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How are esporters typically remunerated? Employment contract or service agreement? The answer to your questions about remuneration in esports.

Like all modern athletes, esporters’ income flows can largely be divided into two categories: (i) earnings directly linked with the game(s) they are playing, such as their monthly or annual “salary” or service fee (as stipulated in an employment contract of service contract), a team’s bonus for qualifying for or winning a tournament, the achievement of certain contractual milestones, etc.; and (ii) earnings that are linked with sponsorships, endorsement & appearance contracts or other commercial contracts or opportunities. Naming a particular brand in their streams, playing in an advertising spot, and exclusively using the products (such as technical gear, clothing, food/drinks, etc.) of a brand, etc. are all sorts of “services” that fall under the second category.  

These two traditional ways of remunerating athletes typically require a certain amount of cash from the side of the party who wants to engage the esporters (albeit the esports team or a potential sponsor).

How are esporters typically remunerated

Most esporters will nowadays enter into a service provider agreement with their clan or team, instead of a typical employment contract. The reason for this lies in the fact that employment law is regulated mainly at a national level and is often not very flexible in terms of the minimum duration of the contract, minimum remuneration, maximum hours to perform, … which do not match the needs of both esports athletes and esports teams. Its international context, flexible hours, and flexible notice period are the main arguments to opt for a service agreement.  

Also, another reason why a service agreement is often preferred over an employment contract are the consequences in terms of taxation and social security, which are different depending on whether the esports athlete is an independent service provider or an employee. For example, if the esporter will be qualified as employee, his remuneration will be taxed as salary and the employer will have to take withholding tax into account. It is therefore, from a tax perspective often more advantageous (for the payer / requestor of the service) to pay a service fee under a service agreement.  

It should be noted that Belgian labor law is of a compulsory nature (because of its protective purpose), meaning that the qualification as an employment contract cannot be avoided if the conditions are fulfilled. When there is a clear “relation of subordination”, whereby the athlete acts solely under the authority of the team, this will in principle be an employment agreement. Said relation of subordination is the main characteristic and basic condition of an employment contract under Belgian law. Therefore, contractual provisions of a service agreement stipulating that the esporter should be available daily, has a fixed time schedule, should follow the detailed instructions of the team, etc. should be handled with care, as they are indications of an employment relationship. Belgian legislation, like many other jurisdictions, provides for the possibility to (re)qualify such service agreement, which is actually a “disguised employment agreement”, as an employment contract on the ground of attempting to evade the scope of the stringent labor laws. We note that the authorities and courts will not only look at the clauses of the contract, but also to how the contract is executed in practice.

Employment contract or service agreement?

Instead of “paying” athletes the classical way, a start-up team or company might consider giving esporters a share in the company or stock options, in exchange for the athlete’s engagement.  

From the side of the esporter, obtaining shares or options might be an interesting alternative form of remuneration. For companies with a lot of growth potential in their start-up phase, the participation in their shares and thus their future benefits, is an asset to persuade investors – in this case an esports athlete – to join the (start-up) company.  

The acquisition of shares or options in exchange of the esports athlete’s engagement can be done in three ways:  
1. **Contribution of labor:** Since the introduction of the new Belgian Company Code in 2019, the regime to contribute labor in exchange for shares can also be used for the limited liability companies (“besloten vennootschap / société à responsabilité limité” and “naamloze vennootschap / société anonyme”), providing a good solution for funding and cash flow issues that an esport company might face.  

However, there are some “flaws” in this regime, such as the discussion whether such contribution should be qualified as labor in accordance with the strict labor law and taxed accordingly. Besides, there are some formalities, such as an obligatory valuation of the contributed labor by an external auditor. Finally, there are some “claw-back” mechanisms under Belgian law (such as suspension or nullification of the shares) that prevent devaluation of the shares in case the shareholder can no longer (temporarily of permanent) perform the labor as it was initially contributed; which may lead to uncertainty. This all leads to the fact that contributions in labor are rarely done in practice.

2. **Contribution of IP rights:** Instead of paying for shares of the company, the esporter might also opt for contributing an asset in kind, such as his or her intellectual property rights (“IP rights”). An example of such IP rights of an esporter are the rights to use one’s image, voice, and name, for example in an advertisement. The value of such intellectual property should also be valuated by an external auditor, which is then followed by the issuance of new shares of the company. A license or other contractual right or claim can also be valuated and contributed in exchange for shares.

3. **Transfer of shares or stock option plan:** a third option might be to agree that a part of the esporter's compensation will consist of stock options or shares if certain targets are achieved. This could be granted by a simple transfer of shares from existing shareholders or could be arranged via a stock option plan (whereby the company will issue new shares "as reward" for certain key members of the organization, who may be either employees or self-employed). Under certain conditions, such stock option plan is more advantageous from a tax and social security perspective.

Remuneration of esporters

How are esporters typically remunerated

Employment contract or service agreement?

Esports athlete as shareholder?

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