TL;DR
- Cloud9 violated LCS rules by issuing equity to seven players, creating ownership conflicts
- The organization faces $175,000 in direct fines plus $330,000-$605,000 in restitution costs
- Rule violation stems from 2017 franchise model changes prohibiting player ownership
- Investigation revealed C9 failed to disclose Restricted Stock Units to Riot
- Case highlights growing need for clear player compensation guidelines in esports
Riot Games’ League of Legends Esports division announced on November 20 that Cloud9 faces significant sanctions for implementing an equity compensation program that directly contravenes League Championship Series regulations.
The penalties include $175,000 in monetary fines plus mandatory removal and repayment of stock holdings distributed to team members.
Cloud9’s Equity Distribution: Breaking LCS Ownership Rules
Cloud9 allocated stock shares to seven competitors, a practice that was permissible before the 2017 league restructuring but became expressly forbidden when the LCS adopted its permanent franchise partner system. The updated regulations explicitly prohibit active roster members from holding any ownership stake in their competing organizations.
“Beginning in November 2017, the League banned owners from participating on their team’s Full Time Roster, effectively making it a rules violation for players to maintain ownership interests—whether direct or indirect—in any LCS team they compete for,” Riot detailed in their official LCS Competitive Ruling documentation.
Cloud9 management overlooked this crucial regulation, distributing Restricted Stock Units (RSUs) to seven current and former team members. The organization failed to report these equity grants to Riot, attributing the omission to an administrative oversight.
Riot’s compliance team identified the RSU distributions belatedly, coinciding with development of new frameworks that might permit limited player ownership under specific circumstances. The formal inquiry commenced following the conclusion of the 2019 World Championship tournament.
Financial Fallout: $175,000 Fines and Substantial Restitution Costs
Following completion of their investigation, Riot imposed $25,000 penalties for each affected player, totaling $175,000 in direct fines. However, this represents only the initial financial impact.
The organization must now negotiate with current roster members to rescind and compensate their stock option holdings. Restitution solutions proposed by Riot are projected to cost Cloud9 between $330,000 and $605,000 in additional expenses.
This case underscores the critical importance of maintaining clear separation between player and ownership roles in professional esports. Organizations must implement robust compliance systems to avoid similar violations that can result in seven-figure financial consequences.
The Cloud9 situation highlights systemic challenges in esports governance as organizations balance competitive performance with business growth objectives. Equity compensation represents an attractive tool for talent retention but requires careful navigation of league regulations.
Common organizational mistakes include failing to update compensation policies after rule changes and inadequate communication between legal and player management teams. To avoid similar penalties, esports organizations should conduct quarterly compliance audits and maintain transparent communication with league officials about all player compensation arrangements.
For teams navigating similar challenges, our Complete Guide offers valuable frameworks for maintaining regulatory compliance while developing competitive rosters.
Action Checklist
- Review all player compensation arrangements against current LCS rules
- Implement quarterly regulatory compliance audits for all team contracts
- Establish clear communication protocols between legal and player management departments
- Consult our Weapons Unlock guide for understanding structured compensation systems
- Develop alternative player incentive programs that comply with league regulations
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