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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!
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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?” Friesen: “Yea” 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. Here's my latest for The Legal Geeks where I discuss the recent firing of eight streamers from a popular stream team. Due to the unusual circumstances surrounding their employment, and their termination, this situation raises some important contract law questions. Give the article a read, and let me know what you think!
Termination of Streamers' Employment Raises Contract Questions Disclaimers abound on social media profiles, but to what effect? One of the most frequently used disclaimers is “words are my own and do not reflect my employer,” or something to that effect. Such language is added to social media profiles for two reasons:
The supposed purpose for adopting such language in a social media profile is to distance one’s personal comments from their employer and/or affiliates for legal considerations. However, this disclaimer, and its many variations, has no legal effect. When businesses require employees to use disclaimers, the business believes that such language may protect the business from any brand damage the employee may cause, and possibly even protect the business from being legally liable for the employee’s comments. However, both of those notions are false assumptions. Businesses are not insulated from brand damage because their employee makes it clear that he/she is expressing their personal opinions. If the employer can be determined from the social media account, then the employee is inextricably linked with the employer. This linkage is the reason why businesses can face public backlash for their employee’s actions on social media, which generally results in the employee being fired. There have been numerous instances where an employee’s conduct on social media has resulted in public backlash against the company. For instance, the Brookfield Zoo in Illinois was recently inundated with complaints of an employee’s allegedly racist social media post. As a result, the zoo terminated the employee and issued a statement hoping that guests would not “let the actions of one individual overshadow the longstanding good work” that the zoo has accomplished. The zoo’s statement reflects the notion that it understood that its brand may have been damaged by the actions of a single employee. Additionally, nothing in this example would change if the employee included disclaimer language in her profile. Despite the disclaimer, patrons of the zoo would still complain to management about the employee’s statement, the zoo would still terminate the employee, and it would issue exactly the same statement. Further, despite a profile containing a disclaimer, an employer may still be liable for the employee’s conduct on social media. Liability can attach to an employer when the employer had the right, ability, and duty to control the activities of their offending employee. Given the prevalence of social media apps for phones, it is not uncommon for employees to utilize their personal social media accounts in the workplace. However, it is the employer’s duty to police the workplace. Therefore, if the employee posts inappropriate content while at work, or if the post contains sensitive work related information, it may be more likely that liability would still attach to the employer. Additionally, the notion that an employee cannot be legally fired for their social media posts because a disclaimer was present is false. Despite a disclaimer, employees can be fired for the content they post on social media. There are only a few circumstances where a social media post cannot result in an employee’s termination. State and Federal discrimination laws protect employees from being fired on the basis of the race, national origin, sex, and other categories. Therefore, an employer cannot terminate an employee for a social media post on the basis of those categories. Further, an employer cannot terminate an employee for engaging in protected concerted activity. Pursuant to the National Labor Relations Board, concerted activity occurs when two or more employees take action for their mutual protection regarding the terms or conditions of their employment. This can be as simple as multiple employees discussing work related issues such as pay or safety concerns. Such conversations occurring on a social media platform have been recognized by the NLRB to constitute protected activity as well, and thus cannot be the basis to terminate an employee. Understanding that social media is a growing area fraught with risk for a brand, and with no help being offered by disclaimers, businesses are now beginning to monitor their employees’ social media accounts. Although some may perceive this monitoring as a needless exercise to police employees’ private lives, it is the only way for a business to be proactive regarding inappropriate content that is posted which has the potential to damage its brand. If the business were able to catch an inappropriate post before it went viral, the business can take steps to protect itself from potential brand damage. Unfortunately, such monitoring is necessary because disclaimers do not offer the protections they are believed to have. (This post initially appeared on Esports Entrepreneur, a website dedicated to providing the necessary resources and content to help create profitable and sustainable eSports businesses) On May 22, 2015, Riot Games, Inc., creator of League of Legends, announced changes to the League of Legends Championship Series rules. One of the notable changes is the addition of Rule 11.3, the “Best Interests of the LCS” rule. This rule states:
"LCS officials at all times may act with the necessary authority to preserve the best interests of the LCS. This power is not constrained by the lack of any specific language in [these rules]. LCS officials may use any form of punitive actions at their disposal against any entity whose conduct is not within the confines of the best interests of the LCS." (Emphasis added) These rules are known as “bests interests of the game” clauses, and some derivation of this clause exists in most, if not all, professional sports. This clause is an important addition for Riot, as it grants Riot the authority to act in response to matters which are not explicitly covered by the rules. It also brings Riot’s rules a bit closer to those which exist for professional sports. Professional sports leagues have used these clauses to punish activity of both players and teams that do not neatly fit into the predefined rules and provisions established through the collective bargaining process. A recent example of such a clause being invoked was Alex Rodriguez’s suspension from Major League Baseball for 211 games (which was later reduced to 162 games) for his use of performance enhancing drugs and attempting to obstruct and frustrate Major League Baseball’s (“MLB”) investigation into his conduct. MLB specifically noted that Rodriguez’s punishment was based upon his violation of the prohibition against using banned substances and the “best interests of the game” clause. On one hand, the vague nature of a “best interest of the game” clause is necessary because it is impossible to foresee all potentially harmful events and subsequently create a rule barring such activity. However, the broad language of the clause creates the opportunity for abuse, to which there is little recourse, unlike in professional sports. In professional sports, a decision to punish a player by the sport’s commissioner can be challenged in arbitration because the commissioner’s authority is granted by the collective bargaining agreement between the league and the players’ union. However, as the LCS Rules are not collectively bargained, Riot has the ability to create and enforce rules as it sees fit, with legal impunity. What is even more troubling is the fact that Riot explicitly denies appeals for its discipline. Rule 11.1 explicitly states “All decisions regarding the interpretation of the rules…and penalties for misconduct, lie solely with the LCS, the decisions of which are final” and “LCS decisions with respect to these Rules cannot be appealed.” Effectively, the new “best interests of the LCS” rule authorizes Riot a broad disciplinary power to which there is no recourse at law or even an appeal. At the very least, an appeals process should be implemented to curb some of Riot’s unyielding disciplinary power and grant a modicum of rights to the players. However, as the LCS is not collectively bargained, such a decision would have to come from Riot themselves, which would be unlikely. Given the finality of Riot’s disciplinary system, it will be interesting to see how Riot utilizes this rule in the future. (This article also appeared on Gods of Mayhem) Last week was super busy! I was interviewed for a story in the Toronto Star on equity endorsements for athletes, a topic I have previously written on. Its an interesting read, as many athletes are accepting equity for endorsements now. The article can be accessed here.
I also contributed a guest blog post to The Legal Geeks, which is an interesting blog that discusses the intersection of comics, superheros, sci-fi (basically all things geek culture) and the law. My guest post, "Blizzard Bans Bots: 100,000 Accounts Suspended for Terms of Use Violation in WoW", discusses the recent ban of over 100,000 World of Warcraft accounts which were discovered to be using bots in game. The Legal Geeks will also now be discussing video games and the law, as I will be contributing a monthly post on the subject. I'm looking forward to sharing more on the intersection of video games and the law, and will be sure to share all of my writings here. 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. Earlier this week, I published an article entitled "The Challenges of Securing Investment as an eSports Business." In the article, I discuss the challenges of eSports businesses (and non-eSports businesses) to receive funding. The article can be accessed here.
I'll be writing for that website, which is pretty new, every so often on legal topics in eSports. I will post all of my work for that site here as well to keep you all updated. Stay tuned.
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. Conclusion (TL;DR) 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. 6. Exclusivity 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. |
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