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LCS

Competitive Ruling: G2 Esports and Fnatic

TL;DR Recently, it has been brought to our attention that Fnatic and G2 Esports allegedly share financial ties and would therefore be in violation of the LCS Team Participation Agreement. League Officials have found that Jens Hilgers, a minority stakeholder in G2 Esports, has provided a loan to Sannpa Ltd, parent company of Fnatic Ltd, to support Fnatic Gear Ltd, which we classify as an indirect financial interest.

The collateral terms of the loan grant Hilgers the right of claiming an equity stake of Fnatic Ltd and Fnatic Gear Ltd if Sannpa were to default on the loan, which presents the possibility of an undue establishment of control in the future. We have mandated that Hilgers retracts his loan from Sannpa Ltd or divests his stake in G2 Esports. Both Hilgers and Fnatic have been formally warned for this transgression.

Context

Hilgers is an active investor in the esports and gaming scene, and alongside several other projects unrelated to competitive League of Legends, his personal investment holding has a minority stake in G2 Esports. Recently, Hilgers privately provided a loan to Sannpa Ltd, parent company of both Fnatic Gear Ltd and Fnatic Ltd, to bridge finance a new Fnatic Gear product line. As security for this loan Hilgers would have authority over the equity stakes of Fnatic Gear Ltd and Fnatic Ltd in the event that Sannpa Ltd were unable to pay back the loan. This is called a share charge, which essentially means that Hilgers gets first rights on aforementioned equity if Sannpa defaults.

This does not mean that any kind of direct ownership or control was established by Hilgers over Fnatic in the past or present, and similarly, it does not create a future state wherein he would be guaranteed control of Fnatic. What it does establish is a situation where if Sannpa were to become insolvent and consequently unable to pay back the loan, Hilgers would have priority over potential other creditors in claiming Fnatic's equity (and ownership) as a way to recoup the lost money from the loan.

Despite the lack of connection between both G2 Esports and Fnatic directly, we determine that the loan agreement between Hilgers and Fnatic constitutes an indirect financial interest and is therefore not permissible. We further determine that the loan agreement was not set up with malicious intent to circumvent multiple team ownership provisions and does not present a scenario in which effective control over multiple teams has presently been exerted.

Ruling

The loan agreement between Hilgers and Fnatic creates a form of indirect financial interest between both parties, which is a violation of the LCS Team Participation Agreement. However, the fact that the possibility of competitively relevant control is based on the financial collapse of Sannpa as an organization presents a scenario in which no current control, nor future meaningful control are established.

Based on this, the League:

  • Formally warns Hilgers and Fnatic for entering an impermissible indirect financial relationship. This will be accounted for as an aggravating factor in any future transgression of this type.
  • Mandates reversal of the loan between Hilgers and Fnatic, or the relinquishment of Hilgers’ ownership stake in G2 Esports

Relevant Rules

LCS Team Participation Agreement

  • The LCS team participation agreement states that “The Team Owner shall not (and shall ensure that the Team Managers shall not) (a) own, have or control, directly or indirectly, an equity or financial interest in more than one team engaged in play of the LoL Game in a professional e-sports league [...]”.

Q&A

Why is there no harsher punishment?

Previously, cases of clearly competitively relevant influence between teams have already been punished severely. In this particular instance, we take into account the fact that no current or future competitively relevant control over Fnatic was established. Further, we take into consideration that the involved parties were collaborative over the course of the investigation and did not intend to circumvent any of the rules we have in place. Despite this intent, we determine that a loan between two parties holding stakes in competing teams, no matter how it is constructed, constitutes an indirect financial interest, which is not acceptable. This will be reiterated with all owners to provide complete clarity on the line that is drawn in particular when it comes to indirect relationships and will be considered a serious punishable offense going forward. We would like to highlight the importance of informing the League before entering any financial relationship with parties that are involved with other teams.

Doesn’t Hilgers have Power of Attorney with the loan?

The loan agreement contains a clause that provides Hilgers with “power of attorney” (the right to make decisions on behalf of) for Sannpa Ltd (Fnatic’s parent company). This clause, which is fairly standard for loans, would give Hilgers power of attorney only in the case of Sannpa (and therefore Fnatic) being bankrupt - in order for him to help establish his rights of Sannpa's assets in the bankruptcy process.

Is this similar to one of the problems in the TDK/REN situation?

No, there’s a few important differences. First and foremost, Hilgers did not receive any operational control or insight into Fnatic or the Fnatic team, nor did he interact with any of the Fnatic players. Secondly, Hilger's right to Fnatic's shares is only a byproduct of the loan and is conditional on a financial collapse of Sannpa, and therefore Fnatic, as a company at some point in the future. Getting control of Fnatic is not the end goal, and rather the undesired outcome. In the case at hand, it’s a minority owner of a team offering a formal loan to the team’s parent company, for a non-league venture. That said, the loan agreement does present a form of indirect financial interest and both Hilgers and Fnatic recognize the necessity of unwinding the loan.

The Kikis trade was made shortly before the loan, any connection?

League officials investigated the Kikis trade, and found no evidence of impropriety nor any connection to the loan and/or Hilgers.