By Irwin Kishner and Adam Unger, of Herrick Feinstein
The year 2019 has been a memorable one for the ever-evolving global e-sports market. For the first time, global e-sports exceeded the billion-dollar revenue mark, with revenues expected to exceed $1.1 billion dollars. You would be hard-pressed to tell the difference between the crowd at a championship e-sports match and one at a FIFA World Cup Soccer match or even the Cameron Crazies at a Duke vs. University of North Carolina college basketball game. E-sports is evolving at such a rapid pace that people in the industry are grappling with what the industry may look like five to ten years down the road. One rapidly evolving aspect of the e-sports industry is sponsorship, which has been behind the highest-grossing e-sports revenue stream in 2019 and is expected to generate worldwide revenues of $456 million dollars.
For a long time, the sponsorship market in e-sports was akin to the wild west. Originally, game publishers were not set up to produce e-sports events, so they would have to bring in third parties to produce the events where the e-sports matches would be played. Fast forward to today, where companies like Activision Blizzard not only make the game, but also create the league in which the game is played, produce the live events and broadcast those events on applications such as Twitch. These developments, coupled with the growing popularity of the sport, has been the impetus for more sponsors to want to get involved in e-sports and build long term relationships with companies like Activision Blizzard. For example, Activision Blizzard’s Overwatch League, now in its second season, has built up a significant sponsorship business, forming partnerships with marquee brands such as Coca Cola, T-Mobile, Toyota and State Farm.
Streaming and Broadcasting of Esports Matches and the Impact on Sponsorships
One of the aspects of sponsorship in e-sports that makes it unique is the streaming and broadcast structure. In traditional sports, broadcasters such as NBC, CBS, FOX and ESPN own the media rights and therefore are in control of selling sponsorship space during their broadcast. As a result, when Toyota advertises during an NFL football game, it is the content distributor (such as CBS) and not the NFL that is selling ad space and receiving the revenue. However, in e-sports the matches are mostly streamed online through a content distributor without a rights deal in place. Therefore, most content distributors do not own or manage sponsorship assets. Rather, game creators like Activision Blizzard own the rights and are in control of selling sponsorships during a broadcast. While e-sports content distributors can sell traditional sponsorship space around the event, the effectiveness of these ads can be limited because of pervasive ad blocker and premium subscription privileges that allow users to block ads. The e-sports industry currently operates in this manner because most of the companies that broadcast e-sports events are not equipped to produce e-sports matches in the way that traditional broadcasters such as CBS can produce an NFL game. In the coming years, however, it is entirely possible that e-sports content distributors will become capable of producing e-sports matches and will be willing to pay to control media rights during the broadcast.
Contract Certainty and E-Sports Sponsorships
Another issue that effects the e-sports sponsorship market is the speed at which the e-sports industry itself is evolving. As attorneys, we know that certainty is a very big factor when it comes to negotiating contracts. The less certain the future is, the more difficult it becomes to negotiate and define the future obligations of the parties entering into a contract. This is the exact scenario that potential e-sports sponsors and e-sports game creators and leagues are facing when it comes to structuring sponsorship contracts. Whenever a sponsor wants to become involved with an e-sports game or league, it is difficult for the sponsor to be certain about how long that game or league will remain relevant. Will a new, more popular game come out, and if so, will that make the league in which that game is played irrelevant? Will new technology be developed that makes current gaming technologies obsolete? These are all challenges that must be negotiated between the e-sports game creators and leagues and the potential sponsors. Sponsors are reacting to the level of uncertainty by asking for terms in their contracts that allow the sponsor to have preferential treatment to become involved in any new game or new technology that the e-sports game producer or league has coming down the pike in the next few years. From the e-sports game creator or league perspective, if a sponsor wants to be a player in the e-sports space long term, and gain access to the coveted attention of millennials, then it is time to get involved now. As the numbers evince, this argument is currently winning the day.
What does the Future Hold?
Predicting how e-sports will evolve in the coming years is difficult. In terms of sponsorship, it is likely that more non-endemic brands (brands that produce products that are not directly related to e-sports) will want to become involved in sponsoring e-sports events and leagues. Additionally, brands that sponsor an e-sports league may want to get access to individual players as well, especially as more players develop a popular following. It’s entirely possible that as e-sports become more and more popular it could start pulling significant sponsorship dollars away from traditional sports. This may be why some traditional sports franchises, such as the Golden State Warriors, Philadelphia 76ers, Houston Rockets, Sacramento Kings and Cleveland Cavaliers have invested in the e-sports industry.
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