Navigating Esports contracts: A “walkthrough” of the key issues to consider

In 2023 the global Esports market size was valued in the region of $2billion; by 2032 some forecasts are predicting that it will reach in excess of $13billion.

Exceptional growth of this nature will, inevitably, come with a wealth of new commercial opportunities for organisations within the industry, but also for the athletes themselves, and whilst this should ultimately be viewed as an incredibly positive thing, consideration needs to be given to how these commercial opportunities are agreed – in particular the contracts which are entered into.

When it comes to contracts within the Esports industry, in particular player contracts and endorsement/sponsorship contracts, the risks of getting it wrong can be quite significant for the athlete. Some of the "headline" issues which can often arise as a result of contracts not being properly include:

• Not being compensated appropriately;
• Unintentionally losing control of the player's likeness and/or IP; and
• Unknowingly getting tied into onerous responsibilities and obligations.

In an effort to avoid these issues, and ensure that any commercial partnership is built on the right contractual foundation, there are a number of key points that you should ensure are properly addressed whenever entering into a commercial contract. These include:

Fees and Remuneration

Whilst this will differ from contract to contract, it is vitally important that the contract is clear on these points.

The simple question to consider is: "does the contract reflect what has been agreed commercially between the parties?".

Often, fees in Esports arrangements will be broken down into separate categories, for example whilst one "whole" figure may have been agreed for the purposes of an engagement, that figure may be comprised of elements such as appearance fees; compensation for sale of likeness; and proportion of sponsorship revenue. On that basis, provisions around fees and remuneration can get quite complicated.

Protection of IP

So much of an Esports athlete's value can be driven from the IP which vests in them, whether that be their gamer tag, online persona, social media account, or even their overall likeness (consider the value of various streamers that have their own avatars in games these days). The key is for the athlete to think about themselves as a brand, and to act accordingly in relation to its branding.

In some cases, this IP can be registered, and the athlete can ensure that they have a concrete right in relation to it; for example, it may be possible to register a trade mark for a gamer tag, if it is distinctive enough, or otherwise the logo which the athlete uses as its branding. When entering into a contract, the athlete can subsequently grant a licence to the relevant company for the purposes of using that trade mark as part of the engagement, but ultimately still retaining ownership of that trade mark.

In other cases, subject to what has been agreed, the terms of the contract need to be carefully considered to ensure that the athlete is retaining the rights in its IP – that includes any IP which it might create during the course of the engagement. On the flip side of that, if it has been agreed that the company will retain certain IP, then it needs to be made abundantly clear where the line is drawn between what the athlete owns and retains, and what the company is receiving.

Non-gaming obligations

It is often the case that Esports contracts will include a number of "non-gaming" obligations for the athlete to adhere to – in some cases that may be the sole purpose of the contract (e.g. where it is an advertising arrangement).

The key here is to ensure that any such obligations are made explicitly clear in the contract – the more granular and detailed the obligations can be set out, the better for the athlete. By way of an example, if it has been agreed that the athlete will take part in four ad campaigns each year of the contract, it would be sensible to clearly identify details such as what time commitment these will entail from the athlete, or the general location of the (i.e. in the UK or overseas). It would also be worthwhile considering whether there are any conflicts that the athlete needs to avoid (such as not playing a specific game or promoting a certain product) and ensuring this is appropriately covered in the contract.

Likewise, it is common to see social media post obligations included in Esports contracts; as above, the clearer the details around these obligations can be made (e.g. frequency of posting, the general content, and specific hashtags etc.) the better.

Sponsorship, endorsement and non-gaming revenue

Much the same as with the "Fees and Remuneration" and "Non-gaming obligation" points noted above, the important points to think about here are clarity and specificity.

In some cases, an Esports contract and a sponsorship/endorsement arrangement will go hand-in-hand, however that does not necessarily mean that they are one and the same. Non-gaming revenue covers a broad range of potential income for the athlete, not only through sponsorships, but also through outlets such as clothing deals, event hosting and merchandise sales (again, thinking about the athlete's IP and brand).

Again, it will ultimately come down to what has been agreed between the parties in relation to these points, but regardless the contract needs to be clear about how much of the relevant revenue the athlete is receiving and, if a proportion is being split with the company, then that needs to be clearly defined.

As also touched on above, consideration needs to be given to any potential conflicts when it comes to sponsorships – if an athlete already has a pre-existing relationship with a particular brand/company, the contract will need to note that.

Termination/trading

In any contract, both parties will have obligations and when it comes to termination, if a party is not adhering to its obligations that will almost always give rise to a right to terminate. This is no different for Esports contracts, in fact it is likely to be more important, in some scenarios, to ensure that the athlete is able to hold the company to account in relation to its obligations, or otherwise take the necessary action if not. Likewise, it is always sensible to include a right to terminate if the athlete considers that the company is doing something which might bring their brand into disrepute.

There are other, general commercial termination rights that should be considered which often get overlooked, for example allowing the right to terminate if the company is no longer solvent/active – this may sound obvious, but it can often get missed.

When it comes to provisions relating to the trading of the athlete, the key points to think about are whether the terms of any such provisions are favourable/acceptable to the athlete. Again, considerations in this respect would usually be around the price of any buyout fees and ensuring that the trading provisions themselves are not unbalanced.

Whilst, at its core, an Esports contract may seem like a typical commercial contract, there are a number of nuanced provisions which need to be given some proper thought in order to ensure that the athlete does not get tied into a contract which does not benefit them as it should.

If you have any questions, or would like any assistance with your Esports contract, please get in touch with us below.