Riot strikes again. Last night Riot released two competitive rulings. Addressing the violation of ownership and player compensation rules, the published decisions contain several bans of individuals as well as legal entities as owners of an LCS spot. Bearing legal and financial implications on an unprecedented scale, these rulings need to be analysed in their legal and political context. This article will explain structural problems and suggest improvements based on best practices in traditional sports and globalized industries which face challenges in the transnational sphere. Moreover, team ownership and player payment are two serious issues worth analysing from a structural point of view.

Esports Leagues and sanctions: A legal beast of its own

[perfectpullquote align=”right” cite=”” link=”” color=”” class=”” size=””]The LCS does not have an independent administrative structure.[/perfectpullquote]

Along with the rising popularity of esports, several esports leagues have emerged (two new leagues in CS:GO in 2016 alone), the LCS having years of experience in terms of rules governing an esports league and their enforcement. When analysing LCS competitive rulings, it is important to understand their legal foundation and political context. As I have pointed out in the past, despite its misleading wording and structure, a “competitive ruling” is not an administrative decision by an independent body governing the league, attributed with investigative powers to determine facts. Rather, it is a PR instrument assisting Riot’s application of agreements in place between Riot and participants in their league. As can be deducted from the “2016 Season Official Rules”, Riot has a so called “Team Agreement” in place which enables them to apply their set of rules directly to their contractual relationship with teams. Therefore, unlike traditional sports leagues, the LCS does not have an independent administrative structure but is solely based on a contractual relationship between organizer and participants of the league. This structure enables the development of a globalized and innovative esports league model and overcomes rigid national limitations in traditional sports. Riot can quickly react to new challenges and improve their system as they did when they added much appreciated transparency to their penalty system. On the downside, this contractual enforcement bears risks of conflict of interest and power asymmetries in the triangle of Riot, teams and players.

Procedural Fairness: No lesson learned?

If we aspire these competitive rulings to be more than corporate PR, even to be legitimate decisions governing the functioning of the EU LCS league, reform is needed. Unfortunately, the recently published rulings continue to display a disconcerting lack in procedural transparency, fairness and overall legal infrastructure. Despite multiple stakeholders’ interests involved, Riot assesses the situation on its own and enforces the rules respectively. They act as one party to a commercial agreement, not as independent body balancing multiple interests at stake. Unfortunately, this undermines any legitimacy of these decisions. As I have pointed out on multiple occasions in the past, legitimacy in the transnational sphere can only exist if an independent procedure where all stakeholders are represented and procedural rules are in place. Only then it would be appropriate to speak about “facts” and “findings”. A player representative might point out that it would be better for the players not to lose their employer within ten days—despite being allowed to terminate their player contract immediately; they might find themselves not playing LCS in the upcoming summer split. On the other hand, a team owner’s’ representative might find it more proportionate to warn an owner and require a change in ownership structure before bans are issued. Even if Riot does not allow player and team representatives to take part in their investigations and rulings, at least an appeal process involving all stakeholders could contribute to a more balanced approach to decisions in the league. In the meantime, procedural and material fairness can only be sought after in arbitration or before court. [perfectpullquote align=”right” cite=”” link=”” color=”” class=”” size=””]A lack in procedural transparency, fairness and overall legal infrastructure.[/perfectpullquote]

Complex issues: Ownership structure and player payments

From a player welfare point, it is a great change that Riot seems to strictly enforce the rule that players have to be paid the minimum compensation. This is part of the Team Agreement and therefore can be easily enforced by Riot. However, it needs to be pointed out that the calculation of salary payments can be complex and therefore need to be assessed with utmost care and expertise. Player salary payments often consist of multiple elements (minimum compensation, salary, bonus, streaming…) and might be subject to complicated tax and social security regulations under certain jurisdictions and even in an international context, resulting in complex monthly payslips. Moreover, salary payments might be subject to a contractual set-off, resulting in a different amount than expected.

The question of team ownership can result in similar complex legal assessments. The team ownership rules are drafted very broadly and are likely to provide a good legal basis for assessing ownership. However, given the complexity of corporate structures and the sheer endless possibilities to hide natural persons behind legal entities, the assessment of ownership and especially financial interest can prove to be difficult, too.

Suggestion: Transparent and regular audit structure

In both cases it is important to notice that the enforcement of these rules was based on allegations made and proof provided by third parties. This leads to a structure of uneven enforcement, being dependent on discovery. A fairer solution would be conducting regular audits on player payments and ownership, asking for the respective documentation. Audits are common in traditional sports leagues, for example clubs in the German Bundesliga have to provide tax documentation proving they treat their players as employees. Regular audits with clear and narrow scopes in esports leagues would grant an even level playing field for all parties as well as enable an early warning system about irregularities. The earlier Riot is aware of a potential breach, the earlier the potential legal uncertainty can be addressed and resolved. Having access to tax statements by teams, it could also alert Riot early about a potential insolvency or non-compliance with other regulations. Overall, audits could contribute to a productive interaction at an early stage between teams and Riot, preventing bans with all their serious legal and commercial consequences and possible litigation. Audits would help fill the gap which still exists in the absence of fair procedural rules in connection to investigations and respective rulings “issued” by Riot.