If you are really, really old, chances are you remember the Game & Watch game Fire Attack from 1982, where a group of pioneers in a fort (with a flag vaguely reminiscent of the Confederate battle flag) defends themselves against evil native Americans with enhanced stereotypical attributes trying to attack and burn everything down. Needless to say, this was a different time, and Nintendo isn't exactly proud of this today.
In Super Smash Bros Ultimate, Mr. Game & Watch is using attacks from this particular game, and he did so in previous games as well. But with the higher resolutions, the details have become much clearer and during last week's Nintendo Direct, this was noticed. Nintendo has released a statement saying they were already aware of the issue and is going to remove the offensive parts, and showing them in the stream at all was a mistake:
"Nintendo has been planning to distribute an update for Super Smash Bros. Ultimate that removes the feather from the silhouette of Mr. Game & Watch. The original game on which this depiction of the character is based was released more than three decades ago and does not represent our company values today.
We sincerely apologize that this change was not noticed in our marketing material and are continuing our work to make Super Smash Bros. Ultimate an experience that is both welcoming and fun for everyone."