KNOWLEDGE UPDATE
Virtual advertising
With the increasing prevalence of the use of virtual advertising technology across sport and other live events, we have considered in this article key legal and regulatory considerations arising from its adoption. It is clear that the technology affords significant opportunities for rights holders and brands alike. However, there are inevitable complexities arising from its implementation in contrast to the relative simplicity of physical advertising which merit attention in order to ensure an alignment of interests is achieved.
What is it?
Virtual advertising (otherwise referred to as “digital board replacement” or “digital replacement technology”) is the digital insertion of non-physical advertisements into selected broadcast feeds of live events, giving the appearance that such advertisements are physically present in-venue. This can broadly be split into two categories: overlays and inserts. An overlay is a virtual advertisement placed over existing physical inventory (e.g. perimeter boards). An insert is where the virtual advertisement is placed into an empty space without any physical inventory in-venue (e.g. onto the pitch itself).
The prime example of overlay is the substitution of sponsor advertising on perimeter boards visible in the stadium with an alternative sponsor brand for audiences viewing elsewhere in the world. Currently, most virtual advertising takes the form of overlay.
An example of an insert would be the display of sponsor logos on a tennis court or hockey rink, on or adjacent to the field of play, where there is no physical advertising inventory. The suitability of inserts is sport specific and, with advances in the technology, its use has grown as an alternative or additional form of virtual advertising to overlay.
Virtual advertising is delivered through software-based solutions, allowing its integration into the broadcast feed, with the intended outcome that the viewer is unaware they are viewing a purely virtual advertisement. Key providers in the market include: uniqFEED, Supponor and ISG.
For those less familiar with virtual advertising technology, we have included below a video by TGI Sport (which acquired ISG in 2022, with Northridge acting for TGI Sport on the deal) showcasing the technology and what it can do for sport. The video can also be accessed here.
How is it being adopted across sport?
Benefits
There are clear benefits to the technology for rights holders in enabling them to maximise their commercial inventory. Brands may view its emergence with greater caution given the potential impact on traditional inventory, however, its deployment can also enable a more sophisticated advertising strategy for brands. Possible advantages include:
Targeted ads
The ability to geo-target virtual advertisements to specific territories can benefit both the advertiser and the viewer. It brings the ability to tailor the advertisements to audiences based on relevance, rather than imposing the passive broadcast of physical in-venue advertisements to global audiences, with no control over the relevance of the particular brand or product to the specific markets. Those advertisements may be unavailable in the viewer’s territory, advertised in a different language, culturally or contextually irrelevant or inappropriate, or illegal.
Smart inventory
For rights holders, the potential to monetise the same inventory multiple times in parallel over different broadcast feeds, or even create a new digital-only inventory, brings the opportunity to increase advertising revenue and cast a wider net over brands in different jurisdictions seeking the potential to target audiences by location.
As with decisions on the segmentation or consolidation of any rights holder sponsorship inventory, an assessment will need to be made as to the value of multiple sales of inventory in different jurisdictions against the centralised sale to one exclusive partner. There is a natural challenge to the exclusivity sought by category sponsors brought about by the deployment of virtual advertising. However, the principle of being able to regionalise sponsorship deals in this manner has an obvious allure for the rights holder.
Against the backdrop of financial regulation in sport and the pressure to modernise traditional sports assets into tailored entertainment products, rights holders will naturally be eager to utilise the technology to facilitate this enhanced offering and global reach.
Quality and cost of delivery
The use of software to insert advertising into broadcast feeds can allow more compelling visual imagery to be displayed. Physical infrastructure and hardware costs may create a barrier to entry for rights holder or simply be a limiting factor from a technological perspective in the type of advertising displayed.
Tensions
There are, however, a number of tensions and complexities in connection with the implementation of the technology:
Dilution of impact for in-venue sponsors
Sponsors paying considerable sums for in-venue sponsorship rights are, to varying degrees, doing so for the exposure to audiences around the world over broadcast feeds.
Without express contractual protection, sponsors are exposed to a potential dilution of impact where a rights holder facilitates the virtual overlay of the sponsor’s in-venue rights. Some general sponsorship agreement mechanics regarding non-delivery of rights may provide a degree of protection in some circumstances, but with the increasing application of virtual advertising, brands would be well advised to seek specific contractual protection (e.g. warranties precluding the implementation of virtual advertising over the brand’s in-venue rights, and due consideration of the application of “make-good” and termination provisions to any dilution of rights resulting from any virtual advertising).
On the basis that brands may have valued a sponsorship based on an assumed media value of reaching all viewers globally, there is a measurable reduction in value by loss of that audience in any territory where the broadcast feed is altered.
Threat to exclusivity
Sponsors may also find themselves non-exclusive on a global basis in their category. We are increasingly seeing regionalised exclusivity for sponsors in sports using virtual technology. The appetite for this co-exclusivity with competitors in other territories needs to be tested and balanced with the price adjustment factored into the scope of exclusivity granted.
Regulatory issues
Regulated sectors
As noted above, there is a clear regulatory benefit in virtual advertising being applied to overlay high risk advertisements in specified regions. However, the flip side of this is that by actively targeting virtual advertising at specified regions, there is an increased risk exposure for the delivering parties in ensuring that such targeted advertising complies with local law and regulation. Put another way, certain legal and regulatory regimes may treat the insertion of advertising on a broadcast feed specific to a country or region as tantamount to the display of physical advertising in that territory.
It follows that, where local laws would prohibit, for example, a beer brand appearing physically in a stadium and hold event organisers and participants potentially responsible, those laws may also prohibit a virtual display of a beer brand achieving the same result.
Tackling regulatory issues is no new matter for marketeers
The (physical/in-venue) solution to the ban on alcohol advertising in France during the Six Nations (sponsored by Guinness) was to substitute the word “Greatness” for “Guinness”.
However, the regulatory issues become increasingly complex in this virtual context, particularly given that feeds may commonly be produced on a regional, rather than a per country, basis. Within a universal feed to EMEA, for example, there may be widely diverging regulatory positions on the advertising of products in a regulated sector.
Allocating responsibility
In respect of any in-venue advertising rights granted, for example, by a sports rights holder to a gambling operator, there will be varying degrees of due diligence undertaken and contractual protection provided for as regards the legality in the applicable jurisdiction of the: (i) products and services of the operator; and (ii) advertising of those products and services.
Parties may achieve comfort with the regulatory risk associated with the possibility of such in-venue gambling advertising being viewed in “grey” or “black” markets in a passive sense via broadcast footage. However, for the reasons cited above, that risk may be heightened through actively targeting such advertising into such markets via virtual advertising.
In turn, this begs the question as to which party involved in the display of the advertising is responsible. Our experience is that it is likely the broadcaster or event organiser that will be primarily responsible (or, in practical terms, subject to enforcement action), but it is not always possible to eliminate risk attaching to the brand itself. Accordingly, the allocation of risk through the contractual chain of interested parties demands attention in order to mitigate the exposure.
To expand on this point, viewing the matter from a brand perspective, a typical warranty as to advertising complying with laws will need to be reviewed to ensure that it is sufficiently caveated – if the rights holder controls the feed or approves the projection of your brand into certain territories having undertaken its own due diligence, should there be a split of responsibility in reversal to the usual brand assumption of liability for its own content?
Sport-specific regulations
Rights holders will need to be aware of any applicable sporting rules or regulations relevant to the grant of virtual advertising rights. In football, for example, the International Football Association Board’s Laws of the Game restrict commercial advertising (whether real or virtual) in various locations during play, including on the field of play, the goal net area, the technical area, the referee review area, or within 1 metre of the touchlines (IFAB Laws of the Game, Law 1.12).
Contractual complexities
Whilst the dynamism and flexibility of virtual advertising is commercially compelling, it brings with it a potentially complex contractual web of rights and obligations. There may be numerous parties engaged in any virtual advertising scenario, but the contractual nexus of any such party may in practice be limited to just one other of the players in the scenario.
- Back-to-back responsibilities: For parties involved in the delivery of the technology or associated rights, a tight “back-to-backing” of responsibilities should, in a perfect world, be provided for, to ensure a contractual chain of responsibility for the delivery of rights, allocated between the parties as appropriate. This may not be always achievable in this fast-paced industry, but such parties should ensure they consider their role in the chain and, at a minimum, protect themselves against key risks outside of their control.
- Intermediaries: It is common for intermediaries to be involved in the delivery and sale of virtual rights. Rights holders may dispose of virtual advertising inventory to intermediaries to sell to brands. Careful interrogation should be made as to the contractual position concerning the rights and whether the intermediary is an agent or a reseller in its own name. Rights holders will need to consider the scope of rights granted to a reseller and control over their resale in order to protect their commercial programme. Given the complexities of carving up advertising inventory and contracting with numerous brands, underlying technology providers and broadcasters for the delivery of virtual rights, it is natural that expert intermediaries will step in to simplify and commercialise the process for rights holders.
- Brand-side considerations: On the other side, a brand procuring rights should ensure it has sufficient contractual protection from its contracting counterparty and, as part of this, should understand the extent to which the party it is contracting with has control over the inventory (and any other inventory being utilised alongside it, e.g. at the same match). For example, if a brand is contracting with a venue or team, it should ensure it understands the extent to which the league or its broadcasters have independent rights to utilise virtual advertising in respect of in-scope matches or other events, and ensure the parameters of any such rights are prescribed in the relevant contract.
Concluding thoughts
Virtual advertising represents an exciting opportunity and growth area across sports and live events, and has already demonstrated its effectiveness over recent years. As adoption levels continues to increase, it is a matter to be taken into consideration at the outset of any sponsorship of broadcast events, whether or not virtual advertising is at the time envisaged or even permitted, given its potential to impact the consumption of the event around the world.
To find out more about how Northridge can help on virtual advertising related matters, get in touch with Jon Walters or George Willis.
