les Nouvelles September 2022 Article of the Month:
Your Free Time Is Worth $200 Billion: A Look
Into The Licensing Infrastructure Of Casual
And Competitive Gaming
Patent Agent / Senior Associate
Houston, Texas, USA
MasterCard has joined with the North American League of Legends Championship Series (LCS) in a global, exclusive partnership.1 Perennial European championship-contender Team Fanatic partners with Gucci in a collaboration for a $1600 luxury diver’s watch.2 Even legendary comic book and media magnate Marvel Corporation has gotten in on the action with a partnership with Team Liquid for team jerseys inspired by the hit film The Avengers.3
These are only a handful of the brand partnerships that have recently been announced, much to the shock of non-devotees of the esports and gaming markets. From luxury brands to automobiles, from universities to marketing monoliths, more money is flooding into a specific subset of the gaming market—esports— through huge licensing deals with game developers. How did this happen, and what are some of the takeaways that can be beneficial to the traditional licensing community as a whole?
In 1984, David Stern became the commissioner for the National Basketball Association—at the time, a relatively small yet profitable company that was far from its naissance. Under his leadership, the NBA made a move that exploded the opportunities for the league, as well as opened the market to an ever-larger subset of the American population—he engaged the production media in licensing deals that would deliver the league billions in revenue through broadcasts, but also significant funds through collaborative branding during commercials and other advertisement opportunities. This led to a massive influx of new funds into the league, and the NBA became the advertising and branding giant we now know it to be. Other traditional sports leagues soon followed suit, and over the past three decades there have been sizable gains in global popularity. Setting up long-term broadcasting agreements with large media corporations was a significant step in establishing the financial foundation in professional sports, and that foundation is being built upon by a hidden group of IP-savvy 30-somethings who are obtaining venture capital and have significant access to their customer bases through social media.
With a projected value over $200 billion by the end of 2023,4 it seems that everyone is getting into the frenzy of competitive gaming. Aside from teens becoming overnight millionaires from tournament and other professional winnings (16-year-old Kyle “Bugha” Giersdorf won $3 million from the Fortnite World Cup alone), the licensing structures that provide the necessary infrastructure to get a payout are complex and relatively unknown to the broader public. Never before have game publishers had more control over their downstream users, namely due to massive intellectual property operations that secure the copyrights for the characters, trademarks for the studios, and patents for the underlying technology.
The top level of this infrastructure is that of the game developers. These are the studios who have created one or more video games that competitors play casually or in a professional environment. One of the most well-known examples of such a game developer is Riot games, recently purchased by Tencent, a Chinese multinational holding company. Riot games publishes League of Legends, perhaps the most widely played video game in the world currently with 115 million unique users each month. League of Legends is a freeto- play game, meaning it is available for download and unlimited play free of charge. Other game developers of some of the most popular competitive games include Valve (Counter Strike: Global Offensive) and Blizzard (Hearthstone, Overwatch). Developers like these and many more own every aspect of the game itself. They own patents on the user interface within the game itself, the technology to deliver the game content from their servers to a player’s machine, and even the software itself in some cases and jurisdictions. The developers equally own copyrights on the in-game storylines, characters, and music. Late last year, Riot Games partnered with Netflix to release the mega success Arcane based on several storylines from League of Legends. Finally, game developers own trademarks on the game studio itself, as well as other retail merchandise available for purchase through direct websites and online distributors.
With total control over the games they’ve developed, developers also have complete control over professional esports leagues where salaried players compete weekly with other professional players. Similar to traditional sports, these developer leagues sell franchise slots to compete under a team banner within said league. Several NBA franchises have even purchased slots within Riot’s North American League Championship Series (NA LCS).5 The teams that play within these leagues that are owned and managed by developers are the second level of this infrastructure.
Team Liquid is one of the most successful organizations within competitive gaming, fielding teams for no fewer than 15 different professional esports leagues. Liquid also has a number of major brand partners, including Monster Energy, Honda, and SAP.6 The relationship between a team and the game developer (through the league under which it plays) brings a unique element and complexity to the sponsorship environment. As alluded to above, a game developer, and the league itself, consequently, has essentially total autonomy in its choice of partner. This autonomy can lead to downstream complications with respect to branding. If a league were to partner in an exclusive capacity with a third party, no team could accept even team-level sponsorship from a competitor within the same industry. Further still, any brand is free to partner at a variety of levels—league, organization, or team. Bud Light recently sponsored a media segment at the league level for the NA LCS.7 Team Liquid’s partners, for example, have engaged at the organization level, meaning each team fielded under the parent organization’s brand are sponsored—regardless of which game they are actually playing. All of these partnerships would amount to nothing without a medium through which to advertise to broad swathes of the growing demographic which identifies itself as a casual gamer—and this is where streaming, the third level of the esports infrastructure, enters the picture.
Brands are increasingly engaging with professional leagues and teams largely due to increased viewership from target demographics. Newzoo recently reported there are an estimated 2.7 billion gamers globally, and these gamers likely spent almost $160 billion on games in 2020 alone.4 Gaming platforms like Twitch facilitate the increased consumption of video game content. Twitch is a streaming service that allows a user to view a streamer playing a video game in real time. Microsoft saw the opportunity in owning a streaming platform and purchased Mixer in 2016. In July of this year, it announced Mixer was shutting down in favor of a partnership with Facebook’s gaming division.9 Some streamers have found significant financial success by simply allowing themselves to be viewed playing either the game in which they compete professionally, or a sponsored game. Two of the most popular streamers on Twitch (Tyler “Ninja” Blevins and Michael “Shroud” Grzesiek) were offered some $40 million in total to sign exclusively with Microsoft’s streaming platform Mixer, only to be free from the contracts after the venture was discontinued shortly thereafter. With this streamer tier, game developers will sponsor a select few to preview or even debut any number of games issuing from their studio. This will benefit both the streamer and the publisher for the same reasons—the target demographic is precisely the type of consumer who would be viewing this streamer, lowering the cost of customer acquisition. The streamer, while getting to debut a new game free of charge, can also increase pre-sale excitement and buzz within the market while experiencing enhanced viewership for the same reasons.
Esports also has brought with it some unprecedented intellectual property concerns, in addition to the complex nature of licensing as seen in other industries. Riot games has leveraged its virtual playground of the game itself into a monetization cog within its licensing infrastructure in a manner which bears some reflection. In a collaboration with Riot games, luxury brand Louis Vuitton designed the trophy case for the League of Legends World Championship and offered a virtual costume set bearing the French designer’s famous trademark for purchase. This is the quintessence of intellectual property, in that a real trademark for a real company is being licensed to a virtual character— for real money. To take it a step further, Riot has also licensed in-game content to their mega-sponsors as well. Within the game League of Legends, the field of play is adorned with unmarked banners and flags throughout various areas. For special competitions, however, Riot has granted license for the branding of these and other in-game content. For years, Riot has integrated team names and trademarks into specific matches during the final rounds of a season within the NA LCS. However, this is of little consequence, considering the league—owned by the developer—has a right to use the team’s branding and trademarks for purposes of advertising and otherwise enhancing the reputation of the league itself. Selling branding opportunities to a third-party within a virtual space is a new step further.
In summary, esports and competitive gaming are growing at astronomical paces and bringing in a proportional amount of investor and vendor money as a direct result. With revenues increasing and a wider audience not projected to diminish by all available data, game developers who also manage professional leagues seem to have cracked the code in monetizing each and every interaction within their commercial space. The game itself, which may be free or not, offers in-game purchases that alter cosmetic appearances of characters or items. Leagues bring in franchise fees, media rights broadcasting fees, and advertising dollars. Streamers build popularity and followings for not just games themselves, but for successful developers who obtain a reputation for quality gaming products. This analysis doesn’t even take into account the non-trivial amount of retail merchandise that is sold as popularity increases for a game or game series. We are seeing vertical integration of each segment within a service line at an unprecedented level. Rarely before has a business been able to license through each segment of its value proposition as is being seen within the competitive gaming sub-industry. Game developers and competitive gaming itself has been able to not only tap into traditional markets of monetization, but to effectively create new ones from a proprietary virtual space—creating revenue from no geography that can be found on a map. ■
Available at Social Science Research Network (SSRN): https://ssrn.com/abstract=4019653.
- https://mastercardcontentexchange. com/newsroom/press-releases/2019/august/mastercard-expands-global-relationship-with-riotgames- as-exclusive-category-partner-of-league-oflegends- championship-series-in-north-america/#:-~:text=Mastercard%20today%20announced%20it%20 has,with%20the%20largest%20esport%20in.
- https://newzoo.com/insights/articles/newzoo-games-market-numbers-revenues-andaudience- 2020-2023/.
- https://esportsobserver.com/bud-light-officialbeer-lcs/#:~:text=The%20League%20of%20 Legends%20Championship%20Series%20(LCS)%20 has%20named%20Bud,of%20a%20multi%2Dyear%20deal.&text=Following%20Bud%20Light’s%202019%20 sponsorship,%E2%80%9Cofficial%20beer%20of%20 esports.%E2%80%9D.