With Bloomberg estimating that the metaverse could soon be a $800 billion market, it is no surprise that the sports industry is beginning to offer sports fans the ability to own content and attend live events from the comfort of their own home. Some of the activations of sports organisations in the metaverse are worth looking into in a bit more detail to better understand the legal, regulatory and compliance issues to keep an eye on.

Premier League champions Manchester City, and its owner City Football Group Limited, have been embracing the potential of the metaverse, signing a three-year deal with Sony Corporation to recreate the Etihad Stadium in the metaverse and develop new forms of interactive virtual reality content. The partnership will “leverage Sony’s cutting-edge image analysis and sensing technologies”, including the skeletal-tracking systems developed by its subsidiary Hawk-Eye Innovations, to engage fans around the world.  Across the pond, in collaboration with Major League Baseball, the Atlanta Braves opened a digital version of their stadium with the launch of the Digital Truist Park. The interactive ballpark is the first of its kind across North American sports franchises and allows fans to ‘experience’ Atlanta in the digital world.

NFT start-up, Fancurve, is developing relationships with football clubs and players to create unique digital designs for fans to wear with their avatar in the metaverse. The start-up raised $6.25 million in seed funding in early 2022, with investment from former German international footballers André Schürrle and Mario Götze. Fancurve now has agreements in place with Everton and Spanish football club, Real Betis, with the aim of creating unique designs to rival the feeling of buying a replica kit.

LaLiga announced a strategic partnership with StadioPlus to allow StadioPlus to exploit LaLiga’s IP in the Decentraland metaverse. The agreement is designed to “reach out to new generations and boost interaction with fans around the world” by giving fans the opportunity to purchase LaLiga-themed land parcels within the Decentraland metaverse.

As is evident from the examples above, the majority of sporting organisations will either have already entered the metaverse or are considering doing so in the near future. However, before doing so, all brands/organisations need to be aware of the legal, regulatory and compliance risks involved.

The metaverse is not limited, or governed, by one specific data protection regime. In fact, many data protection and privacy regimes will be applicable to a metaverse concurrently.

Another consideration is navigating the data transfer restrictions imposed by data protection laws. What exactly will constitute a transfer in the metaverse? Would this assessment be made with reference to the user’s location who controls the avatar in the metaverse, or rather the avatar’s location? Or both?

Further practical complexities arise when we consider the rights of data subjects under data protection legislation. How exactly will controllers comply with data subject access requests, considering data would be processed in a decentralised environment, with potentially multiple ‘controllers’ in the data chain?

For sports brands/organisations, this shouldn’t differ significantly from the usual due diligence before entering into any commercial partnership. Clubs and governing bodies should bear in mind that the commercial exploitation of the metaverse is still in its relative infancy which naturally makes the financial and legal risks of a partnership more difficult to assess. As part of their due diligence, any sporting organisation should put in place a plan to respond to any PR backlash from its fans once the partnership is announced.

Sports organisations need a robust process in place to protect their IP before entering the metaverse. Nike has set a precedent by filing trademark applications relating to retail store services for virtual goods (class 35), entertainment services (class 35), online non-downloadable virtual goods and NFTs (class 42) and financial services, including digital tokens (class 36). We only have to turn to the recent Hermes NFT dispute to see the issues the metaverse presents to brands. Nonetheless, a robust IP strategy (including how its IP rights in clothing and avatars of sports players may be licensed) is key, especially if sports organisations / brands want to capitalise on the online presence the metaverse offers.

Earlier this year, a Serie A match between AC Milan and ACF Fiorentina was live streamed in the Nemesis metaverse where fans purchased tickets in the form of an NFT. Much like the traditional live sports sector, advertising will be a major source of revenue in the virtual world.

The Advertising Standards Authority is beginning to issue specific guidance on the regulation of advertising in the metaverse but the key principles with all advertising will continue to apply. Marketing material must be obviously identifiable as such and not designed to materially mislead (or be likely to do so).

Ofcom has already announced that regulation of the metaverse will fall within the remit of the Online Safety Bill, which aims to restrict the sharing of harmful content on the internet. How effective this will be in the metaverse is yet to be seen, but sport brands should nonetheless be aware of their obligations, as well as consequences for non-compliance, under the proposed Online Safety Bill.

While it’s clear that the metaverse is rapidly becoming a key part of sports organisations’ commercial strategies, all parties should enter into these partnerships well versed on the potential pitfalls and should ensure they keep up to date on the ever-changing UK regulatory landscape.