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Esports contract dispute: Seeking to set an industry standard

By Josh Hunt / 03 July 2019

Key issues:

  • The esports industry is functioning in a largely unregulated space where there is a lack of standardised contracts, no collective bargaining and unestablished standard working conditions. There is also a general imbalance in the levels of commercial sophistication of contracting parties.
  • These issues have recently come to light in a high profile dispute between professional Fortnite player, Turner ‘Tfue’ Tenney and his esports team Faze Clan, claiming a breach of contract and unfair business practices.
  • Esports organisations should keep a close eye on the proceedings and perhaps review their own agreements in light of the matters which Tenney has raised/alleged.

Introduction

Where conventional professional athletes frequently have managers, agents or lawyers to protect their interests and ensure good pay and a healthy work environment, such things remain uncommon in the esports world. The esports industry is functioning in a largely unregulated space where there is no standardisation of contracts, collective bargaining or standard working conditions. We have previously commented on the potential risk for leading content creators/ streamers being exposed to unfavourable agreements. This susceptibility is enhanced by the imbalanced levels of commercial sophistication between the parties to the agreements (the content creators/ streamers who are generally young and inexperienced, and the teams or IP owners who are generally multinational commercial entities). These concerns have recently come to light in the industry’s first high profile dispute with professional Fortnite player, Turner ‘Tfue’ Tenney issuing proceedings in the Superior Court of California against his esports team Faze Clan, claiming a breach of contract and unfair business practices.

The dispute

On 20 May 2019, lawyers for Tenney filed a suit against Faze Clan arguing that the Gamer Agreement the parties entered into in April 2018 is grossly oppressive, onerous and one-sided in favour of Faze Clan. Tenney is seeking to expose Faze Clan’s alleged misconduct , with his lawyers commenting that “the significant legal actions taken today will be a wake-up call that this behaviour will no longer be tolerated.” Amongst those allegations are claims that: 

  • the Gamer Agreement contains unlawful exclusivity provisions; 
  • the Gamer Agreement is in violation of Californian agency laws; and 
  • Faze Clan has breached its fiduciary obligations owed to Tenney by unreasonably rejecting sponsorship deals. 

Tenney is seeking that the Gamer Agreement not only be rendered void and unenforceable, but that Faze Clan be required to disgorge and repay to Tenney all monies received as a result of the Gamer Agreement. 

Tenney complains that the Gamer Agreement entitles Faze Clan to a finder’s fee of up to 80% of the revenue paid by third parties for Tenney’s services, which he states as being grossly unconscionable. Additionally, it is alleged that the Gamer Agreement contains anti-competitive provisions that amount to an unlawful restraint of trade. The Gamer Agreement restricts Tenney to sponsorship deals that are exclusively sourced by Faze Clan and provides that Tenney cannot obtain his own deals without the prior written consent of Faze Clan.

The proceedings will evoke an interesting debate with respect to Tenney’s working relationship with Faze Clan, with Tenney’s lawyers arguing that the relationship is governed by agency law. In particular, Tenney’s lawyers argue that the Gamer Agreement is void and unenforceable due to Faze Clan’s violation of California’s Talent Agency Act 1978 by procuring engagements and employment for Tenney without a licence. The Talent Agency Act requires that any person or company who engages in the occupation of procuring, offering, promising, or attempting to procure employment or engagements for an “artist" must be licensed by the Labor Commissioner. The definition of "artist" includes a catchall of "persons rendering professional services in motion picture, theatrical, radio, television and other entertainment enterprises."

Faze Clan have undoubtedly refuted all claims made by Tenney, and have released a public statement claiming that it has not collected any of Tenney’s tournament winnings or non-esports revenue. Faze Clan further states that it had only received $60,000 pursuant to the Gamer Agreement, while Tenney has made “millions” by using the Faze Clan name. A key argument that Faze Clan are expected to mount is simply that Tenney, as an adult, voluntarily and lawfully signed the contract  that he is now protesting. In terms of the agency claim, it is likely that Faze Clan will argue that the Gamer Agreement depicts Tenney as an independent contractor, not a client, and therefore Faze Clan have not breached any Californian agency laws. However, it still remains unclear as to how the Superior Court will interpret the legal status of the parties involved.

What is the likely future for player protections in Australia and the US?

Despite the first hearing being listed for 20 September 2019, it is likely that the proceedings will end via settlement. Regardless of the outcome, Tenney’s dispute with Faze Clan has sparked a wider conversation about whether the infrastructure and player protections are sufficient enough for an industry that is now generating significant revenue and attracting audiences that rival traditional sports. Due to the fresh-faced nature of the industry, there is little to no oversight of these issues without any real organisations mandated to help protect the content creators/streamers interests, whose revenue and social media presence drives the industry. Nevertheless, in light of the matters which Tenney has raised/alleged, esports organisations need to keep a close eye on the proceedings and perhaps review their own agreements. 

We will also stay on top of the proceedings and update you once a decision is publicised. We will also continue to monitor activity in the Australian esports market. For more information or discussion, please contact HopgoodGanim Lawyers’ Leisure, Sport and Entertainment team.

Authors
Josh Hunt
Partner
Josh is a Partner with specialisations across Digital Assets, Resources and Energy and Corporate Advisory and Governance.
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