Online Games: Rules for Advertising

By Amy Sanderson, Gamma Law, San Francisco, United States

The online gaming world, including sports games, is a booming industry, fueled in part by aggressive advertising campaigns. But as mobile games flood our screens and social media feeds, the line between enticing marketing and deceptive advertising has become increasingly blurred. As the online game industry skyrockets to unprecedented heights — which was projected to generate a staggering $5.68 billion by the end of last year — the stakes for truthful advertising have never been higher.

Video games have broken out of the exclusive domain of teenagers huddled in dimly lit bedrooms, Doritos, and Mountain Dew at hand. Today, gaming has evolved into a cultural phenomenon, second only to traditional media and entertainment in terms of market value. With this explosive growth, however, comes heightened scrutiny, particularly regarding how games are marketed to consumers.

Truthfulness, Full Disclosure the Best Policy

Recent studies paint a troubling picture: It is common for 25% of programmatic ad impressions served in the United States to be fraudulent. These deceptive advertisements often showcase exaggerated or entirely fabricated gameplay features, graphics, and rewards. The result? A wave of disappointed players who download games only to discover a stark disparity between advertising promises and actual gameplay.

The U.S. Federal Trade Commission (FTC) is not playing around when it comes to false advertising. In 2020 alone, the agency imposed fines totaling $200 million for deceptive marketing practices. Two key pieces of legislation primarily govern the legal landscape. Section 5 of the FTC Act and Section 43(a) of the Lanham Act mandate that advertisements must be truthful, not misleading, and — according to FTC guidelines — backed by scientific evidence where applicable. Several states have also enacted additional protections; New York, for instance, has robust consumer protection laws against false advertising.

Game promoters should check with an attorney to ensure that their promotional materials do not run afoul of consumer protection laws:

• Exaggerated Claims: Promising unrealistic gameplay experiences, rewards, or features
  
  
• Hidden Costs: Failing to disclose in-app purchases, subscription fees, or other costs
  
  
• Targeting Vulnerable Audiences: Advertising games to children, addictive personalities, or other vulnerable groups requires special care to avoid exploitation
  
  
• Misleading Visuals: Using excessively modified or deceptive visuals to promote a game

Impact on the Industry

The prevalence of deceptive advertising extends far beyond individual disappointment. It erodes trust within the gaming community, potentially leading to behaviors that harm the studio’s bottom lines:

• Hesitation to try new games
  
  
• Reduced in-game purchases
  
  
• Overall disillusionment with the gaming industry

For game developers and publishers, the consequences of false advertising can be severe, ranging from substantial fines to criminal penalties in egregious cases. More importantly, the reputational damage can be irreparable in an industry where community trust is paramount.

As the gaming industry continues to evolve and expand, the need for ethical marketing practices becomes increasingly critical.

An experienced video game attorney can provide services to assist game developers and distributors avoid these legal pitfalls:

• Thorough Reviews: Before launching an advertising campaign, engage a lawyer to carefully review all materials to ensure that they are accurate and truthful.
  
  
• Full Disclosure: A Web3 and video game attorney will ensure that the cost and procedures for any in-app purchases, subscription fees, or other costs to consumers are clearly communicated.

• Reasonable Claims: The attorney can replace exaggerated claims and unrealistic promises with facts and documentation.
  
  
• Compliance and Best Practices: Video game lawyers know how to apply relevant industry associations’ advertising guidelines and adhere to government regulations.
  
  
• Performance Monitoring: Game companies’ legal teams can track their advertising campaigns’ performance and adjust them as needed.

Legal Tips and Strategies
The pressure to create attention-grabbing advertisements promoting online gaming has never been higher. Yet, as the industry matures and regulatory scrutiny intensifies, game developers and promoters who cannot walk the increasingly fine line between compelling marketing and legal compliance will pay the price.

DraftKings learned the hard way.

In December 2023, Scanlon et al. v. DraftKings, Inc. plaintiffs argued that the sports betting company “knew, or should have known,” that its $1,000 sign-up bonus promotion was deceptive. The lawsuit claimed that DraftKings’ advertising campaign, which ran on social media, television, and radio, misled prospective customers about the bonus qualification requirements. The class action alleged that the promotion was designed to maximize customer acquisition. The court denied DraftKings’ motion to dismiss in August 2024, and the case was scheduled to be heard in December.

An attorney experienced in real money games, contracts, and IP law can help businesses avoid similar results and assist in keeping game ads legal, ethical, and liability-free:

• Licensure: Securing the proper legal authority to offer and promote gaming experiences should be at the top of every game advertiser's checklist. Attorneys will research and determine which licenses your game and its promotional materials require. Then they can structure the game and its messaging to meet licensing requirements. The regulations can be intricate and the penalties for noncompliance severe.

• Gambling Restrictions: Federal US law prohibits broadcasting any advertisement concerning a lottery — promotions combining prize, chance, and consideration, as defined in the Howey Test. The licensing landscape varies significantly from state to state and country to country, particularly when video games contain real money or gambling elements, including loot boxes and gacha components.

• Disclosure and Transparency: Games containing chance-based mechanics must follow additional advertising rules. A real-money gaming lawyer will ensure ad language is precise when describing potential winnings and implement aggressive age verification systems if game content veers into gambling-adjacent territory.
  
  Truthful advertising is both a legal requirement and a best practice for building trust within the player base. Featuring actual rather than staged gameplay footage in advertisements and resisting the temptation to exaggerate features, mechanics, and payoffs fosters game sustainability. Savvy gamers will be quick to call out discrepancies between marketing materials and the actual product.
  
  Gaming attorneys review game studios and platforms’ advertising materials with multi-step approval processes for promotional campaigns. They will thoroughly document the decision-making as evidence of the companies’ compliance efforts should regulatory agencies call them into question.

Conclusion

The persistent flood of misleading advertisements in the mobile gaming market poses significant legal risks for game companies and marketers alike. Despite clear regulations and potential penalties enacted by the FTC, deceptive practices continue to plague the industry, damaging player trust and tarnishing the reputation of legitimate game developers.

Advertisers often skirt the edges of legality by presenting misrepresented gameplay mechanics, enhanced or fabricated graphics, and fictional narrative elements that do not exist in the actual game. These infractions persist for several reasons. The global nature of digital advertising makes enforcement challenging, whilst rapid iteration in ad creative outpaces regulatory oversight.

Game developers and platforms can save themselves numerous headaches by engaging with attorneys specializing in gaming and advertising law to review marketing materials before publication, identify potential legal pitfalls, and ensure compliance with relevant regulations.

A commitment to ethical advertising will benefit game companies and players, fostering a more trustworthy and sustainable gaming ecosystem. A financial investment in competent legal guidance pales in comparison to the potential costs of regulatory penalties, litigation, and reputational damage.

As the online gaming industry continues to evolve and grow, those who prioritize legal compliance in their advertising practices will be better positioned for long-term success and sustainability in an increasingly scrutinized market.

For further information, log onto the Gamma Law website at ‘www.gammalaw.com’