Sponsorship Agreement

The most recent market research shows that sponsorships are still the biggest source of revenue in the esports market. According to data from Statisa^[1], on the year of 2022 these amounts ​​reached almost 4x the revenue from broadcasting rights, positioned in second place in this ranking. A very clear reason why sponsorships have a relevant volume in this esports revenue map is related to the multiple ways and stakeholders they can involve: athletes, organizations, events, influencers – all of these, invariably, can receive support through the most varied brands and entities (endemic and non-endemic brands, private companies, government entities, among others).

Therefore, given the importance of such revenue in the esports environment, it is natural that operations involving investments for this purpose are backed by a legal document that shall detail the obligations of each party involved – this is what we call sponsorship agreements.

Definition

Usually, a sponsorship agreement is a private contract, through which a brand/company makes financial contributions to an organization, an athlete or an event, in exchange for the exposure of its brand for a certain period of time. In the case of an esports organization, traditionally the sponsor’s brand will be placed on the organization’s uniforms, on its website and social media profiles, therefore taking advantage of the bond created between brand and esports organization with the latter’s fans and followers as well as other esports enthusiasts that may get in contact with the sponsored team.

However, the sponsored party’s deliverables can be diverse, especially in the world of esports, where there is an umbilical relationship with the digital environment. Among the possible deliverables – the sponsored party’s obligations to the sponsor – we can find the creation of digital content with the organization’s players and influencers (promotional videos, stream sessions, posts on social medias), the presence of those professionals at sponsor’s events, the launch of products labeled with the image of the organization’s athletes and its brands (which results in cross-licensing of assets – the organization licenses its rights so that the sponsor can exploit them in its portfolio of products and services), among others.

In this context of sponsorship agreements, special attention must be paid to the so-called Naming Rights – a type of sponsorship in which the sponsor acquires the right to insert its brand in the name of the organization itself (e.g.: VIVO Keyd^[2], TSM FTX^[3]), of the events organized and even of the team training centers and facilities^[4], something quite common in the world of esports.

Sponsorship agreements are usually temporary (e.g.: 1 year; 1 split) and the compensation offered by sponsors is generally in financial terms, payments made in installments throughout the term of the contract. Sometimes, these contracts have clauses with bonuses linked to certain events, such as winning a certain championship or reaching a certain number of views of content promoted by the sponsored party.

Other forms of compensation

It is not uncommon to see other forms of compensation offered by sponsors, such as goods for the sponsored party to use or to distribute to their audience (e.g. computers, headsets, gaming chairs). Sponsors of the media market, for example, sometimes offer their broadcasting and publicity services in exchange for exposure of their name and brands and the right to negotiate advertising quotas in the broadcasts of a given tournament. As previously stated, the structure of a sponsorship agreement, both in terms of deliveries and compensation, can be widely varied.

An important point, which cannot be left aside, concerns the secondary obligations of these types of agreements, which are no less important. One of the main clauses used in such agreements concerns the protection of the sponsor’s brand and image, through which the sponsored party commits not to promote acts that could cause any damage to the sponsor’s good name (e.g.: getting involved in matchfixing or doping scandals; uttering offensive public opinions; speaking negatively about the brand’s products; among others), under penalty of a motivated termination of the relationship with the application of possible penalties. In this example, sometimes there is also a mutual obligation in this sense – if the sponsor promotes acts that could affect the image of the sponsored party, the latter may also terminate the agreement with just reason.

Another obligation typically observed in sponsorship agreements is the exclusivity clause, whereby the sponsored party undertakes not to enter into new sponsorship deals with competing brands nor to participate in actions linked to products from its sponsor’s competitors, for obvious reasons. However, when designing clauses of this type, it is also necessary to consider that eventually an organization might participate in events in which the official sponsors might be a competitor and it may required the production of content with team members, a situation in which some exceptional rule must be applied.

Still in this context, those who participate in tournaments and championships must adhere to the sponsorship rules that such events impose on participants, and it is quite common that certain categories of products and services cannot be advertised in that specific competition (e.g. alcoholic beverages , casino games, smoking products). Such details must be considered when creating a sponsorship agreement, especially when the sponsor may be included in one of these prohibited categories.

As it can be seen, this typical dynamic of the world of esports shows that there can be different rules and clauses established through a sponsorship agreement, and it is important for both the sponsor and the sponsored party to understand the nature of this ecosystem and its objectives in the relationship to be constituted. One point is quite clear: a sponsorship relationship is clearly mutual – either both benefit, or both succumb – and the agreement that regulates this relationship will dictate how the contractors will deal with it.

^[1] Available at: <https://www.statista.com/statistics/490358/esports-revenue-worldwide-by-segment> access on 22 February, 2024.

^[2] Available at <https://esportsinsider.com/2022/07/vivo-keyd-renews-naming-rights-deal>, access on 22 February, 2024

^[3] Available at <https://cointelegraph.com/news/ftx-crypto-exchange-seals-210m-naming-rights-deal-for-esports-behemoth-tsm> access on 22 February, 2024

^[4] Available at <https://igamingbrazil.com/en/esports-en/2023/08/15/esportes-da-sorte-closes-sponsorship-with-pain-gaming/> access on 22 February, 2024.