Find out today what the legal world will be talking about tomorrow.
Esport as a hot opportunity also for “sweet” brands? – A short guide!
The medial excitement surrounding electronic sports, the competition between human players in computer games, has not only been continuing for some time now, but is also steadily taking off for its next flight to new heights. The economic indicators are at times climbing so rapidly that even the last esports sceptics are slowly thinking about whether this topic is really just a temporary hype or whether esports is a permanent factor and a new value chain.
The worldwide growth rate of the esports since 2015 is around 36%1 per year. Global sales increased from 308 million euros in 2015 to the forecast of 1.4 billion euros for 2020. Already 32%2 of Germans have watched an esports match – compared to only 12%3 in 2015. By 2022, the number of people who occasionally follow an Esport match is expected to rise to 347 million4. In 2018, Esports tournaments collected approximately 50 million euros in entry fees and payed out 140 million euros in prize money to the athletes.5
While the sceptics are still in doubt6, the first snack-manufacturers are already establishing themselves as international pioneers in the field of esports.
High attractiveness of the Esport sector also for snackmanufacturers
The industry is particularly attractive for snack-manufacturer as viewers and players of the esports alike are a young and dynamic target group that has become difficult to reach via classic media and advertising. Especially, the main advertising medium television hardly reaches this target group nowadays.
Esportlers are (still) predominantly male, between 18 and 34 years old, well-educated and have above-average technical affinity. The electronic competitions are still mostly consumed via different streaming offers on the Internet. Accordingly, Amazon had already bought the streaming top dog Twitch.tv in 2014 for approx. 1 billion US dollars and has continuously expanded it since then. The German TV station SPORT1 launched the first German 24-hour sports channel, eSPORT1, at the beginning of this year in order to reach the esports target group by offering appropriate content.
However, the commercial significance of “physical” events is simultaneously growing rapidly. The biggest titles – League of Legends and Overwatch – are now organized in large franchise systems and in some cases require the participating teams to have a home stadium. The major tournaments for the title Counter-Strike: Global Offensive (CS:GO) in Germany fill the LANXESS arenas in Cologne and the Mercedes-Benz Arena in Berlin with between 12,000 and 15,000 live visitors.
It is therefore not surprising that even large international companies, including the food, energy drink and confectionery industries, are keen to take advantage of this opportunity. As an example, Snickers, Coca-Cola, Pringles and Nestlé’s Lion Cereal have already launched a successful engagement in esports.
Computer game as the basis of esports
The respective computer game as the underlying “electronic sport” is also the crucial point of the esports from a legal point of view. A computer game is classified as a so-called complex work and as a so-called hybrid work by the Federal Supreme Court (BGH).7 A computer game is referred as a complex work as the various elements such as the story, the music, the software code and the graphics are partly subject to their own copyright rules. The BGH describes the computer game as a hybrid work – a work which is basically protected as a computer program (software) and at the same time contains various other elements protected by copyright law (story, music, graphics) which are embedded in the software code and thus embodied as software code.
With the computer game as a copyrighted work, the electronic sport, unlike traditional sport, always belongs to an individual or company – regularly the publisher.
With the intellectual property of the underlying sport, the publisher also holds the (legal) reins of the respective esports in his hands. This specifies the rules of the game, the playing field, the grandstands as well as the permission to play. On the other hand, the publisher is also the biggest beneficiary of a growing and flourishing community around his electronic sport. In any case, companies that want to participate in this community and esports cannot avoid the respective owner.
From the big franchise...
On the one hand, there are publishers who keep a firm grip on the reins and completely define the esport around their games “from top to bottom”. Recently, esports has increasingly been organized in franchise systems. The publishers specify, among other things, fixed competition regions, the rules of the game and the schedule of the league. The participating teams buy their place in the franchise for huge amounts of money and contractually submit themselves to the given franchise regime – but can no longer fall out of the league by way of a relegation.
Naturally, this results in very extensive and complex legal constructions and contract chains for all parties involved. The roles of involved companies are usually fixed from the outset in a franchise system. The sizes and scope of the advertising and sponsorship packages available are predefined with all parties involved and amendments are difficult to negotiate.
Even smaller contractual adjustments can quickly generate greater costs in order to enforce or renegotiate the adjustments at the other levels and with the other partners of the franchise system – the (commercial) incentive to take up these efforts must be correspondingly large. The publisher’s copyright situation gives him a very pronounced negotiating position from the outset. As a result, there will regularly be few possibilities for individual adjustments.
However, as soon as one can get involved in the regime of the franchise system, one is rewarded with comparatively high legal certainty as well as calculability of one’s investment. The legal agreements are regularly made with the publisher, the owner of the electronic sport. As master of the franchise system, the publisher can most effectively protect the interests of the participating company such as brand safety, sector exclusivity in large international regions and ultimately the value of the investment made and enforce it “from above”. However, these advantages usually also have their corresponding price.
As a result, esports can offer less flexibility in franchise systems, but relatively high securities.
…to the tournament flood of international third party organizers
On the other side of the spectrum, there are also publishers who leave their games and esports to the community in a largely self-regulating way. These publishers generously license their games for electronic competitions to anyone who wants to organize a proper tournament. As a result, a large number of such thirdparty organizers have established themselves all over the world in recent years. For computer games such as “Counter-Strike: Global Offensive” this has led to a veritable flood of competitions of every size and form. The spectrum ranges from local city matadors to major international events.
For companies that want to establish themselves in the esports industry or simply give it a try, this primarily means a lot of freedom. The large spectrum and high number of tournaments and tournament organizers offers numerous investment opportunities in the form of advertising and sponsoring commitments. Depending on budget, target group and risk tolerance, there is something for everyone. The contractual negotiating positions are also generally much more flexible.
Freedom and flexibility come at the price of increased (legal) uncertainty. Contracts are no longer concluded with the right holder himself, but with licensing third parties. During the negotiations, particular attention must be paid to legal safeguards and guarantees as well as to a firmly agreed claims settlement. Of course, the reputable third-party organizers are also interested in a legal environment that is as secure as possible. However, this is only in their hands up to a certain point. Due to the multitude of different organizers in the same “electronic sport” – in the same computer game – the controllability of the community by the individual is rather limited. For example, a company can already establish itself in the entire community of the respective esports through cooperation with a larger organizer, but is not in control of how the community develops among the other organizers at the same time – the risk for its own brand safety and the intrinsic value of the investment in esports is correspondingly higher for participating companies. This can only be legally controlled to a very limited extent, if at all.
The opportunities for establishing oneself in esports are very diverse and extensive. Depending on the budget and willingness to take risks, this up-and-coming industry represents a great opportunity even for the snack section to reach a target group that is very difficult to reach via traditional media. However, with the right balance between risk and legal protection as well as an adapted strategy, even in this fast-moving jungle of this rapidly growing and promising industry, calculable and ultimately worthwhile investments for snack manufacturers are possible.
Published in Newsletter Confectionery Industry Special – 2020 edition.
2 Deloitte, Continue to Play – The German eSports Market in Analysis, p. 12.
4 Newzoo, 2019 Global esports market report, p. 23.
5 Newzoo, 2019 Global esports market report, p. 6.
6 Jung von Matt/SPORTS already coined the term COMO – “the cost of missing out”.
7 Federal Court of Justice, Judgement of 27/11/2014, I ZR 124/11 – Videospiel-Konsolen II.