Perkz barred from Fnatic: a loophole in regulating player transfers?

Hi everyone, I would like to share my thoughts on a piece of news that rocked the League of Legends esports scene last month. Below is a summary of background facts for context:

Backstory – skip if you know this already 😊

G2 Esports and Fnatic are two of the most popular teams in the LoL European Championships (“LEC”) and long-term rivals. G2’s star player, Luka “Perkz” Perković, has been playing with G2 since its founding in 2015 and has since become synonymous with the organization. Perkz originally played in the “Mid” position but swapped to the “AD Carry” role in 2019 when Fnatic’s then star mid-laner, Rasmus “Caps” Winther, defected to G2. The team was highly successful, winning multiple LEC splits back-to-back as well as the 2019 international Mid-Season Invitational, and placing second at the 2019 World Championships.

In early 2020, Perkz signed a long-term contract with G2 to play for them until November 2022. After his father passed away in mid-2020 due to cancer, Perkz informed G2’s CEO and founder, Carlos “Ocelote” Rodríguez, that he would like to swap back to the mid lane and join Fnatic, who was reportedly very interested in acquiring him. After hearing this, Ocelote took active steps to block calls/emails from Fnatic and arranged for Perkz to leave the LEC entirely, through a record-breaking US$8.9 million buyout agreement with American esports team, Cloud9. As a result of the buyout, Perkz has to leave Europe and play in the North American League Championship Series (“LCS”).

Ocelote explained his actions, in his typical bombastic fashion, on Twitter Spaces this Tuesday:

“[So Perkz said to me] I want to leave, I want to go to Fnatic. … And I said clearly, it is never going to happen. Fnatic is never going to happen. … Just for extra context, imagine if Messi, back in his prime, told Barcelona that he wishes to join Real Madrid, because he wanted ‘change’, whilst still under contract. Well, the outrage would be on the player, not the team. … I don’t want a player that is mentally out, even if he’s a friend of mine, even if its Perkz, who had given everything to us. So, nope, there is no way back. If you say you want to leave G2 and you’re serious about that, its done. I honestly don’t give a [expletive]. No player is more important than the club.”

It was later discovered that a clause in the G2 and Cloud9 buyout agreement prevented Cloud9 from selling Perkz to Fnatic for a period of 3 years, until November 2023 (the “Clause”). The Clause was between G2 and Cloud9 only, and was not signed by Perkz.

As a result, Fnatic’s attempts to buyout Perkz’s contract from Cloud9 were unsuccessful. Some fans are outraged, as it appears that Ocelote has kicked Perkz from one premier club in Europe and barred him from joining the other (when other teams were then considered to be considerably weaker) for the majority of his prime playing years.

Issue and Analysis

The Clause is controversial as it allows G2 to ‘conspire’ with C9 to thwart competition from Fnatic and to control Perkz’ movement long after he has left the team. Is the Clause anti-competitive, or illegally restrictive of esports player movement or bargaining power?

Riot Games Rules

LoL, which is entirely regulated by its publisher Riot Games, has one of the most refined set of rules regulating every aspect of its esports scene. It has a set of global rules, regional rules for each competitive region including the LEC and LCS, and rules for large-scale events such as the Worlds Championships. According to clause 3.10.4 of the LEC Official Rules, All player transfer or trade agreements must be sent to and approved by Riot Games before becoming effective.

I am unable to access Riot Games’ internal rules governing their approval of contracts, but following their investigation on the Clause, even Riot Games admitted that “Onward transfer restrictions is a novel issue within the professional LoL Esports ecosystem. Our current rules governing player transfers do not explicitly prohibit restrictions on future transfers by the receiving team.” (emphasis added)

As a result, G2 and C9 were not penalized by Riot Games for including the clause in their agreement. However, Riot stated that they, as the regulator for LoL Esports, do not intend to enforce the clause, and essentially said the enforceability of the Clause is a private contractual issue for the courts “to be resolved as appropriate in accordance with applicable law.”

Context from other sports

There appears to be some precedents from other sports that bars similar player transfer restrictions. FIFA, for example, had penalized Arsenal for selling players to other teams with the condition that the buying club must pay Arsenal a higher “future transfer compensation” fee if they are to transfer the player onwards to a club based in the UK, but a lower fee if the player is transferred outside the UK. The condition is called a variable sell-on clause. Such a condition was found by FIFA to be detrimental to the buying club’s independence on deciding when and where to sell a player, and allowed Arsenal to influence a player’s future employment. FIFA ordered Arsenal to pay a fine of 40,000 Swiss francs in early 2020. However, Arsenal has been cleared of any wrongdoing in Oct 2021 by the Court of Arbitration for Sport and was successful in revoking the fine.

There were also instances in the Major League Baseball (MLB) scene where independent arbitrators found that MLB owners, by colluding to prevent players from switching teams with the previous team’s consent, had breached the Sherman Antitrust Act 1980 in the US and are liable to pay damages to the players.

However, it is doubtful if any such cases would be helpful to Fnatic/Perkz. As mentioned in the news article, antitrust law differs in each country and buyouts in esports do not operate the same way as they do in traditional sports. As the teams involved are based in different countries (G2 in Germany, Cloud9 in US and Fnatic in the UK), legal jurisdiction over this issue is unclear. As Fnatic is not a party to G2 and Cloud9’s agreement, they may not have the locus standi to challenge the Clause. Perkz himself may not be able to convince a court that the Clause was unreasonably restrictive or prejudicial to him (as an employee or athlete) as it only bars him from joining one (out of 10) team in the LEC.

What can be done?

Riot stated that they will update their rules going forward “to prohibit future restrictions in transfer agreements, as they are not in line with the values and interests of our sport”. The LCS Players Association, the only LoL player ‘union’ (but long criticized as a toothless organization that operates more like an advocacy group), announced that they are pleased with Riot’s decision to make clear that “these unfair restrictions on player movement are not allowed”. It remains to be seen if Riot’s rule changes would be comprehensive enough to catch all forms of anti-competitive restrictions on player transfers, or if teams/players may eventually need to turn to courts for further assurances.

For now, it seems that Ocelote, already known as a seasoned “poacher” in the industry who frequently skirts the grey areas of Riot’s anti-poaching rules, has identified and exploited another loophole in Riot’s regulations, and got away with it. As he gleefully declared on Twitter, “you can’t outplay me b*tch.” (censored) It appears that he’s right.