Recently, several FaZe Clan members have come under scrutiny as they were found to be promoting a fake crypto token charity named “Save The Kids.” Specifically, their paid promotion was allegedly tied to an unlawful pump and dump scheme. This matter raises multiple legal concerns, including how the streamers will be affected for their endorsement. At the worst case, if the streamers were aware of the fake nature of their promotion, then they would be liable for fraud. At the very least, false claims were made by the streamers during their promotion, which means that the streamers may be subject to discipline from the Federal Trade Commission under its advertising rules. However, this matter further bemoans a single fact:
 
Streamers must vet their sponsors
 
Streamers need to be especially mindful of certain sponsorship areas. Sponsorships from industries such as gambling or cryptocurrency should immediately cause a streamer to pause and think twice. This is due to the fact that these industries are regulated (or in crypto’s case, that similar industries, namely securities, are regulated) and historically tied to laws imparting criminality or criminal activities for certain kinds of interactions within those industries. That isn’t to say that all gambling or crypto sponsorships are unlawful, but that there are bad actors in both industries who operate unlawful enterprises which could result in civil or criminal liability for the streamer. Just because a company is willing to hand a streamer a contract for a sponsorship does not mean that the enterprise is legal. In order to potentially avoid the legal fallout from a bad actor sponsor, a streamer must research and do their own due diligence into understanding the sponsor and what exactly the sponsor wants them to do.
 
Below are a couple of tips on how to vet a sponsor :

1. Find out the location of the sponsor- where are they based and where do they operate?
2. Determine if the sponsor needs to be licensed or not- gambling is HEAVILY regulated on a State by State basis. Are they licensed where they are based/operating? Are they licensed where you are?
3. Can you find any existing claims of illegality or shady dealings about the sponsor online? What are others saying about the sponsor online?
4. Ask the sponsor what they do and what they require out of you as the streamer- is the activation obviously legal in your locality?
5. Does the sponsor have a track record for previous activations- if this is the sponsor’s first deal, that’s somewhat concerning
6. Always ask as many questions as you feel necessary to be comfortable before signing any sponsorship agreement
7. Ask a professional- Our firm can advise on the legality of a sponsor’s operation, the activation, and help you ask the right questions to learn more about the sponsor.

 
The notion that all sponsors are beneficial is false. From a legal perspective, it is up to the streamer to  understand what they are getting themselves into. Legal liability aside, streamers do not want the brand damage of being associated with unlawful or shady enterprises. Utilizing the above tips and questions will help guide you into determining whether the sponsor is legitimate, legal and appropriate. Ultimately, knowledge is key.

If you need any assistance in vetting sponsors, and reviewing sponsorship agreements, our attorneys are here to help.  

(This post was contributed by Mark Hamilton, intern at Quiles Law and rising 3L at Marquette University School of Law)

As the esports landscape continues to grow and companies further invest within the space, there is no doubt that the shift towards the professionalization of business practices at all levels of the industry is well underway. This progression is already apparent in that most businesses, teams, and players have started to adopt a more mature outlook on written contracts within the space. For the most part, some type of written contract is now the rule rather than the exception in business transactions, even at the small business and semipro levels. While this approach is positive for the future of the industry since contracts should provide both parties in a transaction with necessary protections, the value of a contract can be in jeopardy if proper business practices are not instituted.
 
Disputes in business transactions can arise at any level of the deal so it’s important for all businesses (yes, streamers are businesses too) to take steps to ensure that they will be able to protect themselves if a problem were to arise in the future. No one likes to think that when entering a contract, there may be disputes in time, but implementing some simple business practices at the outset of any deal can help make the resolution of any potential dispute easier. Here are some tips that will help prevent problems from occurring, and may assist you down the line if there is ever a contractual dispute:
 
1.  Do Your Due Diligence
While this may seem like an unnecessarily obvious step, research the other party to the deal prior to entering into an agreement with them. Our trusting human nature can sometimes be harmful in newer industries where bad actors look to prey on inexperienced business owners. Unfortunately, esports is no different. There are a number of very public examples (see here) where people have falsely represented who they are or who they work for in order to reap their own gain. For example, someone may represent that they work for a company does not actually exist, have high valued accounts which don’t exist, or represent that they work for a company, when they actually do not, in order to trick a person into entering into an agreement for whatever reason. Doing a quick search of the company or person you are dealing on websites like Google, LinkedIn, and even Twitter, can help you better determine whether the other party is reliable and prevent you from entering into a partnership with people who may be acting fraudulently.
 
2.  Retain All Communications
Keeping a record of all communications (emails, texts, discord messages, etc.) with the sponsor throughout the span of your relationship can also be beneficial if done so in a responsible manner. Maintaining communications from initial outreach, to negotiation, and through the actual term of the agreement, will help provide you with concrete evidence to validate your claim if there is ever a dispute regarding the terms or intention of an agreement. This is especially necessary when communicating orally over the phone or through online voice chats, where details can easily get lost or “forgotten” between the parties. It is always a good practice to send a follow-up email to the other party after discussing anything significant in the manner. Doing so provides both parties with clarity as to what was discussed, which can eliminate any immediate confusion.
 
3.  Retain All Contracts and Corresponding Information
Although written contracts have become more of a standard practice within the esports industry over the past few years, there is still an element of unpredictability that transpires in many of these transactions. Oftentimes, parties will agree to modify conditions of an existing agreement during its term, which can result in multiple separate independent agreements. It is good practice to keep track of ALL of these agreements on file in an organized manner in case of a dispute. This way, if a party tries to argue that it only agreed to certain terms from the original agreement, you will be able to provide supporting evidence proving otherwise. Without having these documents available, it would be much more difficult to substantiate your claims. Importantly, this sentiment also applies to any amendments to a contract. Additionally, it is also helpful to preserve any audit trail from websites where you have electronically signed an agreement. This audit trail can prove to be useful if the opposing party ever tries to contest the authenticity of a signature, which, unfortunately, happens far too often. An audit trail will verify the name of the user that executed the agreement, the date it was signed, and sometimes, the IP address of the signatories.  
 
Conclusion
While these steps may seem basic, it is surprising how often little steps like these are not taken. With so many deals being completed, and frankly, being busy operating the business itself, it is easy for businesses to become unorganized and lose track of every detail of its dealings. Instituting simple business practices like saving all contracts from your email into your hard drive, scanning each physical agreement onto your computer, and sorting/maintaining all communications with contracted parties can save you time and money if a problem were to arise. And as always, do your due diligence before entering into an agreement!

Due diligence is a critical part of any acquisition. A company looking to buy an asset (any property a business owns) will typically conduct due diligence prior to acquiring the asset in order to determine whether the asset it wishes to buy has been characterized correctly by the Seller. This process consists of a thorough review of all aspects related to the target asset. While it may seem like a tedious task to complete, due diligence is an important part of the acquisition process because it essentially provides the buyer with a complete evaluation of information relating to the asset so as to protect against any misrepresentations made by the Seller.  By engaging in sufficient due diligence, companies can further protect themselves from entering into bad deals.
 
Due diligence can be completed on the acquisition of any asset, including social media accounts. ​​Unfortunately, it can be difficult to determine the ownership rights of digital assets if a company has not instituted the proper protections for this property. Before acquiring these types of digital assets, purchasers should consider a number points in order to make sure they are not getting swindled.
 
Here are several aspects to consider when evaluating whether to acquire a target’s social media accounts:

• Who created these account(s)?
  • An individual?
  • An independent contractor?
  • An employee of a company?
• Is there a contract with the account creator?
  • Does that contract properly convey all rights to the account(s), AND its contents?
  • Was the contract an employment agreement, and was the account created as part of the employee’s scope of work?
• If the account creator was an employee of a business, does the company’s employee handbook contain any social media policies?
• Do said policies convey ownership of account(s) created in furtherance of the company and the content on said account(s)?
• Who currently has access to the account(s)? Are any of the individuals a master user?
• Have the relevant statistics of the account(s) been artificially inflated?
  • Did the account holder buy fake followers?
  • Did the account holder create fake accounts to inflate its following total?
  • Have the account(s)’ interactions been fabricated to inflate its reach?
• Has the content posted on the account(s) violated any of the site’s rules?
  • Did the account holder have the rights to post all content pieces (i.e. clips, videos, music, etc.)?
  • Is any of the content unlawful, illegal, or does it promote violence?
  • Has the account holder received any notifications, warnings, or suspensions from the social media platform for violating its Terms of Use and/or rules?
  • Has the account holder received any notices or letters regarding any alleged infringement?
• Has the account and/or its content ever been subject to, or in any way related to, any executed contracts?
  • Has the account posted any sponsored posts?
    • Does the account holder own the rights to those posts and/or the content contained in the post?
    • Were thes e posts compliant with the FTC guidelines for sponsored advertising posts?
    • Were the posts compliant with site rules regarding sponsored posts?
• Assess whether there are any transfer restrictions relating to the account.
  • Does the account holder have the full authority to transfer the account?
  • Are there any third party agreements limiting transfer?
  • Does the social media platform allow for the transfer of the account to another party?

 
Generally, if you believe there are no issues with the target asset after completing this checklist, it is likely that the seller made accurate representations regarding the asset, and you may be more comfortable in proceeding with the deal. However, if any red flags appear along the way, you may want to take a more cautious approach and ask follow-up questions in order to understand the situation. Nonetheless, businesses should keep in mind that each acquisition is different and there are a number of additional factors that should be considered when entering into this type of agreement. If you need any assistance in performing due diligence and completing your acquisition, please feel free to contact us.