Cloud9 Overstepped, issued equity shares to players against Riot prohibition, Riot Failed to realize it until a year later, today issued a competitive ruling, a fine of $175,000 that could get up to $600,000 Money Goes to Charity.
The Violated Rule:
In November 2017, Riot introduced rule 2.5 of the LCS Official rule book stating, no team-owner can be a player and Vise-Versa.
This rule was yet to be deprecated later in 2019 and replaced with criteria that could grant players part ownership of the team, Bjergsen was -supposedly- the first player to gain equity share in TSM, turns out we were wrong.
In mid-June 2019, Riot asked all teams to resubmit all contracts and legal documents to re-organize and establish a baseline of expectations. Riot Allegedly found out that some teams didn’t or did a poor job of submitting all player contracts and terms.
What did go wrong for C9 ?
Turns out C9 issued ‘Restricted Stock Units’ or RSUs to 7 players during the Riot prohibition rule.
What is an RSU ?
Restricted Stock Unit or RSU is compensation issued by an employer (Jack owner of C9) to an employee (Players, Staff Members..) in the form of company stock through a vesting program, basically Jack gifts players c9 stock if, for example, they qualify for worlds, players can then sell them for money or hold if they think C9 will grow further, a good way of retaining talent.
7 Players were granted RSUs during their time with C9, including players that are not on the roster anymore, Riot alleges.
An investigation was immediately started after worlds 2019, Riot held several interviews with the seven players as well as team owners and representatives.
Results of The Investigation:
Only 2 out of 7 players were legally represented, the other 5 just verbally agreed with C9.
Some RSUs were granted as gifts for players, other RSUs were part of player’s salaries.
Players didn’t know about the prohibition rule when they accepted the RSUs.
C9 failed to submit the proper documents and issued RSUs to players in the period where they were prohibited.
What are the Penalties?
Cloud9 Fined $25,000 per player, a combined $175,000 for violating league rule, money is donated to charity by the LCS.
Cloud9 also need to renegotiate the RSUs they granted to players during that period, they can buy them back or compensate the value of RSUs based on current market value, each player will decide independently, if a player decides to renegotiate the value of his RSUs he will have to provide proof of a legal representation to Riot, a lawyer or agent, something that every player has to do in any negotiation moving forward.
based on the number of RSUs issued by C9, the fine could be between $330,000 to $605,000 based on Riot Legal team.