Sponsorship in esports: look before you leap

Posted in Intellectual property eSports

This article is part of a series of Norton Rose Fulbright articles about legal, regulatory, commercial and governance issues facing the esports industry.

Author: Tong Lap Way

Mirana, a Dota 2 character, has the ability to leap, allowing her to cover large distances in moments. A well-timed leap can secure a much-needed kill, but a poorly-judged one could also cost her team the fight. As more brands consider sponsoring esports teams and competitions, it is always worth remembering what every good Mirana player knows: look before you leap.

In March, the League of Legends Pro League (LPL) in China, a hugely popular competition with 16 professional teams and 14 million viewers, entered into a four year sponsorship deal that is valued at US$7.8 million annually according to Lanxiong Sports, yet another sign that esports is entering the mainstream and brands are recognizing the sponsorship opportunities in the field.

Esports was previously dominated by closely related sponsors who wanted to promote the latest silicon chips, the most popular streaming platforms and cutting-edge gaming peripherals. The benefits for these sponsors were clear. The early adopters of esports were overwhelmingly serious gamers who were purchasers of high end gaming gear and spent large amounts of time watching streams.

Since those days, esports audience numbers have grown exponentially. Esports had approximately 173 million viewers in 2018 and that number is projected to grow to 276 million in 2022[1]. The audience is diverse, geographically dispersed and highly engaged; no wonder prominent brands such as Coca-Cola, Airbus, Paypal, Puma and Adidas are getting in on the action.

The LPL sponsorship is yet another example of companies recognizing the value of marketing and sponsorships in esports. Esports has a young, digital and global audience with 79% of viewers under 35 years old and more than 50% of viewership coming from Asia (a large percentage of whom watch on mobile). This allows advertisers and sponsors to target consumers with high consumer life time value in geographies with low traditional media market penetration.

As with all new fields, there are risks and pitfalls worth considering as advertisers and sponsors enter this space:

  1. Who to sponsor: The term “esports” is thrown around a lot but esports is not a monolith; it is diverse and varied. When exploring opportunities in this space, advertisers need to decide whether to focus on specific games, be it the more established games like League of Legends or newcomers like Fortnite, or to cast their net wide (for more information click here). Furthermore, they need to determine the scale of their campaign and choose between industry players including publishers, tournament organizers, streaming platforms, teams and players. It is worth noting that, much like the sports and entertainment industry, esports players operate in a superstar economy and the top players can have significantly more influence and reach than entire teams or even tournaments.
  2. Beware dual screening: While the viewership numbers are high and growing, advertisers should understand that esports viewers are digital natives who are comfortable with multitasking. This means they may have a League of Legends match running on one screen while watching Youtube on another screen at the same time as responding to WeChat messages on their phone. This split in attention should be considered when building an advertising campaign or considering a sponsorship deal.

Sponsorship agreements in esports are also unique and while the market norms are by no means set, they are likely to differ from traditional sports sponsorship agreements in a few ways:

  1. Digital Assets: Esports apparel goes beyond physical jerseys, hats and scarves. Teams in the Overwatch League or the League of Legends World Championship have unique skins for their in-game characters with team colours and logos emblazoned on their avatars. These skins are sometimes sold to the wider player community; players can buy and use them in-game as a sign of loyalty and support for their team. One could easily foresee the day when these digital assets begin to incorporate the entire jersey of the team, including the sponsor marks. Advisers with a keen understanding of current trends, new technology and emerging business models can assist sponsors in drafting sponsorship agreements that take full advantage of such opportunities to raise brand awareness in new and unique ways.
  2. Relegation: Similar to traditional sports teams, esports teams play in multiple tournaments. Their exposure and therefore the number of impressions a sponsor’s mark receives is determined by which tournaments they play in and how far they advance in those tournaments. Traditional sports sponsorship agreements usually have a clause that varies the agreement when a team is relegated from a particular league; this protects sponsors from being locked into a costly contract with a failing team. However, esports is far less binary. According to Liquidepidia, the 2018 Dota 2 calendar alone consisted of 10 premier events, 17 major events and a whole host of minor and qualifier tournaments. Advisers with a good understanding of the tournament structures and relative importance of each tournament can draft variation clauses to protect sponsors from the unpredictability of player moves, losing streaks and relegation.

With growing media attention and ever-increasing audience numbers, the opportunities for sponsors and advertisers in esports are clear. Many sponsors and advertisers may be tempted to dive in head first and move as fast as possible before opportunities become more expensive; however, without a proper understanding of the field, this could be a costly mistake. The longevity of this industry and the games that constitute it are, as yet, untested. An expensive sponsorship agreement which lacks adequate protections or partnerships with financially weak entities could result in a poor return on investment, or worse, significant damage to the sponsor’s reputation and brand. As advertisers and sponsors venture into this new field, the right information, tools and advisers will allow them to separate the hits from the duds on their search to finding the next Steph Curry.

[1] Source: Goldman Sachs Investment Research, NewZoo survey (2018 Global Esports Market Report)

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