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Lessons from the Lawsuit That Could Shake Up the Esports Industry

The esports industry has been rapidly growing since its inception in the 1990’s. Viewership numbers for esports championship games exceed that of the NHL’s Stanley Cup Finals, the MLB World Series, and the NBA Finals. In 2016, only seven colleges and universities had varsity esports programs in 2016. Just two years later, the number of collegiate varsity esports teams has exploded to 63.

The TFue Lawsuit

On May 20, 2019, Turner Tenney, better known online as “TFue,” became the first esports athlete to sue his team by filing a lawsuit in Los Angeles Superior Court. Tenney, 21, is not only considered by many to be the number one Fortnite player in the world, but is also the biggest streamer in the world with 6 million followers on Twitch and 10 million subscribers on YouTube. Tenney joined his team, Faze Clan, in April 2018. Faze Clan is an esports organization comprised of not only content creators on YouTube, but also competitive esports athletes like Tenney who compete in tournaments for games like Call of Duty, Counter-Strike: Global Offensive, PUBG, Rainbow Six Siege, FIFA, and Fortnite.

Tenney’s lawsuit alleges that, as a 20-year old, he signed a Gamer Agreement with Faze Clan that is “grossly oppressive, onerous, and one-sided.” The core of the lawsuit is twofold. First, Tenney alleges that Faze Clan violated California’s Talent Agency Act when it acted like an agent by “continuously and systematically procur[ing] and attempt[ing] to procure employment and engagements for Tenney as an artist” without the obtaining the requisite talent agency license. The significance of this allegation is that, had Faze Clan been a licensed talent agent, Tenney’s contract would have been subject to approval by the California Labor Commissioner. In a public statement after filing the lawsuit, Tenney’s lawyers argued that the Gamer Agreement Tenney signed would never have been approved.

Second, Tenney alleges that the Gamer Agreement’s termination clause that prohibited Tenney from “playing video games publically (on-line or in live tournaments) or professionally for a period of six (6) months from the effective date of such termination” amounted to an unenforceable non-compete clause under California Business and Professions Code Section 16200.

The TFue lawsuit is still in its infancy and, because most cases settle out of court, we may not have any legal precedent from this case. Nonetheless, esports management companies can learn some lessons from the filing of this case:

  1. Treat esports athletes like traditional athletes – The esports industry is rapidly growing and the recognition of esports athletes as traditional athletes is only a matter of time. The United States government already took the first step back in 2013 by granting a P1A Visa (the visa for internationally recognized athletes like Masahiro Tanaka of the Yankees) to an esports athlete. While typically young (the average age ranges between 21-25), esports athletes have the same potential to make millions of dollars in just a matter of years, not unlike Stephen Curry when he was drafted by the Golden State Warriors at the age of 21. Because esports athletes do not necessarily have the same kind of representation when they sign contracts with teams, they may wish to renegotiate terms or void their contracts after a few years. To manage risk, team management should be careful to structure terms that are not only fair, but account for the potential explosive growth of the value of esports athletes and draft contracts with an eye for longevity.
  1. Classify athletes as employees or independent contractors on a case by case basis – Not all gamer contracts are the same and a player’s relationship with his or her team could evolve over time. Management should make sure to not only properly classify players from the onset of the relationship, but also make sure to re-valuate from time to time to see if the relationship has changed to warrant reclassification. This is particularly important for esports athletes who have contracts not only with their team as players, but also with streaming platforms, as the terms for those contracts—and the amount of control over the athlete—varies and may warrant different considerations.

Contacts

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