NFTs and their importance for the sports industry
Sorare, Dapper Labs, Rario, Socios, Dugout, Candy Digital… If you don’t know these sports companies, they all have one point in common: NFTs. Brands and stakeholders have embraced fearlessly the power of the crypto world to adapt it to the sports world. How important will this new technology be for the sports industry?
What are NFTs and where do they come from?
NFT stands for Non-Fungible Token. Much clearer right? Maybe not. Non-fungible means non-replaceable and the token is the piece that you are owning. In other words, an NFT is a unique digital piece that only one person owns. The uniqueness is what makes it valuable. The scarcity of an object adds exclusivity and therefore attracts people. Prices of NFTs are skyrocketing and we have seen pieces going for more than 69 Million dollars.
Maslow’s effect on society:
In a world filled with abundance, purchases made do not always make sense. Once the vital, safety, and relationship needs are met, people reach the stage of esteem and self-actualization. It is in the category that NFTs become attractive to consumers. We already talked about the very exclusive aspect of owning a non-fungible item: only one person in the world can own the item, and the item is unique.
This appeal comes for exclusivity comes from the technology itself. Indeed, NFTs are traded via blockchain, a system where all transactions are recorded and made available to the public. This means anyone can see who owns what. Blockchain technology also enables the product to be safely protected against any kind of unwanted and harmful reproduction.
Most importantly, NFTs are trendy, meaning, they are in vogue. Early adopters and crypto lovers see them as a promising investment. Among the most expensive NFTs, Jack Dorsey, CEO and co-founder of Twitter sold the first-ever tweet for $2.9 Million. These kinds of purchases, along with the storytelling behind them, are what build a strong appeal towards NFTs.
NFTs in the sports industry:
Saying that NFTs are becoming more and more important in the sports industry is an understatement. Proof of that would be the recent valuation of Candy Digital at $ 1.5 Billion, an NFT company owned by Michael Rubin, Mike Novogratz, and Gary Vaynerchuk that primarily sells Sports NFTs in form of digital collectibles.
Sports organizations view these digital assets as a new and innovative fan-engagement tool to further monetize a rightsholder’s intellectual property, and it seems to work. As an example, the NBA partnered with Dapper Labs to sell “Top shots” NFTs. In one of them, Lebron James’ cosmic dunk has been purchased by influencer and NFT trader “Jesse”, for $208,000. The NBA is not the only one that has entered the blockchain market, La Liga, Serie A, the IPL, and many other properties have followed, developing partnerships with crypto organizations.
What does monetization look like? The Socios case.
Socios.com has been a prominent actor in the rise of NFTs within the sports industry. The company led by Frenchman Alexandre Dreyfus is growing at an impressive pace. Founded in 2018, socios.com has established itself as an innovative company selling very unique NFTs. The company counts more than 80 clubs/partners among 7 different sports ranging from more traditional sports like football to not-so-traditional sports like gaming. Another example includes Formula 1 within the motorsport industry.
The concept of socios.com is to give more responsibility to the fan, and thus making him/her feel important and involved in the club’s decisions. After purchasing an FC Barcelona token, for example, one can vote on small decisions given by the club such as the song played when players come on the pitch, or the mural on the wall in the locker room. These decisions are small and can sometimes be insignificant to the naked eye but can represent a lot for some fans. There are more activations and benefits available such as discounts on tickets or merchandising but it is all up to the club’s activation on the token.
The monetization process is straightforward. Once a new club enters the platform, a fixed amount of tokens will be put up for sale at a certain price. If there are a thousand tokens at $1, the club receives $500, and socios.com, the platform gets the other half. This model of revenue sharing has proven to be successful with more and more properties entering the platform.
Gamification and simplification yes, but still blockchain and cryptocurrency
Here lies the trick. The crypto world and blockchain technology is not widely understood to date. For instance, on socios.com, a fan can purchase tokens thanks to “chiliz”, the cryptocurrency developed by satellite company socios.com led by Alexandre Dreyfus as well.
Much like typical currency, the value of cryptocurrency can fluctuate. A fan may initially purchase a token at a fixed price, but the value of the token can then fluctuate according to the demand and attractiveness for the club and/or that token. As an example, the value of the PSG tokens rose significantly with the signing of Lionel Messi over the summer. We even saw the club paying part of Messi’s bonus via the club’s token which was believed to be a marketing scheme more than anything else.
Conclusion, the metaverse and the ethics behind it
According to Fred Antunes, CEO of RealFevr a company active in the NFT space, “NFTs are a market that will multiply by 30, 40, or 50 in the next few years.” He states that we are at our “.com” moment previously lived in the lates 90s. He believes that people will educate themselves more and more about crypto which will significantly increase the attractiveness of digital collectibles in the long run.
As of right now, we can see that we are still in the early and trendy stages of the process with mostly early-adopters buying and selling NFTs. Concerning rightsholders, a very important actor in the further development of the product for the sports industry, they seem not to be ready to make NFTs a priority in their commercial strategies. Per the recent PWC report (2021), more than 75% of the sports rightsholders surveyed confirmed that they don’t have a particular strategy in place to monetize NFTs, the main reason being the lack of knowledge and/or information.
Last but not least, the world is shifting more and more towards a digital and connected world. Recent statements released by Mark Zuckerberg, founder of Facebook, about the metaverse is a sign of development towards these new kinds of technologies. Whether or not they will be accepted is yet unknown, but they will play an important role in the commercialization of sports and sports entities.
“While it is difficult to predict if NFT is a bubble, what is definitely true is that a lot of major artists and businesses have been jumping on the NFT bandwagon lately, trying to cash-in on the hype and generate more revenue.”Kaushik Turlapaty, AISTS MAS Class of 2021, current Project Manager Intern at the IOC
Many sports entities have yet to decide whether to invest in these new technologies. Nevertheless, these entities must make sure they are ready, both in expertise and in the marketplace, to be ready in the instance it becomes inevitable to use. Being agile and fluid will be key to remaining attractive and maintaining sustainable growth.
This article is written by Daniel Dos Santos, AISTS MAS Class of 2022.