If you are old enough to have a law degree and reading this article, eSports may be a term with which you are unfamiliar. eSports is a dynamic and growing industry consisting of professional videogame players who compete in tournaments or leagues that draw an estimated global audience of 150 million people. Some predict the industry will generate over $1 billion in global revenue within three years.

The Overwatch League, owned by Blizzard Entertainment, and the League of Legends, owned by Riot Games, are the two preeminent eSports organizations, each of which have adopted a franchise model similar to that in traditional professional sports. Teams are owned just as any other sports franchise: Robert Kraft, the owner of the New England Patriots, for example, purchased a team in the Overwatch League in June 2017 for $20 million.

The teams, of course, consist of human players—expert videogamers who, by talent and hard work, have risen to the top of their chosen game. The players are expected to “play,” work, and train—sitting at a console for as long as 16 hours a day—much in the same manner a football player might exercise in a gym. The evolution of eSports from bedroom hobby to professional endeavor demands a discussion as to the legal status of the players—employee versus independent contractor—for purposes of employment laws generally, and wage and hour laws specifically.

The preference of team owners, and perhaps some players themselves, likely would be for the players to operate as independent contractors. Independent contractors are outside the ambit of most employment laws, such as the federal Fair Labor Standards Act (FLSA), which governs minimum wages, overtime and hours of work. Independent contractors also may fall outside of the unionization and collective bargaining protections of the National Labor Relations Act (NLRA). Independent contractor status would also free team owners from a host of potentially costly taxes. In short, independent contractor status provides team owners with significantly more flexibility.

However, the preference of the parties involved, even if reduced to writing, is rarely determinative of employment status. Instead, the specifics of the relationship will govern. Under the FLSA, the favored test for determining employee status is the “economic realities test.” This test requires an assessment of various factors, such as: the nature and degree of the owner's control over the manner and means of work, the player's opportunity for profit or loss, the player's investment in equipment or materials, the specialization of skill involved, the permanency of the relationship, the extent to which the services provided are an integral part of the owner's business, and the circumstances of the relationship as a whole. Ultimately, the test inquires whether the worker is economically dependent on the putative employer. If so, the worker is an employee.

Applying the economic realities test to a generic eSports player would likely lead to the conclusion that the players are employees. The Overwatch League, for example, has a detailed set of rules and guidelines applicable to teams and players that evidence significant control over the players and the manner in which they compete. The teams themselves may have subsidiary rules governing appearance, hours of work, extracurricular activities, and training regimens that only further restrict players. The players are unlikely to realize any particular profit or loss based upon performance, which would instead accrue to team owners who would be awarded tournament prizes, advertising revenue, ticket sales, and broadcast rights. Many teams provide players with consoles and other equipment necessary to train and perform, minimizing the player's own material investment. The relationship between a player and a team, or a player and the league, is fairly stable with contracts lasting for the length of a tournament season up to multi-year pacts. Perhaps most importantly, the teams are in the business of competing in eSports and the players are the means by which they do so, thereby establishing the services provided by the players as an integral part of the team's business.

If they are employees, the players are presumptively protected by a variety of employment laws, including the FLSA. Under the FLSA, employees are entitled to at least the current minimum wage of $7.25 for all “hours worked” up to 40 in a workweek, time and one-half thereafter, and perhaps more depending upon the state (or city) in which they reside or compete. Determining what constitutes “hours worked” by an eSports player is murky: while active tournament play and time prescribed by the team for training and engaging in other team activities would appear to readily meet the definition, time spent by the employee practicing, or perhaps playing purely for enjoyment, from home or outside of hours set by the team presents a more difficult question.

The issue would likely be resolved by reference to the regulations accompanying the FLSA concerning training programs. Pursuant to 29 C.F.R. §785.27, training need not be counted as “hours worked” if all of the following criteria are met: (1) participation is outside of the employee's regular working hours; (2) it is voluntary; (3) the training is not directly related to the employee's job; and (4) the employee does not perform any productive work during the session.

“Playing for fun” would not eliminate the direct relationship between the activity and the employee's job and the team owner would benefit from the expected improvement in the quality of play that would result from such efforts by virtue of fielding a more competitive team. Under these circumstances, the time appears compensable. Team owners could attempt to impose strict guidelines prohibiting any extracurricular practice, but policies alone are insufficient to disqualify the time from being compensable: the onus would remain with the owners to enforce such policies and prevent such activities altogether.

Alternatively, the issue of hours worked and the compensability of practice time may fade if the eSports players qualify for exemption from the FLSA, but the matter is far from settled. The FLSA contains no specific overtime exemption for athletes participating in traditional sports and, unsurprisingly, no exemption for eSports competitors. The FLSA does contain a “creative professional” exemption applicable to employees who engage in “the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual, mechanical or physical work,” and who (currently) earn at least $455/week on a “salary basis.” However, the exemption does not neatly apply to traditional athletes—as the ongoing litigation between minor league baseball players claiming an entitlement to overtime evidences—and it therefore remains highly uncertain as to how the exemption might apply to eSports competitors.

As with any new industry, the challenge to be faced by eSports employers and practitioners is adapting old laws and regulations to a paradigm that was not, and could not, have been contemplated at the time of enactment or implementation. The application of the FLSA is just one of many challenges that will be sure to present themselves as the industry continues to grow in popularity and profitability.

Brian D. Murphy is a partner in the labor and employment group at Sheppard, Mullin, Richter & Hampton in New York. He can be reached at [email protected].

If you are old enough to have a law degree and reading this article, eSports may be a term with which you are unfamiliar. eSports is a dynamic and growing industry consisting of professional videogame players who compete in tournaments or leagues that draw an estimated global audience of 150 million people. Some predict the industry will generate over $1 billion in global revenue within three years.

The Overwatch League, owned by Blizzard Entertainment, and the League of Legends, owned by Riot Games, are the two preeminent eSports organizations, each of which have adopted a franchise model similar to that in traditional professional sports. Teams are owned just as any other sports franchise: Robert Kraft, the owner of the New England Patriots, for example, purchased a team in the Overwatch League in June 2017 for $20 million.

The teams, of course, consist of human players—expert videogamers who, by talent and hard work, have risen to the top of their chosen game. The players are expected to “play,” work, and train—sitting at a console for as long as 16 hours a day—much in the same manner a football player might exercise in a gym. The evolution of eSports from bedroom hobby to professional endeavor demands a discussion as to the legal status of the players—employee versus independent contractor—for purposes of employment laws generally, and wage and hour laws specifically.

The preference of team owners, and perhaps some players themselves, likely would be for the players to operate as independent contractors. Independent contractors are outside the ambit of most employment laws, such as the federal Fair Labor Standards Act (FLSA), which governs minimum wages, overtime and hours of work. Independent contractors also may fall outside of the unionization and collective bargaining protections of the National Labor Relations Act (NLRA). Independent contractor status would also free team owners from a host of potentially costly taxes. In short, independent contractor status provides team owners with significantly more flexibility.

However, the preference of the parties involved, even if reduced to writing, is rarely determinative of employment status. Instead, the specifics of the relationship will govern. Under the FLSA, the favored test for determining employee status is the “economic realities test.” This test requires an assessment of various factors, such as: the nature and degree of the owner's control over the manner and means of work, the player's opportunity for profit or loss, the player's investment in equipment or materials, the specialization of skill involved, the permanency of the relationship, the extent to which the services provided are an integral part of the owner's business, and the circumstances of the relationship as a whole. Ultimately, the test inquires whether the worker is economically dependent on the putative employer. If so, the worker is an employee.

Applying the economic realities test to a generic eSports player would likely lead to the conclusion that the players are employees. The Overwatch League, for example, has a detailed set of rules and guidelines applicable to teams and players that evidence significant control over the players and the manner in which they compete. The teams themselves may have subsidiary rules governing appearance, hours of work, extracurricular activities, and training regimens that only further restrict players. The players are unlikely to realize any particular profit or loss based upon performance, which would instead accrue to team owners who would be awarded tournament prizes, advertising revenue, ticket sales, and broadcast rights. Many teams provide players with consoles and other equipment necessary to train and perform, minimizing the player's own material investment. The relationship between a player and a team, or a player and the league, is fairly stable with contracts lasting for the length of a tournament season up to multi-year pacts. Perhaps most importantly, the teams are in the business of competing in eSports and the players are the means by which they do so, thereby establishing the services provided by the players as an integral part of the team's business.

If they are employees, the players are presumptively protected by a variety of employment laws, including the FLSA. Under the FLSA, employees are entitled to at least the current minimum wage of $7.25 for all “hours worked” up to 40 in a workweek, time and one-half thereafter, and perhaps more depending upon the state (or city) in which they reside or compete. Determining what constitutes “hours worked” by an eSports player is murky: while active tournament play and time prescribed by the team for training and engaging in other team activities would appear to readily meet the definition, time spent by the employee practicing, or perhaps playing purely for enjoyment, from home or outside of hours set by the team presents a more difficult question.

The issue would likely be resolved by reference to the regulations accompanying the FLSA concerning training programs. Pursuant to 29 C.F.R. §785.27, training need not be counted as “hours worked” if all of the following criteria are met: (1) participation is outside of the employee's regular working hours; (2) it is voluntary; (3) the training is not directly related to the employee's job; and (4) the employee does not perform any productive work during the session.

“Playing for fun” would not eliminate the direct relationship between the activity and the employee's job and the team owner would benefit from the expected improvement in the quality of play that would result from such efforts by virtue of fielding a more competitive team. Under these circumstances, the time appears compensable. Team owners could attempt to impose strict guidelines prohibiting any extracurricular practice, but policies alone are insufficient to disqualify the time from being compensable: the onus would remain with the owners to enforce such policies and prevent such activities altogether.

Alternatively, the issue of hours worked and the compensability of practice time may fade if the eSports players qualify for exemption from the FLSA, but the matter is far from settled. The FLSA contains no specific overtime exemption for athletes participating in traditional sports and, unsurprisingly, no exemption for eSports competitors. The FLSA does contain a “creative professional” exemption applicable to employees who engage in “the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual, mechanical or physical work,” and who (currently) earn at least $455/week on a “salary basis.” However, the exemption does not neatly apply to traditional athletes—as the ongoing litigation between minor league baseball players claiming an entitlement to overtime evidences—and it therefore remains highly uncertain as to how the exemption might apply to eSports competitors.

As with any new industry, the challenge to be faced by eSports employers and practitioners is adapting old laws and regulations to a paradigm that was not, and could not, have been contemplated at the time of enactment or implementation. The application of the FLSA is just one of many challenges that will be sure to present themselves as the industry continues to grow in popularity and profitability.

Brian D. Murphy is a partner in the labor and employment group at Sheppard, Mullin, Richter & Hampton in New York. He can be reached at [email protected].