Booming Esports Industry Earns Its First Big Contract Dispute
It was just a matter of time until the rapidly expanding esports industry was confronted with high-profile litigation. The contracts crafted in the industry’s early stages will be put to test, and one that many will have their eyes on is that which was signed by Turner Tenney, publicly known as “Tfue” and his management company FaZe Clan.
“Until now, Faze Clan has enjoyed the fruits of this illegal business model with impunity because no-one could or was willing to stand up to Faze Clan. Those days are over,” states the Complaint. “Through this action, Tenney seeks to shift the balance of power to the gamers and content creators/streamers, those who are actually creating value and driving the industry. As a result of this action, others will hopefully take notice of what is going on and help to clean up esports.”
Tfue’s action is about much more than his personal battle against FaZe Clan.
He is waging a war that he believes to be on behalf of many in his situation — gamers and content creators/streamers who are not being treated fairly by their managers. It could open the door to numerous lawsuits that test the validity of contracts in the esports industry.
Tfue filed a Complaint against FaZe Clan in the Superior Court of the State of California on May 15. The seven count Complaint seeks to persuade the reader into believing that a young Tfue was taken advantage of and exploited by FaZe Clan. It alleges that the April 27, 2018 Gamer Agreement between the parties is grossly oppressive, onerous and one-sided, highlighted by the up to 80% finders fee granted to FaZe Clan on revenue paid by third-parties for Tfue’s services. It further cites to California law, which often invalidates anti-competitive provisions such as exclusivity and non-competition clauses, found within the Gamer Agreement.
Separately, Tfue claims that FaZe Clan has failed to distribute payments due to Tfue and breached its fiduciary duty of loyalty to Tfue by rejecting at least one sponsorship deal based on a conflict of interest.
Perhaps the most interesting claim made by Tfue is that the Gamer Agreement is invalid based on FaZe Clan’s violation of California’s Talent Agency Act. That law prohibits those acting as talent agencies to earn a commission without being licensed as such in the state. Tfue says that the California Labor Commissioner is currently looking into that claim as well.
Whether FaZe Clan refers to itself as a management company is immaterial.
It is considered a talent agency, under California law, if it attempts to procure engagements for artists. One question is whether gamers and content creators/streamers fall within the definition of “Artists” under the California Talent Agency Act.
“Artists” means actors and actresses rendering services on the legitimate stage and in the production of motion pictures, radio artists, musical artists, musical organizations, directors of legitimate stage, motion picture and radio productions, musical directors, writers, cinematographers, composers, lyricists, arrangers, models, and other artists and persons rendering professional services in motion picture, theatrical, radio, television and other entertainment enterprises.California Labor Code Sections 1700 Through 1700.74
The time is probably ripe for the California Talent Agency Act to further specify what consitutes an “Artist” in 2019. Gamers and content creators/streamers are not explicitly referenced, but they could fall within the scope of persons rendering professional services in “other entertainment enterprises.” It is unclear, which makes this particular portion of the lawsuit very interesting. If a violation is found, then the result would be the voiding of the Gamer Agreement and should further require FaZe Clan to disgorge all commissions that it previously received.