Client Login 
A professional esports player earning $8,000 per month has their contract with an organization end eight months earlier than expected.
At first glance, the financial loss looks easy to calculate:
$8,000 × 8 months = $64,000
Now add a few facts. The player signs with another organization a month later. Their original contract also included tournament winnings, performance bonuses, sponsorship revenue and streaming opportunities. Leaving the organization may even give them more freedom to pursue independent sponsorships.
With those facts in play, $64,000 becomes the starting point for the analysis, and that's what makes economic damages in esports so interesting to me.
The Many Ways an Esports Player Gets Paid
One of the challenges in analyzing an esports contract is understanding the economic relationship between the player and the organization. A player might receive a salary, but their overall economics can also include:
- tournament winnings
- performance bonuses
- sponsorship compensation
- merchandise or digital-item revenue
- streaming revenue
- content compensation
- appearance fees
- revenue sharing
- housing, travel or other benefits
Some of those amounts might be guaranteed. Others might depend on performance, and some might depend on events that haven't happened yet. Before calculating a financial loss, you have to understand each of them.
We've Seen This Complexity in Real Esports Contracts
The dispute between FaZe Clan and professional Fortnite player Turner "Tfue" Tenney is a useful public example. Court records describing their Gamer Agreement show the relationship involved much more than a monthly payment.
Tenney agreed to compete and train, and to take part in promotional and social-media activities. In exchange, FaZe's obligations included a monthly fee, a share of tournament cash prizes, portions of certain merchandise, apparel and brand-deal revenues, and career support. The parties even disagreed over how certain creator-code revenue should be treated under the agreement.
I'm not using the case to suggest what the damages should or shouldn't have been. From a financial perspective, its usefulness is simpler: one esports player relationship contained several different potential sources of economic value.
Start With Two Financial Scenarios
Once the economics of the agreement are clear, I like to frame the analysis as two financial scenarios.
Scenario 1: What would have happened? This is commonly called the but-for scenario. It looks at what the player's financial position would reasonably have been if the agreement had continued as contemplated.
Scenario 2: What did happen? This looks at the player's financial position after the alleged breach.
The difference between those scenarios gives us a starting point for evaluating the financial impact.
The key word in the first scenario is reasonably. The goal is a future the available evidence can support, which is usually a long way from the most profitable future someone could imagine.
Remaining Salary and Replacement Income
Let's return to our $8,000-per-month player. With eight months left on the agreement, that's $64,000 of remaining contractual salary.
Now suppose the player signs with another organization one month later for $7,000 per month. Over the following seven months, they earn $49,000 from the new organization.
We can't ignore that information. Depending on the facts and the applicable legal framework, replacement earnings and mitigation can become important parts of the damages analysis.
Replacement income doesn't have to come from another player contract, either. An esports professional might earn money through independent competition, streaming, sponsorships, content creation, coaching or broadcasting. That means the financial records after the contract ends can matter as much as the original agreement.
Putting a Number on Tournament Prize Money
Now imagine the player's former team was scheduled to compete in a major tournament where first place pays $1 million. The player argues that losing their roster spot cost them the chance to win that prize.
That doesn't automatically create $1 million of economic damages. Before getting anywhere near a number, we'd need to know:
- whether the team had already qualified
- what the organization would receive, and what share would go to the players
- how the player pool was divided, and whether the coach received a percentage
- how the team had performed historically
- whether the roster was changing
- how strong the competition was
- which placements besides first would have paid prize money
Once those questions come into play, simple multiplication won't get us to an answer, and we have to build a financial model. Tournament participation can carry a legitimate economic opportunity, but the calculation needs to reflect the evidence behind that opportunity instead of simply picking the largest possible prize. Historical results, qualification status, rankings, roster consistency, previous winnings and contractual prize splits could all become relevant.
Streaming and Sponsorships Can Work Both Ways
Leaving an organization can hurt one source of income while increasing another.
Suppose a player loses $100,000 of remaining salary and $30,000 of expected organization-related sponsorship income. Looking only at those amounts gives us $130,000.
After leaving, though, the player signs with another organization and earns $55,000. With fewer restrictions on independent sponsorships and streaming, they also generate another $20,000 that wouldn't have been available under the former arrangement.
That additional economic information has to be considered. It doesn't automatically tell us what the legally recoverable damages should be, since that's a question for the attorneys and, ultimately, the applicable legal process. From a financial perspective, we need to understand both sides of the equation: what the player would have earned and what the player did earn.
The Length of the Loss Period
Time is another assumption that can dramatically change the calculation.
If six months remained on a contract, the initial period might be relatively easy to identify. It gets harder when someone argues the financial effect continued beyond the contract. At that point, the analysis may need to account for contract renewal options, tournament seasons, sponsorship periods, replacement opportunities, mitigation periods and the player's expected career path.
That last factor is especially interesting in esports, because a professional player's career doesn't necessarily end when they stop competing. They might become a streamer, a coach or a broadcaster, go to work for an organization, or leave esports entirely.
Projecting losses years into the future therefore requires much more support than assuming the player's current earnings continue indefinitely.
The Records I'd Want to See
If I were analyzing the financial side of an esports contract dispute, the signed agreement would only be the beginning. I'd also want the records showing how the relationship operated in practice.
- Contracts and amendments. The primary player agreement, plus any side agreements, bonus arrangements, sponsorship terms and revenue-sharing agreements.
- Compensation records. Payroll reports, bank deposits, tax reporting, bonuses and historical payment records.
- Tournament records. Qualification status, historical results, prize distributions, roster history and contractual prize splits.
- Creator records. Twitch, YouTube and other platform statements, sponsorship agreements, creator-code income, affiliate revenue and relevant analytics.
- Post-termination records. Replacement contracts, later tournament winnings, sponsorships, streaming revenue and other income generated afterward.
The more documentation available, the less the analysis has to depend on assumptions.
The Attorney and the Financial Expert Have Different Jobs
Deciding whether someone breached a contract falls to the attorneys and, ultimately, the court. The same goes for deciding which categories of damages the law allows someone to recover.
The financial analysis comes in once the legal framework and relevant assumptions are established. From there, the work focuses on:
- The compensation that would have been received
- Which revenue streams were guaranteed and which were contingent
- The historical evidence supporting the variable amounts
- The expenses that would have been incurred, and the costs that were avoided
- The replacement income that was earned
- How long the analysis should continue
- Which assumptions the financial records can support
The aim of that work is a financial calculation that can be explained and supported, whatever size it turns out to be.
One Contract, Many Roles
A professional esports player can operate as a competitor, creator, influencer and business all at once, and a single contract can touch every one of those roles. When that contract breaks down, measuring the financial impact takes considerably more than multiplying a monthly salary by the number of months remaining.
The damages analysis compares what the agreement promised against what the financial records show happened afterward. In esports, working out that difference is often the most interesting part of the job for me.
Let's Talk Through Your Contract
If you're a player or an esports organization dealing with a contract that ended early, or you want to understand the financial side of an agreement before you sign it, book a meeting with me , I'm happy to talk it through with you.
Sources
- FaZe Clan Inc. v. Tenney, federal court opinion (Justia): https://law.justia.com/cases/federal/district-courts/new-york/nysdce/1%3A2019cv07200/520353/70/
- Riot Games Competitive Operations – League of Legends: https://competitiveops.riotgames.com/en-US/league-of-legends
About Dark Horse CPAs
Dark Horse CPAs provides an integrated suite of services including tax , accounting , fractional CFO , and wealth management to small businesses and individuals across the U.S. The firm was established to transform the client experience by offering personalized, high-quality services that small businesses and individuals deserve. As Dark Horses in their industries, these businesses benefit from advanced tax strategies and accounting insights typically reserved for larger companies. With a nationwide presence and a team of dedicated professionals, Dark Horse CPAs is committed to your success. Get a quote today.