Perhaps I’m exposing myself as a nerd here… but contracts are awesome! The first thing to understand is that laws already exist to govern things like employment, sales, and the provision of services. What each new contract does is alter that existing law, where possible, so an agreement is governed in a way that better suits the commercial needs of the parties. Contracts literally create law. In an industry like esports, where commercial interests have grown rapidly while the legal framework is still very much in its infancy, it is easy to see why contracts are so important. The esports industry is heavily reliant on the use of contracts and as such it is important for all stakeholders to understand what they are, why they’re used, and what to do when presented with one.
What is a contract?
One big misconception about contracts is that they are extensive and complicated documents drafted by lawyers. The reality is quite the opposite. Contracts are legally enforceable agreements that arise all the time in daily life – whether you’re agreeing to buy some snacks from the local store or whether you’re agreeing to abide by the terms of service of a game. They also don’t necessarily need to be written. These agreements can be made verbally, over the phone, by email, or even just by the way you behave. Of course, as terms get more complicated it becomes more important to commit the contract to writing but you get the idea. So how do you know when an everyday agreement becomes a legally enforceable agreement and, thereby, a contract? Well, to have a binding contract you need the following five things:
An offer is a promise to enter into a contract with the other party. It seems simple enough but the majority of a contract’s legwork is done at the offer stage. A valid offer needs to set out all the terms of the proposed contract and those terms can’t be vague or unfinished. When an offer is made it must also be made with an intention of the offeror being legally bound should the other party accept, so for example you couldn’t have a judge enforce an agreement someone made as a joke. For the reasons above, you can see why the following classic examples wouldn’t count as valid offers:
· If you play a few games for my team I’ll give you a share of the winnings.
· If you make that penta-kill I’ll eat my shoe.
Contracts are formed when there is a full and unqualified acceptance of an offer. Whether it is by agreeing to the terms of the offer verbally, by signing a document, or sometimes by simply behaving in a way that demonstrates acceptance, the contract is binding from the moment that is communicated to the offeror. However, any difference between the terms of the acceptance and the offer will mean that no contract is formed. This would instead constitute a counter-offer which amounts to a rejection of the original offer and a new offer being made. So, we have offer and acceptance, that sounds like an agreement, right? To be legally binding though there are a few further requirements…
The law does not usually enforce promises to do something for free. For a contract to be legally binding each party needs to give a promise to the other to do (or not do) something. For example, I may promise to pay money at a restaurant if they promise to serve me food. That promise is called consideration and each party to a contract needs to both give and receive it. Once the promises are reciprocated though, courts will not usually interfere with the adequacy of those promises. For example, if I entered into a contract to buy a brand new smartphone for £1.00, my money would be sufficient to create a legally binding contract even though the amount of money may not be adequate in relation to the value of the phone.
One exception to the rule of consideration is to execute the agreement as a deed. Deeds are sometimes used where one party is not providing any consideration or where required by law for the transfer of a significant asset. This is because the valid execution of a deed requires a few extra steps including the signature of a second person for each party.
Intention to create legal relations –
We have already established that a valid offer needs to consist of an intention to create legal relations, but this is also true of the contract as a whole. This element is also more objective and, rather than looking at the subjective intentions of a single party, courts will usually look at the situation and how the parties conducted themselves when deciding whether they intended to be legally bound or not. Legal relations are usually assumed in commercial circumstances but not in casual or family agreements, however, this presumption can be rebutted if, for example, family members thoroughly negotiated terms, involved lawyers, and committed the contract to writing.
Certainty of terms –
Finally, for a court to enforce a contract the essential terms need to be clear, complete, and certain, otherwise they can’t be sure that the terms they enforce are the terms intended by the parties. Judges can be flexible with this criterion though. Where an unclear term is not a fundamental element of the contract the court may be willing to simply ignore it if possible or ‘fill in the gaps’ with logic and business acumen where necessary.
The importance of contracts
So now that we know how contracts are formed let’s look at why they are so important in the esports industry, and also why putting them in writing can be helpful:
As we have discussed, contracts create and amend existing law to fit a commercial agreement. As current laws do not adequately provide for the esports industry, parties operating in the space need to regulate themselves for the most part, creating that governing law through contracts.
As contracts require a certain degree of certainty to be valid and enforceable a well drafted contract can be useful for encouraging the negotiation and agreement of all terms and possible issues. This removes ambiguity and provides clarity, encouraging a better relationship between the parties and more efficient performance of their relevant contractual duties.
A written contract acts as a great record of the agreement which can be easily forgotten, especially when inherently complex or when varied over time.
A contract provides each party with enforceable remedies should the other side breach the agreement. This provides a sense of stability which is greatly needed in the esports industry – for example by reassuring teams who rely on their players to perform certain duties, and players who rely on their teams for their income.
Sometimes there may be disagreement and sometimes terms will need updating. Contracts are incredibly useful not just for setting out current terms but also for setting out how they can be varied in the future and how disputes should be resolved.
Basic tips on what to do when presented with a contract
Bear the ultimate purpose of the contract in mind throughout.
When negotiating, try to imagine all the possible problems that may arise and whether the contract deals with them adequately.
Ensure both parties are clear what communications are intended to be offers and acceptances and not merely preliminary negotiations.
When presented with an offer don’t be afraid to take your time to think before responding.
If someone makes an offer verbally, consider whether it would be worth committing the contract to writing – spoiler alert: it usually is.
When presented with an offer in writing, ensure you read it thoroughly and/or have a legal professional read it for you.
When in any doubt about the terms or enforceability of a contract, seek independent legal advice.
This is the first of a series on esports contracts which Ethoughts will be publishing so watch this space!