he explosion of the professional eSports industry has created significant commercial opportunities for teams and individual players alike. As viewership for tournaments and online livestreams increases, and leading eSports personalities grow impressive social media footprints, eSports is increasingly perceived by certain brands as an important component in their marketing, social media and outreach strategy – particularly because eSports increasingly reach “cord cutters” in the coveted 13-34 age bracket in an era where the average age of a CBS broadcast TV viewer is 58.7 years.
With this opportunity for players and teams comes a host of business and legal issues to consider, and potential pitfalls to sidestep. Here we provide a brief list of some of the things that players and teams should consider when entering into sponsorship and endorsement agreements in order to maximize revenues and protect their brands:
- Money: In addition to the obvious question of “how much am I being paid?” players should pay attention to when they are paid. It is advantageous to frontload as much of the payment as possible, so the player receives a meaningful sum upon signing the deal with further amounts payable on commencement and then completion of services. Any contractual provisions relating to contingent payment (g., bonuses, royalties) or potential withholding of monies should be very carefully reviewed by an attorney with expertise in sponsorship and endorsement deals. Players should also ensure that if they are required to travel, they receive appropriate travel arrangements, accommodations and expenses.
- Term: Given the explosive growth of eSports, it may benefit players to keep the duration of agreements short. In the short-to-medium term, the services and brand value of top players is likely to grow with the overall market, and by keeping terms short, players preserve their ability to negotiate for better terms (either with their current sponsor or another party) at the expiration of the term. The counterpoint is that because the median age of a professional eSports player is between 24 and 27, older players may want to lock in longer terms in order to maximize their guaranteed revenues (but should watch for provisions that allow their sponsor to terminate the agreement if performance/metrics drop). Any “option” provisions that allow partners to unilaterally renew an agreement should be carefully reviewed.
- Territory: Generally, players should seek to restrict the territories that they grant to each commercial partner. A company that is active solely in North America, or in English-language territories should be limited accordingly with respect to its contractual rights (which could reserve certain players the opportunity to make parallel deals in the potentially lucrative Asian and/or European markets).
- Obligations: What is the player or team being asked to do? Players and teams should be sure that the contemplated services set forth in a contract are compatible with their brands and their capabilities. Players should discuss with their attorneys to make sure that they fully understand the expectations of the commercial partner, and whether they can meet those expectations. Additionally, agreements should be crafted to help prevent the possibility of conflicting obligations. As the eSports industry grows, players will need to juggle tournament and league play and livestreaming with personal appearances and sponsor obligations, so it is imperative that each player’s attorney works with the player and their management to help prevent circumstances that could create a conflict and therefore a contractual problem.
- Exclusivity/Categories: It is critically important that eSports teams and players understand the scope of rights and exclusivity that they are granting to each commercial partner. For example, granting a broad right for a partner to use a brand/name/likeness in “electronic goods” would preclude a team or player from many other commercial opportunities. Accordingly, categories should be pared down as finely as possible to preserve opportunities (or the payment to the player/team should be increased accordingly in line with the breadth of the category description). Players and teams should also make sure that their lawyers carefully flag possibilities for inadvertent or less foreseeable breaches (for example, an agreement that states that a player cannot endorse any company “competitive” with a car manufacturer client could technically be deemed to preclude that player from endorsing certain tech companies as they move into the realm of self-driving cars). Once the agreement is signed, players need to be very careful not to include any competing products in any content they produce (even in the background) or in any public appearances. Celebrities such as Charlize Theron have found themselves in legal disputes after allegedly wearing products from competing sponsors in public, and the same issues could befall eSports players.
- Ownership and Use: Modern sponsorship and endorsement agreements frequently require players and teams to create “branded content” – new content that is designed to highlight the brand, its relationship with the team and players, and its value to the audience. This content can range from written or mixed media Instagram, Tumblr and Twitter posts, to short-form video designed for Snapchat, Instagram and YouTube, to longer form episodic video series suitable for distribution via a variety of video platforms. However, without a close review of contract boilerplate, it can be unclear to players and teams who actually owns the content, and what use can be made of it (both by the team and player, on one hand, and the brand, on the other). Teams and players should not automatically assume that they own the content that they produce, nor should they assume that they can make unlimited use of it (including by posting on their own channels). They should always ask their attorneys for a clear explanation with respect to ownership and usage matters – experienced attorneys can often carve out new rights and opportunities for their clients in order to protect their use of the content that their clients create.
- Approvals: In a sponsorship or endorsement deal, a party is granting a commercial partner the right to use his or her name, likeness, voice, brand and other identifying characteristics. Therefore, it is essential that a team/player is comfortable with how those characteristics will be used by the brand. This is accomplished by implementing appropriate approval and consultation rights, which may include approval of the script for any content, behind-the-scenes materials, or any stills or renderings contemplated to be used in a campaign or promotion. Of course, the level of approval or consultation that is appropriate depends on the type of engagement and the stature of the applicable player or team.
- Morals Clause: Morals clauses are customary in sponsorship or endorsement agreements. They allow commercial partners to suspend or terminate the agreement in the event that the player/team does or says something that brings themselves or their sponsor into disrepute or is otherwise embarrassing or damaging. Past examples from other arenas include Kellogg’s terminating Michael Phelps’ agreement for his marijuana use, or Gilbert Gottfried being terminated by Aflac for making inappropriate jokes on Twitter. These clauses should be carefully reviewed and negotiated in the context of the specific player/team at issue. In the eSports context, it is particularly important because what constitutes “inappropriate behavior” for the young eSports brand may be strikingly different from what an older, Fortune 500 brand traditionally considers inappropriate. Moreover, any politically active players should try to exclude legitimate political speech from the activities that are prohibited.
- The Legalese: Beyond the few material terms listed in this article, there are many, many terms hidden in the boilerplate of sponsorship or endorsement contracts that can allow a sponsor to withhold payment or otherwise get a player or team in trouble. It is essential that all players and teams engage a qualified attorney on their behalf before signing any sponsorship or endorsement agreement.
Filed in: Legal Blog
November 3, 2016