The sports business and how NFTs will change the game

A constantly evolving business model

Sports business income is now typically divided into matchday, broadcast and advertising. Clubs have continuously innovated and created new streams in these segments. In Matchday, for example, some stadiums now offer restaurants that can compete with Michelin-starred restaurants, while Scuderia Ferrari F1’s collaboration with Amazon Web Services has resulted in a number of new racing day content offerings. This includes virtual access to the vehicle setup in the Ferrari garage and even augmented reality experiences during the race.

On the radio, the NFL’s soccer deal on Thursday evening introduced gamification features to the Twitch streaming platform that encourage fan interaction and the associated revenue opportunities. This is likely to be an increasing trend as tech companies try to break into the area. The upcoming IPL media rights auction, where audiences can reach up to 200m for a single game, is expected to be another major step in content curation. The expected growth in ancillary income in sport is so great that the involvement of private equity firms and the use of financial instruments and structures such as derivatives and SPACs are now common practice.

The commercial revenue segment can be further broken down into merchandising, licensing rights and sponsorship. At the time of writing, Manchester United has over 60 partners, but perhaps the most notable development in this area was the groundbreaking Liverpool FC litigation in 2019. Although then-existing shirt sponsor New Balance has a matching rights clause that does enables him to catch up with anyone with a competitor’s offer to continue his sponsorship, the court ruled that Nike’s ability to use rapper Drake and basketball king LeBron James to promote Liverpool merchandise was inconsistent with Nike’s global reach in marketing potential sales commission can be achieved.

However, it could be argued that despite the growth in innovation, profit, and realignment of the core business, NFTs can have an even deeper impact on the sports business. Many clubs have doubled in value in the last decade, but the NFT opportunity is unlike any previous innovation. They offer speed and scalability to market with the scope to drive sales and thus the company’s net present value.

What are NFTs and how do their economies break out

A non-fungible token (NFT) is a unit of data that is stored in a digital ledger, typically on the Ethereum blockchain. NFTs can consist of photos, videos, audio and even real estate and come with an associated license to use them for a specific purpose. This in turn can be sold and traded on digital markets. NFT works like cryptographic tokens, but unlike cryptocurrencies, they are not interchangeable.

The unitary economy of NFTs makes them an incredibly lucrative source of income from a sports business perspective. The variable costs per additional unit sold are probably negligible; Designs are typically digital with no manufacturing, supply chain, or delivery costs. In addition, with a minimal time-to-market, sports teams can benefit from in-demand moments or trends from concept initiation to product sale.

Reach the first base: digital collectibles

Dapper Labs’ NFT platform, NBA Top Shot, grossed over $ 700 million in less than a year. The NBA Highlight Roles marketplace built on the Flow blockchain offers individuals NBA-licensed digital items, also known as “Moments”. Some NFTs convey more rights than others. For example, owners of top shots do not have the right to reproduce or benefit from the clips they own, but instead, as is typical with most NFTs today, have a license to use, copy and display the highlight reel. MLB’s deal with Candy Digital works on a similar basis.

The Sorare trading card platform also belongs to the Digital Collectables segment. The company raised $ 48 million from some of the best-known VCs in Europe earlier this year, has licensing agreements with 142 clubs, and had sales of over $ 75 million in May 2021. Sorare allows users to purchase digital sports cards that can be used in the game as well as traded with other players. The better your team is (better players are more expensive to buy), the better your chances of winning the game and winning prizes.

The most expensive card traded is a one-of-a-kind Cristiano Ronaldo NFT, which is now $ 290,000. PSG recently launched their own esports academy while Formula 1 partnered with Animoca Brands to develop F1 Delta Time, a game where users swap tokens for cars, drivers and even tracks. The first NFT F1 car in the game sold for the equivalent of $ 113,000 or 415.9 Ether at the time. The subsequent rise in the price of the digital currency meant that the car was once worth more than $ 1 million.

Ticketing

NFTs can represent any form of unique information, including an event ticket that can be sold and digitally transmitted to customers and stored on a phone. In addition, NFTs bring tickets into the realm of programmable money and open up unlimited potential for new revenue opportunities. This can include ticket auctions, resale, as a gateway for food and beverage promotions, and affiliate sales for trading partners.

As programmable digital assets, NFTs can have built-in rules for dividing goods, content and licenses. This means that any sports team can set profit-sharing percentages on every sale or benefit from downstream creative content in secondary markets. In addition, clubs can improve match day profit margins as the costs associated with minting and selling NFTs are negligible compared to traditional ticketing infrastructure.

Virtual real estate and games

NFTs enable the prospect of owning a seat in the stadium of a team and enable access to exclusive in-stadium events in virtual worlds such as Decentraland. As crazy as it sounds, through the use of avatars, people can view NFT art collections, go around with friends, attend events, and even order a domino pizza. For example, the auction house recently opened a replica of its London building in the virtual world at a Sotheby’s NFT art auction and attracted more than 3,000 visitors.

Atari, on the other hand, announced the opening of a casino through a two-year lease that was built in the “Vegas City” area of ​​Decentraland, and has forecast bets in the millions. Interestingly, most Premiership football clubs already have official partnerships with bookmakers, so this could be an area for strong growth. Since the launch of Decentraland in 2017, land prices have increased 14 times on average.

Fan token

Another application of blockchain technology that is fungible is fan tokens. These allow fans to influence certain decisions, receive special access, VIP rewards and promotions related to their team. In the summer of 2020, FC Barcelona launched its $ BAR fan token and grossed $ 1.3 million in less than two hours after it was sold. The tokens were sold in 106 different countries, giving fans the opportunity to vote on many different choices, including the design of a Muriel in the first team dressing room.

Other teams like AC Milan have achieved similarly spectacular results and achieved a turnover of 6 million US dollars through the collaboration with the cryptocurrency Chiliz. Not only are fan tokens a great way to get involved and build an exclusive community, they also help clubs improve their relationships with sponsors. The transparent nature and immutability of blockchain ensure the integrity of the metrics and insights from fan interactions and help sponsors achieve a better ROI.

Business operations, player transfers and image rights

The use cases of NFT technology can also extend to smart contracts. Player transfers could therefore include medical records, performance data, and image rights. In addition, in April 2015 FIFA banned clubs and players from engaging third-party investors for economic rights agreements, but an NFT contract does not violate this rule. This technology enables companies to split a comprehensive NFT sports contract into fractions and connect investors, brands and sponsors with them safely, efficiently and innovatively. Likewise, smart contracts could have a significant impact on the use of image rights by sponsors for affiliate sales and pave the way for revenue sharing agreements. Some sports teams have an accessible fan base or community of over 100 million in diverse, customizable, and global markets.

—Shiv Morjaria is an investment bank derivatives attorney and technology entrepreneur. The views expressed are personal and do not constitute advice