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The Rise of In-Game Advertising

Posted: 02/11/2021
Industries: Sports and Entertainment

In recent years, businesses of all shapes and sizes have seized upon opportunities to advertise within the video game industry, and particularly in connection with esports games. As an example, BMW signed global partnership agreements with five major esports teams last year (Cloud9, Fnatic, FunPlus Phoenix, G2 Esports, and T1 Entertainment & Sports). Each of these five teams have one thing in common – they all play in esports tournaments for the game League of Legends (LoL). LoL has been the most-watched esports game for several years running. Big brands like BMW want to engage with a demographic that presently exceeds three million viewers per year.

While sponsorships of esports teams, esports tournaments, and individual esports athletes is a relatively new phenomenon, advertising within video games is not. Up until recently, in-game advertising has mostly taken the form of banners or static (hard-coded) advertisements within games. However, an emerging, more dynamic form of advertising is pushing the boundaries of what is possible. Traditional sports moved towards “dynamic” advertising several years ago with, for example, virtual advertisements appearing behind the batter’s box at baseball games. These advertisements are only visible in the broadcast of the game; they are not viewable by the players or by persons who are physically present at the game. Now, similar “dynamic” advertisements are becoming available within video games.

In May of last year, Riot Games, the developer of League of Legends, announced a “dynamic” in-game advertising campaign, with Mastercard and Alienware among the first brands to be featured. LoL is a Multiplayer Online Battle Arena (MOBA) game with teams of five players going head-to-head on a virtual battlefield called “Summoner’s Rift.” These battles can often last thirty (30) minutes. LoL is an immensely popular esports franchise. It was the most watched esports game of 2020, with over three million unique viewers (spectators). Given the number of viewers, and potential viewer engagement window, this environment creates a perfect place for advertising.

The League of Legends “dynamic” advertising campaign seeks to present advertising only to viewers of the game, and not the players. The ads are placed on banners throughout the “Summoner’s Rift” battlefield. So, as players progress through the battlefield, viewers will see different banners in the background. If this campaign proves to be a success (and it almost certainly will be), the developers of other major esports franchises like Overwatch (Blizzard Ent.), Counter-Strike: Global Offensive [CS:GO] (Valve Corp.), and Valorant (Riot Games) will have to follow suit. This will, in turn, create a multitude of advertising opportunities for brand owners.

Advertising within video games has a tremendous upside. As of 2020, according to the Business of Apps, there were roughly 2.7 billion gamers worldwide. Twitch, the largest videogame streaming service at present, compiled 990 million hours of viewership relating just to gaming content in 2019. More than 70 percent of gamers are over the age of 18, and the average gamer is a 34-year-old parent and home owner. Studies also show that players and video game content consumers, on average, are more likely than Internet users to buy products, and to influence others’ purchasing decisions.

Consider the following example of the potential. According to Sports Media Watch, the “MLS is Back Tournament” (Major League Soccer’s return-to-play after COVID-19) averaged 226,000 viewers per game, and 394,000 viewers for the championship match. Sportswear giant Adidas contracted to have a virtual advertisement shown at the midfield circle during each game. Navigate, a data and analytics firm, concluded that the ad was worth up to $100,000 per match for Adidas, a total value of $5.1 million over 51 matches. When you consider the fact that League of Legends had over three million viewers in 2020, the potential benefits from “dynamic” advertising within esports games may well surpass those of traditional sports.

While brands may be eager to seek esports advertising opportunities after hearing all of this, there are some risks to consider. For example, who will create and own the advertising content that is placed in-game? Because the advertisement is being placed within the overall game aesthetic, game developers may want to exercise more control over the advertising format and content; should you let them? What is the game developer’s commitment to making sure your advertising message is seen? In the example of LoL, what if players during a game never go to the portion of the Summoner’ Rift map where your banner is placed – will the game developer provide a partial refund in that case? Many of these concerns also apply to traditional advertising, but “dynamic” in-game advertising presents some unique challenges.

To mitigate risk in connection with in-game advertising, brands must consider several fundamental categories of legal concerns. First, brands should seek an unqualified commitment to delivery of their ads under the terms of the applicable agreement. Brands may also want to consider paying a premium for exclusivity, especially when you consider the potential of a 30-minute continuous engagement window for viewers. When seeking exclusivity, clearly lay out the agreed-upon terms, including a precise definition of the types of companies or third party brands that constitute competitors. Other key points in any advertising agreement include air time, ad positioning, and ad size.

Second, brands need to consider the relevant data privacy concerns. If data is collected by the game developer, how much of that data will be shared with the brand owner? Given the global popularity of esports, what is the impact of foreign data privacy laws on such data collection, use, protection, and sharing? Is data being collected from children? Can the data be anonymized to exclude personal information? Any advertising agreement that includes provisions for data collection should contemplate federal and state domestic privacy legislation (such as Children’s Online Privacy Protection Rule) as well as international privacy laws (like the European Union’s General Data Protection Regulation). Such agreements should also take liability and indemnification into consideration, in the event there is a data loss or breach.

Third, brands must make sure that in-game ads are compliant with Federal truth-in-advertising law (i.e., they must not be misleading or unsupported by sufficient data). The Federal Trade Commission will seek to enforce consumer protection laws when advertising claims are false or misleading. The advertising agreement should address this risk and apportion responsibility accordingly.

Fourth and finally, brand owners and game developers must address intellectual property issues in any “dynamic” in-game advertising agreement. Besides who will create and own the advertising content, the parties must consider any liability stemming from the ads themselves, or content within the ads. One possible scenario is that the brand creates and owns the ad content but grants the game developer a limited, non-exclusive, royalty-free, non-transferrable, non-sublicensable, worldwide license to use the content solely to the extent necessary to perform the ads within the game.

Dynamic in-game advertising offers tremendous opportunities to brand owners. To fully capitalize on these benefits, however, it is vital that brands identify and limit the legal risks at an early stage. To be certain, the upside of getting your advertising message out to millions can be tempting, just don’t forget to consider all the risks, or it could be ‘game over.’

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