Esports tax law: A look at tax considerations for professional gamers

17 October 2017


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Away from the glitz and glamour of competing on stage in front of thousands with millions more at home watching on in awe, there’s several pertinent issues that need to be addressed in the background. One of these, clearly, is tax consequences. With organisations such as Fnatic potentially operating out of London but having teams in the States, Malaysia and Germany the tax issues both at a corporate level and an individual level can be incredibly complex. 

Justin M. Jacobson, Esq and Jason Feingertz, Esq have contributed a guest piece touching on the tax considerations for professional gamers competing across the world. 

Justin M. Jacobson is a member of the Bar of the State of New York, Vice-President at The Jacobson Firm, P.C. and Esports Player Agent & Counsel at the Agency for Professional Esports (APE). He advises entertainers, professional athletes and video-gamers and fashion designers on all aspects of marketing, business and intellectual property and contract law matters. He also handles player contract and sponsorship negotiations on behalf of esports gamers and managers.

Jason Feingertz is a member of the Bar of the State of New York and an associate at Reed Smith LLP. He advises clients on all aspects of state and local tax and has experience with residency planning and audit defence. Feingertz has a unique perspective on the sports industry having represented both sports franchises and players.

The esports revolution continues as professional video-gaming continues to expand throughout the globe.  As with most professions, professional video game participants, sometimes referred to as a “gamer,” are subject to taxes in every country, state and, sometimes, the city that they “work” in.  Professional gamers must be aware of the tax implications of their earnings, including how their tournament winnings, player salaries, streaming monies and sponsorship funds are typically taxed.

How player’s income is taxed

Like all taxpayers, professional gamers, who are residents of the United States, must pay federal income tax to the IRS on their worldwide income. While this concept may seem straightforward, there are still many gamers that fail to adequately pay the correct amount of personal income tax. The failure to pay this tax can cause serious problems for an individual, ranging from penalties and interest to potential imprisonment for the most egregious cases.

The Jock Tax

One often overlooked aspect of tax planning for professional athletes is their state tax liability. In most cases, athletes must pay personal income tax to their state of residence on their worldwide income. This includes income derived from their playing contracts, as well as endorsement and sponsorship deals. In states where they do not reside, athletes increasingly find themselves subject to aggressive enforcement of “Jock Taxes,” which look to tax athletes on income “earned” in non-resident states.

For example, New York imposes a non-resident income tax on visiting professional athletes who have earned income within the state.  N.Y. Tax Law § 631(c). New York taxes visiting players’ salaries, which is apportioned among the states based upon the percentage of total “duty days” an athlete spends within New York.  20 NYCRR 132.22. A duty day is typically defined as any day an athlete does some form of work for their employer such as a media appearance, team practice, tournament or a game. Then, the apportioned income is multiplied by the states’ individual income tax rates.

“There are still many gamers that fail to adequately pay the correct amount of personal income tax”

We will now explore a few main income streams for gamers and how the earnings may be taxed. While some question whether taxes really affect decision-making by athletes, the following examples should show how important it is for an gamer to have a tax advisor or other competent professional guiding them through all contract and taxable business decisions.

Tournament Winnings

As discussed above, a professional video gamer may be subject to tax obligations in all of the states and countries that they earn income from. These tax payment obligations also extend to any and all of the gamer’s tournament winnings. Generally, the location of a specific tournament dictates which tax laws are applicable to a particular tournament prize pool.

Currently, in the United States, the Internal Revenue Service (I.R.S.) requires any individual who earns over six hundred ($600.00) dollars to receive a “1099-Misc” form detailing the income received. Similar provisions would be applicable to a gamer’s tournament winnings, especially those earning over $600. A standard esports tournament prize pool winning usually trumps this amount. In particular, the location of the competition plays a central role in determining the applicable tax rate for tournament winnings. For example, the 2014 Dota 2 “The International” was located in the U.S. and boasted a $10.9 million prize pool. Therefore, the players that won a portion of this prize pool, even those who were not U.S. residents, were subject to United States federal income tax on these winnings.

“A professional video gamer may be subject to tax obligations in all of the states and countries that they earn income from”

Additionally, each tournament organiser typically enacts its own payment and tax restrictions for the disbursement of prize monies.For instance, the prize money earned from Dreamhack requires that any “private individual will receive [this prize] money as salary, [ . . .] according to Swedish Tax Law,” which requires the organiser to first “deduct both a general payroll tax and employment tax from the won prize amount, before the money is paid out to [an] individual.” (Paragraph II – Payout Policy)  Another example is P.G.L.’s “Open – Bucharest” and “Legends of the Rift.” These competitions mandate that all “private individuals […] receive the prize money in their own bank account, out of which a 16% tax will automatically be deducted, in accordance with Article 77 of the Romanian Fiscal Code” and that “no tax will be deducted if the prize value is lower than 600 RON, in accordance with Article 77 of the Romanian Fiscal Code.” It is therefore prudent for a gamer to review and understand each tournament’s prize pool disbursement policies and how these winnings are taxed prior to competing.

Team Salary

In addition to a gamer’s tournament winnings, most professional players are signed to exclusive player contracts with major esports organisations or professional teams. Some of these esports organisations include “Cloud 9,” “Immortals,” “Fnatic,” and “Optic Gaming.” These organisations typically pay the player a weekly or monthly salary. The salary ranges from several thousand a month or more, depending on the caliber of the player and the gaming being played.  For instance, one of the largest yearly salaries, $150,000, was just agreed upon by “NRG Esports” for professional Overwatch player, Jay “sinatraa” Won.  

“If the gamer is classified as an independent contractor in the player contract, then the individual is responsible for paying any and all applicable taxes to the appropriate governing body.”

Whether a gamer is classified as an “independent contractor” or “employee” determines which party is responsible for paying any associated taxes, including but not limited to any unemployment or federal and state withholding taxes. In the U.S., especially in California, a gamer is typically considered an “employee” of the employer (the esports organisation), which imposes a myriad of withholding obligations on the employer.  Most major player contracts include language obligating the team to withhold federal and state taxes from the player’s salary.  However, in other instances, the pro-gamer may be classified as an “independent contractor.” If the gamer is classified as an independent contractor in the player contract, then the individual is responsible for paying any and all applicable taxes to the appropriate governing body.

Additionally, some countries, including Finland, have begun providing specific tax benefits and “write-offs” to professional video game competitors. This is similar to the write-offs provided for other talent, such as musicians and professional football and basketball players.

Kosnahan Law esports IP
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Streaming Monies

Another important and potentially extremely lucrative stream of income to many professional gamers and “streamers” alike is the monies earned from live streaming content on various video streaming platforms. Some of the top video streaming platforms include Twitch, YouTube and Facebook Live. Streaming has become one of the largest and most consistent avenues of income for gamers, including some “streamers” making several thousand a month and some of the largest ones generating several million a year.

The funds earned from streaming are taxed similarly to the revenues earned from a gamer’s participation in a tournament. This means that Twitch (owned by Amazon) and YouTube (owned by Google) prepare a “1099” form to document the money earned by users of its platforms. Each platform has its own requirements and tax information that should be reviewed prior to earning funds from these services. This includes all of the funds earned through advertisements embedded in the stream as well as the amount the streamer earns from “donations” or “tips” provided by stream viewers. While these payments may be characterised as “donations” to the consuming public, that does not reflect their true tax characteristics. “Donations” qualify as ordinary taxable income and the recipient cannot claim these “donations” as tax deductions.

It is important to note that a streamer is sometimes able to deduct certain business expenses. While every taxpayer must consider their own facts and circumstances, gamers may have the ability to take a deduction for business expenses such as the cost of the equipment to record and stream the content, marketing or promotional services used to promote their streaming channel (i.e. Facebook-paid “boosts” or Twitter advertisements), video recording or editing software used to create the final stream as well as any costs associated with data storage or broadcasting of the stream, such as Internet costs.  


In addition to a gamer’s tournament winnings, most professional gamers have both organisational and personal sponsorship and endorsement arrangements. These deals may include monthly payments, yearly fees and/or “trade in kind” provided to the gamer in exchange for a set of listed “deliverables” or requirements.

Any sponsorship money received by a gamer is taxed as income similar to the other player’s streams of income. In addition, a company could also provide a player with free equipment or other related fringe benefits, such as free mileage as part of an endorsement deal with an airline.  Similar to any other type of income, fringe benefits are also taxed based on the fair market value (FMV) of the benefit. For example, if a gamer received free air miles, they will be taxed on the FMV of those miles. Therefore, it is prudent that a player is aware that any “free” or promotional goods they receive from a brand will be subject to appropriate income taxes in addition to the funds earned from the sponsorship deal. While each gamer will have their own unique level of leverage to use in each negotiation, they should explore every possible opportunity while discussing the terms of a contract with a team or potential sponsor.

If a player fails to properly file or misfiles their personal income taxes, they may be subject to a tax investigation, called an “audit.” While the specifics of an “audit” are outside the scope of this article, a gamer needs to be aware and be careful about what they may say in any response to a governing body, if and when the player replies to this type of inquiry. However, as with most important business matters related to a gamer’s career, it is advisable to obtain a qualified professional’s assistance in this matter as anything the player responds will be used as a statement of fact in the matter.

It is apparent that while negotiating the terms of their next gaming contract, professional gamers should utilise the advice of their tax advisor or other professionals to determine the best way to structure the various forms of compensation they receive. Ultimately, the most important financial consideration for a gamer is their net, after-tax income. To the extent any contract can be negotiated to increase its after-tax compensation, a player should evaluate all their options.

This article is not intended as legal or business advice, as an attorney or other professional specialising in the field should be consulted.