifies the terms of the sponsorship. This can be tricky if you have never drafted and negotiated such an agreement before. Below are 10 important elements to every eSports sponsorship agreement. This list is not meant to be all inclusive, but is an introduction to the bulk of the provisions which should be included in a sponsorship agreement.
1. Identify the parties
For clarity, identify the parties right away in the contract. That includes both the Sponsor and Sponsee (the organization/team being sponsored) and their respective addresses.
2. Length of Agreement
How long is the sponsorship agreement to last for? If the sponsorship is for an event, you want to make sure that the term of the agreement lasts through the expected duration of the event, and perhaps also leaving some additional days for timely rescheduling.
3. Identify what is being sponsored
Is this an event sponsorship? A team sponsorship? Whatever the case may be, you want to specify what is being sponsored. If you’re a team, then briefly discuss the team, what you play, and maybe even some recent accomplishments to remind the Sponsor why they want to align with your brand. If you are putting on an event, then discuss the details of the event (i.e. if it’s a tournament, how it’s structured), and how it is broadcasted (if at all).
4. Sponsor Responsibilities
This is where sponsorship agreements begin to get tricky. In this portion, you want to clearly define what the Sponsor’s responsibilities are. If the Sponsor is providing money, as many do, then specify how much, and the dates by which payment must be made.
If the Sponsor is providing products, defining the Sponsor’s responsibilities can be difficult. The Team would want this clause to be as broad as possible, allowing it greater access to products (in terms of amount or frequency). However, the Sponsor would want this clause to be narrow and tightly defined in order to limit its obligations to the team. Like with the cash sponsorships, time frames should be established when the products are to be provided. If the sponsorship is for a period of time where it would be expected that multiple rounds of products would be provided to the team, then it should also be defined how additional product requests will be made and handled. This contentious point must be negotiated thoroughly.
5. Team/Organization Responsibilities
Conversely, the Sponsee’s responsibilities must be defined. Effectively, this section describes what the team or organization will be offering the Sponsor in exchange for the sponsorship. It can also be used to retain some exclusive rights (i.e. control over certain aspects of a tournament). The team or organization would want this provision to be drafted as narrowly as possible, to limit their exposure and obligations to the Sponsor, while Sponsors could seek to broaden this provision.
This provision is especially important, as it defines the exclusivity, or lack thereof, of a Sponsor. Teams and organizations obviously want to have more than one sponsor, so exclusivity provisions must be carefully drafted. Sponsees should seek to categorize the sponsorship narrowly, that way it can offer exclusive sponsorships in many categories. However, sponsors may seek to broaden any category they feel is too narrow. For example, a team would want to categorize a prospective soda sponsorship as an exclusive soft drink sponsorship, specifically excluding energy drinks (as there are some soda alternatives to energy drinks). This would allow the team to offer exclusive sponsorships for soft drinks and energy drinks, respectively, thus potentially increasing its sponsorship dollars.
7. Sponsor’s promotional entitlement
This section describes what promotions the Sponsor is entitled to in exchange for their sponsorship. This section can be drafted broadly or narrowly, depending upon the specifics the Sponsor requires. Some examples of narrow provisions are specifying the size of the Sponsor’s name and logo that will be used on a stream, how often the stream’s casters mention the Sponsor, and the specifics of website promotion (banner size, placement, etc.). An example of a broad provision would be limited social media promotion at the discretion of the Sponsee.
8. Intellectual Property
Promotion of the Sponsor necessarily entails that intellectual property will be used, including the Sponsor’s name, and possibly logos. It is necessary to include a provision stating that the Sponsee can use such intellectual property to further the goals of the sponsorship agreement. Also worth including is a provision allowing for the limited use of the Sponsor’s intellectual property in the future, as it pertains to recordings or repackagings of the event or team during the sponsorship term. This gives Sponsees the flexibility to use old content without having to blur any names or logos.
9. Cancellation provisions
These provisions are extremely important, as they define when the Sponsor and Sponsee may cancel the agreement. Such provisions are very context dependent, and as a result, vary from contract to contract. One such example would be the cancellation of a sponsorship if a certain number of teams withdraw from the event being organized by a Sponsee.
10. Miscellaneous provisions
Several miscellaneous provisions should be added to the end of the contract, including, but not limited to, choice of law, arbitration, indeminity, waivers of liability, warranties, notice, and severability.
Drafting sponsorship agreements is no easy task, but the above should serve as a basic intro guide to drafting the meat of the agreement. It is important to remember that the strength of any contractual relationship is equal to the strength of the contract itself. If you need any assistance drafting or negotiating sponsorship agreements, contact me at Roger@RRQlaw.com or (917) 477-7942.
Quiles Law is an esports and sports law firm based in New York City.
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Attorney Advertising. The information presented in this site should not be construed to be formal legal advice nor is it intended to form any attorney/client relationship. Our attorneys, collectively, are licensed to practice law in the States of New York, New Jersey, and Pennsylvania. Copyright Roger R. Quiles, Esq., 2018. All rights reserved.