Thread by @esportslaw

I have so many thoughts on the Tfue-Faze situation. Tweet storm incoming...

TLDR:

1. There are some non-standard & bad things in Tfue's contract.

2. People misunderstand how esports businesses work. The economics look worse in a vacuum than they are with proper context.

Before I dive into the contract or the macro dynamics for the industry, I want to note that my goal here is to enhance the quality of the debate on this topic. Reasonable minds can differ about some of the substance, but you need to understand the bigger picture to do so.

As a starting point, I think it’s important to interpret the leaked contract in the context of what it was at the time of signing. Separately, we need to interpret Tfue’s situation now based on the offers currently before him.

There are real issues with how the initial economics were set up. A 42-month deal at 2k/mo (adjustable up or down by faze) w/ no right to seek ind sponsorships and org-sided rev splits is simply not a fair deal. @Banks has admitted as much.

The context here is particularly important. Fortnite was blowing up and had the potential to create superstars. These economics coupled with that length is the core problem - in another context, some of this stuff might be entirely reasonable. You can’t view it in a vacuum.

There are also some legal issues; most notably, a post term restriction that prevents Tfue from “playing video games publically” for a period of 6 months after termination for material breach. This is, for lack of better description, insane & unenforceable in many jurisdictions.

With that said, Faze did try to renegotiate the deal several times (reportedly offered $1M per year). Tfue isn’t who he was when he signed that deal and Faze acknowledges that.

Viewed in this light, much of the public debate feels like an overreaction to me. The masses are painting a picture like Tfue is being taken advantage of, but that interpretation is grounded in a comparison of his original deal terms to the star he is today.

When an org signs someone small, the deal will always be along these lines economically because they can’t justify paying more. Every signing at this level is a risk. Orgs lose money on most newcomers, hoping to eventually strike gold and help build a star.

Yes, orgs play a role in BUILDING stars & want to recoup on their investment when they do. That’s part of the business. It’s not original either - there are plenty of examples where upfront investment yields far broader rights than signing a superstar outright.

I’m not saying Tfue wouldn’t have gotten big on his own - the kid is a star and he would’ve eventually made it regardless - but the data around his stream, socials, etc. certainly suggests Faze played a meaningful role in his growth. There is no way to credibly argue otherwise.

On a more macro note, there is a shocking amount of misinformation surrounding the business of esports circulating right now. Teams aren’t cash cows. Most aren’t profitable. Teams are certainly growing in enterprise value, but that’s not the same as cash flow.

Teams don’t generate concessions/gate revenues, and they can’t strike local media deals. This means sponsorships account for the majority of their income, and in the current market player compensation already exceeds team revenue. This is with players giving sponsorship rights.

As such, teams have become inventory aggregators - they bundle player IP rights in order to reach scale that is attractive to sponsors. And they pay for these rights. In fact, that’s the majority of what they’re paying for.

So whenever someone says a deal where a player grants full IP rights is inherently unfair, I can’t help but roll my eyes. This is a business transaction. A player is ceding certain rights in exchange for certain benefits (financial and otherwise).

It’s not inherently fair either. It all depends on the surrounding circumstances. In short, CONTEXT MATTERS.

This also sheds light on why comparing a team’s revenue cut to an agency’s doesn’t make any sense. Agencies don’t pay their talent a salary, create a platform through which talent is promoted/trained, etc.

One can argue a player is being under-compensated in exchange for what they’re giving up, but that’s a holistic determination that needs to be done on a case by case basis. What are they getting and what do they give up? It’s that simple.

So if players want to start getting full independent sponsorship rights, that’s a big ask. It’s potentially workable for some teams/players, but it’s a meaningful reduction in the value provided so they better expect a resulting significant dip in compensation.

And while that tradeoff is potentially worth it for a player on Tfue’s scale, there aren’t many Tfues out there. 99+% of esports players aren’t big enough to monetize well independently. This is why inventory bundling happened in the first place.

OK this was a lot of tweets. I’m just tired of armchair analysts talking about this controversy without context. This is a complicated situation inside of a complicated ecosystem. It deserves all the nuance it can get.

If you learned nothing else, CONTEXT MATTERS.