By Ananyaa Banerjee and Asmita Kaur
Introduction
The sports and entertainment industry thrives on intellectual property (IP) rights, making licensing a key business strategy. Licensing allows companies and individuals to commercialize names, logos, images, characters, and other IP assets, generating revenue and expanding brand reach. Whether it’s a football club licensing its merchandise, a movie franchise selling themed apparel, or a musician/sportsman monetizing their brand through collaborations; licensing plays a vital role in shaping the industry. The Indian Premier League (IPL) is a good example of monetization through licensing in India.
Understanding Licensing
At its core, licensing is a contractual arrangement where an IP owner (the licensor) allows another party (the licensee) to use its protected material in exchange for royalties or a licensing fee. This arrangement not only helps monetize valuable IP assets but also expands a brand’s reach and influence in new markets. In 2023, the global market for licensed sports merchandise was valued at USD 34.13 billion. It is projected to grow at a CAGR of 4.75% and is expected to reach USD 51.82 billion by 2032.[1]
For instance, the National Basketball Association (NBA) licenses its brand to video game developers, leading to the hugely popular NBA 2K series and NBA Live. This partnership enhances fan engagement while generating significant revenue from digital platforms. Indian consumers are the biggest business generator for many international brands like FIFA, Real Madrid and NBA. Manchester United has established authorized academies which now sell a wide range of merchandise.[2]
India’s entertainment industry is witnessing significant growth in licensing and merchandising activities. This expansion is evident across various sectors, including film, television, fashion and sports.
In due course, with the emergence of the Indian Premier League around the year 2010, every bit of Indian Cricket got commercialized and merchandising started to play a major role in the sports industry and market.
• Types of Licensing
- Merchandising Licenses
Merchandising licensing involves authorizing third parties to produce, market, distribute and sell products that use the licensed IP (trade marks and copyrights). This form of licensing is particularly prevalent in both sports and entertainment sectors.An example in the sports industry is: The English Premier League (EPL) as well as Indian Premier League (IPL) teams, such as Manchester United (EPL), Mumbai Indians (IPL) license their logos and team names to apparel manufacturers. These products range from jerseys and scarves to caps and even home décor items, ensuring that fans can display their allegiance in various ways.
An example in the entertainment industry is of Disney, a powerhouse in character licensing, grants licenses for its beloved characters like Mickey Mouse and Elsa from Frozen. These characters appear on a vast array of merchandise including toys, clothing, and even household items, expanding Disney’s market presence globally.
- Character and Brand Licensing: Character and brand licensing enables film studios and entertainment companies to extend the life of their creations beyond the screen.An example of the same in relation to the film industry is the Harry Potter franchise, owned by Warner Bros., licenses its characters and symbols for products ranging from clothing and accessories to themed experiences in Universal Studios parks, as well as to MINISO, which launches special edition themed products. This not only bolsters the brand’s revenue but also deepens fan engagement over years. Further examples include Broadway shows and a recently announced TV show of Harry Potter, which keeps alive the story and characters as well.An example in the gaming industry is video game companies, such as those behind Fortnite, have successfully integrated popular characters from movies and TV shows, creating crossover events that attract diverse audiences and keep the game fresh and relevant.
- Broadcasting and Media Rights: Broadcasting rights are a major component of licensing in sports and entertainment. They involve selling the rights to broadcast live events, movies, and other content.
An example in the sports industry is of the NFL, English Premier League, Indian Premier League command multi-billion-dollar deals with networks like ESPN, Sky Sports, and digital streaming platforms such as JioHotstar. These agreements allow fans worldwide to watch their favorite teams, while leagues benefit from substantial media revenue.Examples relating to licensing agreements in the entertainment industries include streaming platforms such as Netflix and Amazon Prime frequently license movies and TV series from major studios. This not only brings a wider audience to the content but also provides studios with a recurring revenue stream. - Endorsement and Sponsorship: Endorsement deals involve celebrities and athletes lending their image and persona to products, which often includes a broader licensing component.
An example in the sporting industry is Cristiano Ronaldo’s partnership with Nike, which allows the sportswear giant to use his name and likeness for a range of products, from cleats to sports apparel. This association boosts Nike’s marketability and solidifies Ronaldo’s status as a global brand.An example in the entertainment industry is major music artists like Beyoncé, that have multiple endorsement deals, where their brands appear on everything from luxury fashion lines to fragrance collections. These partnerships are meticulously crafted to maintain both the artist’s image and the brand’s identity, covering even the concept of celebrity and personality rights. - Digital and Gaming Licenses: With the rise of digital media, licensing has expanded into the realm of online content, gaming, and emerging technologies like NFTs and virtual reality.
An example in the sports industry is NBA’s digital transformation includes licensing its brand for use in mobile apps and eSports. This not only taps into new revenue streams but also helps attract younger audiences who are more digitally engaged.An example in the entertainment industry is the integration of licensed content into popular video games is on the rise. For instance, Marvel characters are frequently featured in games such as Marvel’s Spider-Man, providing fans with interactive experiences that complement the cinematic universe.
• Key Considerations in Licensing Agreements
- Intellectual Property Protection: Trademark and copyright registrations are critical to ensuring that licensors retain control and ownership over their IP. For example, Disney aggressively protects its characters to prevent unauthorized use, ensuring high standards for merchandise quality, exclusivity, and direct association and preventing brand dilution.
- Royalty and Revenue Sharing: Licensing agreements detail royalty structures that benefit both parties. A common approach is a percentage of sales or a fixed fee per unit sold. The success of the NFL’s merchandise licensing deals is largely attributed to carefully negotiated royalty agreements.
- Exclusivity and Territory: Licenses can be exclusive or non-exclusive and often include geographical limitations. For example, a local apparel manufacturer might secure exclusive rights to produce merchandise for a regional sports team, ensuring a competitive edge in that market.
- Quality Control and Brand Reputation: Licensors impose quality control measures to protect their brand image. This is evident in the stringent standards set by premium brands like Rolex when licensing their name to watchmakers, ensuring that all products meet high quality benchmarks across the world.
- Duration and Renewal Terms: Licensing agreements typically include specified timeframes, with renewal and termination clauses. Long-term partnerships, such as the enduring relationship between major sports leagues and broadcast networks, are structured to adapt to changing market conditions over time.
• Challenges in Licensing
- Counterfeiting and Unauthorized Use by Licensee: Another serious IP issue is when the licensee engages in the unauthorized production or distribution of counterfeit or excess goods under the licensor’s brand. This often results in trademark dilution and harm to brand reputation. Counterfeit products can undermine brand value. For instance, unauthorized replicas of branded merchandise can erode revenue and damage the reputation of major sports leagues and entertainment brands and there should be vigilant actions against infringers.
- Complex Contract Negotiations: Crafting a licensing agreement requires navigating a complex legal landscape. Detailed contracts must address the rights and obligations of both parties, a process that can be lengthy and resource-intensive and differ market to market.
- Evolving Consumer Trends: Rapid changes in consumer behaviour, especially with the advent of digital platforms, necessitate agile licensing strategies. Brands must continuously innovate to remain relevant in an ever-changing marketplace.
- Licensee Setting Up as a Competitor: One major challenge in IP licensing is when the licensee eventually becomes a competitor. This can occur during or after the licensing term, where the licensee, having gained access to proprietary knowledge, customer bases, or business operations, starts manufacturing and selling similar or competing products. In India, this issue often arises in the pharmaceutical and FMCG sectors.
- IP Challenges in Franchising: Franchising, a form of licensing involving business models, brand identity, and operations, presents layered IP challenges. These include franchisees altering trade dress, offering non-approved services, or operating outside permitted territories.
- Online Sales across Jurisdictions: The rise of global e-commerce platforms has blurred territorial boundaries, making it difficult to enforce geographically restricted IP licenses. Licensees may unintentionally (or deliberately) sell outside their licensed region, leading to market conflicts, price disparities, and dilution of exclusivity.
- Parallel Imports: Parallel imports involve genuine IP-protected goods sold abroad and re-imported into another market without the IP owner’s consent. While legal in some jurisdictions, they disrupt local licensees’ pricing strategies, create confusion over product quality, and undermine brand control. The inconsistent application of exhaustion doctrines globally further complicates enforcement.
Conclusion
Licensing in the sports and entertainment industry is far more than a revenue stream—it is a dynamic strategy for brand expansion, fan engagement, and long-term market success. From the merchandising of iconic team logos and characters to the digital integration of beloved franchises in video games, licensing unlocks myriad opportunities for both licensors and licensees. At times keeping creations alive for time immemorial. As consumer preferences evolve and digital platforms proliferate, the role of licensing will only grow in importance, offering innovative ways to protect and monetize valuable IP assets. For stakeholders, understanding and effectively navigating the complexities of licensing agreements is essential to harnessing its full potential in a competitive landscape.
Ayushi Dhari Singh, Assessment Intern at S.S.Rana & Co. has assisted in the research of this article.
[1] https://straitsresearch.com/report/licensed-sports-merchandise-market