Gamers Fight for Rights as Billion-Dollar Esports Market Matures

(Bloomberg) -- Professional video-gaming is quickly becoming a billion-dollar industry, fueling hopes that esports can someday challenge traditional sports in popularity and money.

But many gamers still lack the kind of freedom afforded to athletes in, say, the National Football League or Major League Baseball. They often can’t sign endorsement deals or book appearance fees without splitting the money with the organizations that employ them. At the same time, they’re under far more pressure than a typical NFL player to become social-media stars.

Now a legal battle threatens those norms. Last week, Turner Tenney -- better known by his gamer tag “TFue” -- sued his esports team, saying it was illegally limiting his business opportunities. The lawsuit describes an employment contract that gave FaZe Clan rights to a large portion of Tenney’s income, including 80% of brand deals brought in by the team, 50% of his appearance fees and 50% of sponsorships he brought in himself.

In response to the suit, the team has said that it never actually enforced most of the contract, which was negotiated under previous leadership. FaZe Clan says it claimed just $60,000 on the millions that Tenney made while under the deal, and repeatedly tried to renegotiate with more player-friendly terms.

‘New-Era Contract’

The lawsuit has sparked a wider conversation about competitive video gaming, and whether its infrastructure and player protections have caught up to the fact that esports is now generating serious money. FaZe Clan Chief Executive Officer Lee Trink says his organization is already working on new contracts that are better adapted to esports in 2019, ones that gives players more of the money they generate.

“There’s actually a contract sitting on my desk that we’ve been talking about for months, a new-era contract,” said Trink, who acknowledged that the industry is vastly different today than it was last April when Tenney’s deal was signed. “We’re focused on trying to think down the road about what this business will look like, so we’re not waiting for change, but actually being agents of change.”

To fully understand what’s at stake, you need to understand the economics of esports. Organizations -- and players -- can make money by winning tournaments, but that’s just part of the business. Another major driver is content creation: videos and live streams that attract millions of viewers on sites like Amazon.com Inc.’s Twitch or Google’s YouTube.

Social-Media Pressure

“You can be the No. 1 player in the world, but if you don’t have a following and you’re not creating content, you’re making a lot less money,” said esports lawyer Andrew Gordon, managing attorney of the Gordon Law Group. That’s much different than NFL star Tom Brady, who doesn’t need to be on social media to make a fortune, Gordon said.

“He’ll still get sponsorships,” he said. “Esports -- though it is a sport in many ways -- it’s also about being an influencer and a content creator.”

FaZe Clan, which projects revenue of $50 million to $100 million this year, is especially good at helping gamers attract an audience. Tenney’s won plenty of competitions, but he became a gaming megastar because of his videos. He now has the most-watched Fortnite stream on Twitch, outdrawing fellow gaming celebrity Tyler Blevins, better known as “Ninja.” It’s unclear how much Tenney has made as a pro, but in a YouTube video responding to the lawsuit, FaZe Clan co-founder Richard Bengtson hinted that it’s been tens of millions.

Tenney was a relative unknown when he signed with FaZe Clan last April, inking a six-month deal that included an automatic three-year extension. Under the terms, originally published by the Blast and confirmed by the team, FaZe Clan would pay him $2,000 a month and they’d share revenue that Tenney helped bring in. The splits heavily favor the organization, something that’s fairly standard across the industry, just maybe not to the same degree.

In his first public comment after the lawsuit was filed, Tenney said he’s standing up for others who signed similar deals. “What I’m trying to do here is just serve justice to the esports community,” he said in a YouTube video. “These kids are getting ripped off; they’re getting taken advantage of. These contracts are not OK, and this needs to never happen again.”

While there’s disagreement over how big a problem this is, there’s consensus that esports organizations have too much power.

“Orgs have strong counsel with 30-page agreements that have all sorts of terms in them, and often on the other side you’ve got a teenager, or early 20s, who’s probably never read a contract before,” said Gordon, whose firm represents both players and organizations. “It’s really weighted against the player.”

As some esports leagues push to make themselves more and more like traditional sports leagues, the industry may need to decide whether its players will get the benefits of traditional sports stars (unions, collective bargaining and rigid salary structures) or whether it will mirror more the music and entertainment world, where young creators often sign away a large bulk of their rights and income on their way up.

Finding Agents

One major concern in esports: Teams often serve as management for their players. Trink said that earlier this year, while FaZe Clan was trying to reach a new agreement with Tenney, it began encouraging those on its roster to find outside representation. He said it’s better for the players and better for the organization to help avoid situations like the one they’re in now.

That’s part of what Trink called the new-era contract. In addition to helping gamers find agents or managers, the team is rethinking revenue splits. Instead of teams getting 80% of brand deals that it brings to a player, Trink said the team now takes 20%. (The $60,000 that FaZe claims to have made from Tenney came from 20% cuts off two different brand deals.)

FaZe Clan is also getting more granular on revenue details. Instead of simply taking a cut of Twitch revenue, FaZe Clan is separating out different streams. It no longer takes a percentage of donations or subscriptions that its gamers earn from Twitch, which for top streamers can be tens of thousands of dollars each month.

“We feel that is too personal and that we shouldn’t take that money,” Trink said.

Proving Themselves

Only so much change can come from the teams themselves. In the future, gamers may need fully independent unions, similar to those in the NFL or NBA, and a collectively bargained salary structure.

But as in pro sports, up-and-coming gamers will have to demonstrate that they deserve lucrative contracts, said Bryce Blum, founding partner at ESG Law.

“An unproven player in esports, like the majority of rookies in traditional sports, isn’t worth a massive deal,” he said. “They need to get their foot in door and prove their worth on the first contract in order to improve their value in the marketplace.”

To contact the reporter on this story: Eben Novy-Williams in New York at enovywilliam@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, John J. Edwards III

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