FaZe Clan Strikes Back – Brings Breach of Contract Suit Against TFUE in New York

In May if 2019, Turner Tenney (aka “TFUE”) brought suit in the Superior Court of California in an attempt to have the Court invalidate a “Gamer Agreement” he signed the year prior with FaZe Clan on the grounds that the Gamer Agreement was either: i) breached by FaZe Clan; or ii) unenforceable as being illegal or anti-competitive in light of California Law.

The filing of this lawsuit by TFUE tore through the eSports community and has opened up a discussion as to how eSports players are to be treated under the law, and put a microscope on a relatively new and largely underregulated industry that is skyrocketing in popularity.   In an industry where gamers like TFUE can go from relative unknowns to making $20 million in one year, actions such as these are inevitable.

Even though the Gamer Agreement (linked here) had a clear choice of law and forum selection clause that indicated the laws and courts of New York would be exclusively used to adjudicate disputes, TFUE’s legal team brought the initial suit in the Superior Court of California.  The reasons are obvious, in that California’s laws are much more protectionary than those of New York, and TFUE’s legal team tries to leverage provisions in California’s Talent Agency Act to claim that Faze Clan is in violation operating as an unlicensed talent agency, as well as certain provisions under California’s Business and Professions Code.

Now just a few months later, FaZe Clan strikes back by filing its own suit in the Federal District Court for the Southern District of New York (SDNY) for breaches of the Gamer Agreement by TFUE.  The complaint alleges that TFUE breached the Gamer Agreement by: i) failing to make payments to FaZe Clan in amounts owed under the agreement; ii) working with other organizations in violation of the agreement; iii) breaching confidentiality and trade secret clauses; iv) breach of non-disparagement obligations; and v) intentional interference with contracts (e.g., by taking actions that would induce others to leave or not engage in contracts with Faze Clan.

It is interesting to see these claims, as the main social media push from FaZe Clan representatives, such as Ricky Banks, in response to TFUE’s filing of the California based lawsuit was that they purposefully did not collect on TFUE’s earnings under the Gamer Agreement, and that they had no intention to collect. However, there is little doubt that, regardless of social media posturing, or actual intent to collect, using these contractually agreed upon terms to force settlement by TFUE on all matters, is just what one would do in this situation.

Also important to note is that concurrent with the filing of this lawsuit, FaZe Clan’s attorney’s filed a motion to dismiss the California suit as being brought in the incorrect forum (per the Gamer Agreement’s requirement that such suit be brought exclusively in New York), or, in the alternative, stayed until FaZe Clan’s action in the SDNY concludes.  This will be an interesting motion to watch and see how it plays out, given the non-contract related claims in the California matter.

TFUE’s attorney for the California Matter has already issued a statement on FaZe Clan’s lawsuit against TFUE to the Hollywood Reporter, stating:

“Faze Clan’s lawsuit in New York is a ridiculous and obvious attempt to avoid the consequences of its clear violations of California law. Filing the lawsuit in New York is actually an admission that Faze Clan has no defense to these violations of California law. Ask yourself, why is Faze Clan is afraid to litigate its wrongful conduct in California? The answer is obvious. Faze Clan will lose. In the New York lawsuit, Faze Clan actually admits to violating California’s Talent Agencies Act by procuring employment without a license. Equally egregious is the fact that Faze Clan is suing Turner under its illegal contract for the monies it publicly represented that it was not collecting. This is the first time in the history of Esports that an Organization has had the audacity to try and enforce contractual provisions that are so clearly illegal against one its gamers.”

While understandable that TFUE’s attorney would want to present his client’s actions in a positive light, I believe his assertions in his statement may be a bit of an embellishment.  I have read FaZe Clan’s compliant, and I am not so sure that it acts as an admission that FaZe Clan has no defense against the matter brought in California, or an admission that they violated the Talent Agency Act – in fact I believe that statement is a stretch.  I also find slightly humorous the engagement of, FaZe being “afraid” to litigate in California.  As attorneys, we rightfully select choice of law and forum provisions so that we can provide certainty to our clients as to what laws each party could expect to be bound by.  It’s a bit odd to say that a party is “afraid” to go to a forum they did not agree to, when both parties agreed to a different forum.  However, ultimately, these statements, coupled with the goading of Faze Clan by chiding them for filing a suit for fees they publicly said they had no interest in collecting on, are clearly meant for the court of public opinion, not the actual adjudicating bodies themselves.

We will have to wait to see what the public and social media backlash is against FaZe Clan, if any, for filing such a suit, after making claims that it had no intention on collecting on the amounts it was potentially due under the agreement.  If we learned anything from the filing of TFUE’s lawsuit, it should be an interesting couple days on the social media networks, as each side presents their case in the court of public opinion, while their lawsuits slowly make their way through the legal process.

 

Nike’s Deal to Bring Virtual Jordan Brand Air Jordan 1s to Fortnite is the Best Example of Crossover Branding Ever

 

 

With over 250 million registered players, Fortnite is unquestionably become a gaming phenomenon.  The free to play battle royale style game, where up to 100 players drop from flying bus into a large island in order to gun one another down in a slightly cartoonish style in order to become the last person standing, has taken over the gaming industry.  It’s no secret that the Fortnite style of game play, known as battle royale, has become ubiquitous in the gaming community, with most multiplayer game developers launching some form of the game play style on their own titles.

Fortnite is largely funded by players who, as opposed to paying anything for the game itself, pay for items that personalize their appearance (i.e., “skins”).   This is a strategy that has clearly worked for Epic Games, the developer of Fortnite, which reportedly grossed $3 billion in 2018 with this model.

Epic has been running a massively successful branding and advertising operation through Fortnite, having collaborations with the likes of Marvel’s Avengers: Endgame, Summit Entertainment’s John Wick, the NFL, and Wendy’s.

Now, in its latest move, Epic has teamed with Nike’s Jordan Brand to bring a set of skins that have the characters wearing classic Air Jordan 1s.  These virtual kicks will be offered in various color schemes, like the venerable red and black associated with the Chicago Bulls.  The skins, like most in Fortnite, will be offered only for a limited time.

This collaboration between Nike and Epic is perfect on so many levels.  Given the limited time offering of the skins in Fortnite, and the similar mass appeal of Jordan Brand shoes among a very dedicated type of consumer, the synergies are perfectly aligned.  There is little doubt that the sneaker heads will be dropping plenty of V-Bucks (the in-game currency used in Fortnite, which can be earned over time or purchased with real world currencies) on these new skins.

Another great aspect of this collaboration is that we are seeing real world companies put branded products in virtual worlds, and capitalizing off of it.  While it is not public what the split is on these virtual goods, it is in any case a win for both Epic, which is undoubtedly going to profit from the sales of the Air Jordan 1 skins, and Nike, by keeping its products relevant in new mediums in attempts to maintain one of its flagship brands, which faltered slightly in 2018.

From an intellectual property standpoint, the deal is interesting as we see not only Nike’s licensing the Jordan branding for certain use in the game, but also the generation of new virtual IP, in the form of the in-game graphical representations of the sneakers.  These are the kind of deals we will undoubtedly see more and more of, as video games and eSports become ever more a part of the mainstream fabric.   It will become even more interesting as the professional eSports players start having not only brand deals with companies for out-of-game endorsements, but what will invariably be in-game endorsement deals as well.

The future is bright for the eSports community, and deals like the one between Nike’s Jordan Brand and Epic’s Fortnite serve as a reminder that we are on the verge of an entirely new world of advertising and branding principles.

One Video Gamer May Change How The eSports Industry Is Regulated

On Monday, May 20, 2019, eSports icon Turner ‘tfue’ Tenney filed a lawsuit against Faze Clan Inc. (i.e., FaZe Clan), the gaming collective that made him a star.  Tenney wants the courts to release him from a 3.5 year “Gamer Agreement” he signed with FaZe Clan on April 27, 2018.

Tenney shot to stardom almost immediately after signing with FaZe Clan, earning millions of fans across a variety of social media and video streaming platforms through playing the popular battle royal game Fortnite.  Between streaming revenues, tournament victories, sponsorships and other revenue sources, it is estimated that tfue has made between $3 million and $5 million (USD).

According to the complaint, the Gamer Agreement included provisions that allowed FaZe Clan to claim a “finder’s fee of up to eighty (80) percent of the revenue paid by third-parties for Tenney’s services.”  Something that FaZe Clan boss, Ricky Banks (AKA FaZe Banks), denies entirely.  In an interview, Banks claims that FaZe Clan has only made $60,000 off of two endorsement deals it originated for Tenney, representing a 20% cut – something Banks refers to as “standard.”  Banks goes on to state that FaZe Clan has collected zero percent of Tenney’s prize winnings, streaming revenues or tournament winnings.

The complaint, which was filed in the Superior Court of the State of California, in Los Angeles County, is aimed at getting Tenney’s contract with Faze Clan declared invalid.  Among various legal arguments made, Tenney’s counsel argues that the Gamer Agreement with Faze Clan runs afoul of California’s Talent Agency Act.  The Act requires any person who “who engages in the occupation of procuring, offering, promising, or attempting to procure employment or engagements for an artist” must be licensed and conform to professional regulations. The definition of artist in the Act is broad, including any person “rendering professional services in motion picture, theatrical, radio, television and other entertainment enterprises.”

Other arguments made in the complaint for invalidating or terminating the Gamer Agreement include: failure to pay revenues received by FaZe Clan for work done by Tenney; illegal and anti-competitive restraints related to the “Exclusivity and Matching Right” portion of the Gamer Agreement; and unlawful, unfair or fraudulent business practices.

Regardless of the merits of Tenney’s arguments related to whether Faze Clan is operating illegally as a Talent Agency under California Law, the lawsuit underlines a growing concern in the eSports industry.  As the complaint highlights, “unlike traditional ‘sports’,” the revenues in eSports are driven by videos and other content generated by the gamers themselves.  In general, eSports players make more money in YouTube views and streaming on platforms like Twitch, than on tournament earnings.

The eSports world is very new, and as such, law makers have not had much time to review and regulate the industry effectively.  With eSports expected to become an over $1 billion a year in revenue industry in 2019, and the broader influencer marketing industry estimated to reach $10 billion by 2020, there is serious money at stake.  In fact, more and more cities either have or are building their own dedicated eSports stadiums, like the Blizzard Arena in Burbank, or Philadelphia’s Fusion Arena.  ESports is no longer an untried fad; it is here to stay.

Couple this with the fact that the professional gamers themselves are usually young, with many being minors (Benedict “MrKCool” Ward was 14 when he was signed in 2016),  there is a significant risk of them being exploited.  Tenney himself was 20 years old when he signed with Faze Clan.

It is not dissimilar to child actors, or young sports talents, in that without proper representation and counsel, bad deals will be made.  With so much at stake, it is truly important for both the gamers and their representatives, whether it be parents or professional agents/counsel, to understand what they are agreeing to when entering into any kind of talent agreement.

On the other side of things, it is just as important for the professional gaming leagues, clans and other collectives to ensure that their contracts with talent do not run afoul of any legal requirements or restrictions, like those alleged by Tenney’s counsel.  Just as important is to ensure that these organizations take a long view on their agreements with talent, as there are numerous revenue streams to address, and player turnover can be an issue.

These organizations must also consider their ability to cut or trade gamers, similar to how professional sports leagues do with their players.  Unlike traditional professional sports, where the game is the same year in and year out, the games played by eSports gamers/teams change, and there is no guarantee that today’s Fortnite superstar will be the same talent in Apex Legends, or whatever comes next.

Having counsel that understands and appreciates the complexity of eSports and how it differs from representing other forms of talent is critical in ensuring that nothing is overlooked.  While the eSports industry may be relatively new, the concepts and issues are not, especially to counsel that grasps the landscape and relevant issues.  This is ultimately what will provide the stop gap in ensuring both gamers and organizations are properly protected, while awaiting the inevitable regulation of the industry as a whole.