As endemic and non-endemic brands rush into partnerships with esports properties, they need to ensure they don’t infringe publisher intellectual property rights. Reed Smith LLP counsel Christopher Hoffman and associate Michael Strauss explain the dangers.
It’s no secret that the esports industry is experiencing tremendous growth. Big-time investments in leagues and teams, significant prize pools, high-profile competitions and remarkable viewership numbers are the norm. The industry is widely expected to reach a $1bn (€914m) market capitalisation in the next few years.
The success of esports, however, hangs in the balance of translating potential into actual revenues. An underappreciated reason for esports’ ascent to the mainstream – and a crucial ingredient going forward – is marketers’ willingness to navigate the complex esports ecosystem to reach its coveted fan demographic. Marketers, though, have their hands full when executing effective creative and branding that organically resonates with esports fans.
They also have to untangle complex legal issues unique to esports, the most prominent of which is publisher intellectual property rights (IP).
The IP dynamic
In esports, someone exclusively owns the games being played. No one owns basketball or has a monopoly over hockey. But in esports the video game publisher does, with exclusive ability to control how its protected intellectual property is commercialised. One example illustrates the distinct challenges facing esports marketers.
Depicting people playing football in a commercial for stain-removing detergent can be accomplished without obtaining a license from the NFL or anyone else. For esports, conversely, depicting League of Legends gameplay in a commercial for that same product must come with the consent of Riot Games, Inc., or significant liability for copyright and trademark infringement may follow.
As publishers control the video games that form the bases for esports, marketers must understand how that dynamic – and its distinctive rights regime – impacts their marketing relationships throughout the esports economy.
The esports marketing roster
Four of the most common marketing entry points in esports present their own legal challenges and considerations.
A direct contractual relationship with a publisher puts marketers in a bilateral arrangement with the key rights-holder. Privity with the IP owner and the benefits of direct access to publisher IP, however, likely comes at a higher price tag. While this relationship may reduce unforeseeable risks, it could leave marketers too closely connected to a single publisher or game that eventually declines in popularity.
Esports leagues are varied. Some publishers operate their own leagues (Riot’s League Championship Series), others partner with traditional sports leagues (The NBA 2K eLeague), while other publishers license their IP to third parties (ESL, ELEAGUE). A marketer involved with a Counter-Strike: Global Offensive (CS:GO) third-party league, must understand that the league could lose its right to operate CS:GO tournaments if the league’s licence with Valve Corporation, the publisher of the esports title, expires or is terminated by the publisher. This should be top of mind for marketers as more publishers operate their own esports leagues or assume greater control over their IP.
Publishers’ ownership rights can similarly impact which teams are playing their video games professionally. Marketers that sponsor existing professional organisations may find their teams no longer playing in the premier esports leagues. Activision Blizzard, for example, is in the process of establishing a worldwide league for its popular game, Overwatch – currently played in different esports leagues globally. The Blizzard-run Overwatch League will be comprised of franchises that come with a reported $20m buy-in, with that number certain to climb. Many existing esports organisations lack the necessary capital for league entry and have disbanded their Overwatch teams, recognising they have been priced out of what will likely become the exclusive league for professional Overwatch gameplay.
Esports players and their relationships with marketers are not immune from the reach of publisher intellectual property rights. For instance, Valve saddles competitive esports players with the Valve Anti-Cheat system (VAC), an automated, cheating detection system. A VAC ban is permanent and non-negotiable. The VAC system is entirely within Valve’s control and those banned have little recourse for reinstatement, potentially leaving marketers with a relationship cut short by an algorithm.
These examples show the issues brought to bear by the publisher IP dynamic in esports which marketers must safeguard against contractually. Provisions granting marketers flexible termination rights tied to publisher-controlled decisions are a must. So too are provisions demanding extensive representations and warranties and indemnities from leagues, teams, and players to mitigate marketers’ risks associated with the uncertainty of the burgeoning sport.
All of this is not to say that publishers will use their IP rights to extract self-serving deals and shape the esports industry primarily for their benefit. But they can. And marketers should enter esports knowing this dynamic exists.