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Vellir #20 → Does sport need web3?

An exploration of how sport is being affected by crypto and web3 – from collectables and NFTs, to new ownership structures and even fan controlled sport.
Vellir #20 → Does sport need web3?

Welcome to new Vellir members this week – we’re glad so many of you enjoyed the explainer slides on web3! For newcomers, do check out the rest of our 20 hour challenge, as well as some of our older posts on things like crypto and sovereignty, and web2.5.

One of the issues that we wanted to cover in the 20 hour crypto challenge was sport, but we couldn’t find a good overview. So this week, we’re doing it ourselves… Thanks to our friends at the NFL, Premier League, ECB and elsewhere for their comments on earlier drafts.

Web3 is about building communities and enabling new forms of ownership. The nature of crypto also means that rewards can be provided to communities that incentivise particular behaviour. If this is designed in the right way, it can reinforce a sense of togetherness.

Many communities have a degree of exclusivity about them e.g. membership clubs, which can often be the main point of differentiation. If anyone could join Soho House, it wouldn’t have the same appeal for the kind of people that it wants to attract.

But sports teams are one of the few communities where exclusivity isn’t the driving force. In fact, they are actively looking for new fans and members. Few Chelsea fans would mind others joining the cult, even if it meant tickets might be harder to get. Further, sports teams (at least the larger ones) often have fragmented global audiences who are passionate about their team, or their individual players/competitors.

This creates an interesting set of dynamics which makes sports a particularly good use case for crypto. And it has led to a number of different interactions between crypto and sport that we are going to explore in this article. This goes beyond revenue generating activity for sports clubs to changing how sports are governed and even played.

We’ve created a framework to map out these areas and how different sports, teams and athletes are already leveraging the technology, and what might be possible in the future.

I. Sponsorship

Crypto exchanges make money from transactions moving through their sites. It’s not surprising that they want eyeballs on their brands, and there are few better ways than sports. Crypto.com is sponsoring F1 this year and FTX bought the naming rights for the Miami Arena for over $135m last year. But protocols and crypto-assets also want users to buy and build on their platforms, which is why Tezos – a layer one protocol – sponsors Manchester United.

Some of the world’s most famous athletes have also been paid large sums of money to promote specific crypto-assets. In the last couple of years Tom Brady promoted Bitcoin and delivered a keynote for FTX at their recent Bahamas conference (where Bill Clinton and Tony Blair also headlined), Lionel Messi promoted Chiliz and Serena Williams promoted Ethereum – the list goes on. And some athletes are now taking their salary in crypto (see chart). As with any advertising, it’s about getting people excited and wanting more.

Source: Coindesk

II. Betting

A $194bn global industry, sports betting is big business. There are lots of new players entering the market trying to compete with the established players, including SX Bet (a peer to peer betting exchange) and Degens. The intention is to attract new players through cutting commission fees in particular, as well as making the process more transparent. The idea, much like in decentralised finance (DeFi) is to cut out the middleman, with betting exchanges operating without a central party in the middle to scoop up a share of the returns. Existing players like DraftKings are cottoning on – they already have an NFT marketplace and are planning to introduce crypto payments too.

III. Collectables

Sports memorabilia and collectables have a long history. From trophies, to merchandise for specific games, to autographs and sports cards. One famous baseball card called ‘T206 Honus Wagner’ was sold for $2.8m in 2007.

Given NFTs are scarce and unique (i.e. non-fungible) digital goods, they are an obvious choice for a new type of memorabilia.

In 2021, Dapper Labs partnered with the NBA to launch Top Shots, which are blockchain based digital collectables i.e. NFTs. Think of them like old school trading cards. Video clips of specific moments in games or signed images are turned into NFTs, which can be bought and traded. Limited editions are rare and NFTs provide digital scarcity, and because they are associated with the NBA, these NFTs are considered to be official memorabilia for basketball. In 2021, the virtual platform had more than 1.1m users who traded over $800m in NFTs.

Sorare has done the same for football and baseball by partnering with a number of football clubs to secure licences to issue the cards. By collecting NFTs of players, users can enter into fantasy tournaments and gain rewards. The PGA tour has announced that it is creating a similar video based NFT platform and Tiger Woods has already issued 10,000 digital images — some of which are virtually autographed — through Autograph, a company co-founded by Tom Brady. There’s also the NFL's All Day, the Ballman Project for tennis, and FanCraze and Rario for cricket.

The Premier League is also reportedly near to reaching agreement with ConsenSys on an NFT deal, as well as with Dapper Labs on video content. Some clubs have already started to issue their own, including Liverpool’s Heroes Club, which it released in March with Sotheby’s, albeit with limited success. According to i news, the NFTs “generated £1.13m even though 95 per cent of the digital collectibles did not sell”.

The NBA franchise the Golden State Warriors has been a pioneer in NFT collectables having created their first set in 2021. They are still innovating, including with NFTs for 2022 that evolved as the team progressed through the season: NFT holders were rewarded if the team progressed through to the playoffs, received a special championship ring NFT if the team won the playoffs (which they did), and even got free tickets to game one of the final if they made it that far. According to Coindesk’s Dante Sacco, it’s “gamified fandom”.

But there are issues with these NFTs, not least from fans who part with potentially large sums of money on the basis that the NFT will rise in value and they can sell it on the secondary market for a profit. While this sort of speculation and ‘flipping’ isn’t new per se – people have long traded collectables with a view to making money – it has led to criticism that clubs are exploiting fans with the promise of large returns, without much payback.

More broadly, tussles for control over these types of initiatives between the leagues and the clubs are already emerging. NFTs provide valuable data on fans, as well as a consistent revenue stream through initial and re-sales. Centralised leagues like the Premier League and NFL will be keen to retain control over these forms of marketing, while clubs will want to own their relationship with fans.

IV. Tickets / membership

NFTs are also being used as tickets. Because NFTs are verifiable and non-fungible, they offer a new way to issue tickets that could improve existing systems, which are open to fraud, counterfeiting and illegal re-selling. Just think about the recent UEFA Champions League Final in Paris, where fraud issues contributed to the chaos before the game, and clashes between fans and the authorities.

Why might NFTs be a better solution? First, NFTs are harder to replicate or forge than paper based tickets, and allow consumers to check whether the ticket is real before purchasing. Second, a ticket could be directly linked to identity, so that a system can be put in place whereby only once a person’s identity has been proven at the venue will the ticket/QR code be released, providing another layer of security. Third, tickets could become far more dynamic – for instance, they could provide additional benefits at venues, enable airdrops of material or footage, or provide access to other online experiences (see the metaverse section below).

For all these reasons, and after the Champions League fiasco, the French authorities are considering using blockchain-based tickets for both the 2023 Rugby World Cup and the 2024 Olympics.

V. Fan engagement

A natural extension of an NFT-based ticketing system and growth in collectables will be ways to engage fans. Sports teams are always on the lookout for the next marketing play, and NFTs are top of the list.

The NBA is considering introducing ticket stubs as NFTs – a record not of the ticket but of attendance. “Proof of attendance” is a growing part of the crypto industry more generally, with POAPs (proof of attendance protocols) a common way to mint an experience or provide a digital memento. Traditional stubs for significant games have long held value and can be sold for tens of thousands of dollars. For the NBA, creating NFTs which include code that provides a share of any resale back to the NBA is an attractive model. Mark Cuban’s Dallas Mavericks have also been at the forefront of this approach, with NFTs that reward fan attendance, which is what Cuban says he wants to incentivise. The NFL is partnering with Ticketmaster to create commemorative NFT tickets in a similar way, and has blocked individual teams from entering into contracts for these sorts of initiatives in order to centralise control.

A different version of this approach has been created by Socios. Here, fans download the app and buy their internal Chiliz coin ($CHZ) in order to exchange it for fan tokens. These tokens allow fans to vote in polls and gain access to perks in relation to a number of different sports. According to The Athletic, Socios told the Premier League that they would make £150 from every fan who signed up.

VI. Gaming and the metaverse

Gaming is serious business. According to Coindesk, sales are forecast to hit $200bn in 2022, the e-sports market was estimated to be worth over $2bn in 2021 and Twitch, the e-gaming site, said 770bn minutes had been consumed on its site already this year.

Crypto and gaming might be a natural fit, but it hasn’t been plain sailing – for instance, Minecraft said it would not allow blockchain and NFT integrations into the game earlier this year. And there is a broader backlash brewing.

But there are obvious overlaps, from in-game currencies to ownership of assets. EA Sports (the maker of well known sports games such as FIFA and Madden) said earlier this year that NFTs were “the future of our industry”. And according to one survey, 34% of gamers want to use crypto in the metaverse.

It doesn’t take much to imagine how sports gaming takes hold in the metaverse, whether in spaces like Sandbox or Decentraland. As we put it in our previous post about ‘the world in web3’:

My ticket to a football match is an NFT, which I buy via my [Metamask] wallet. Watching the match, I decide to invest in the personality of Player X by buying their token $PLYX on [Rally]. I also vote for my player of the match via [Snapshot], and am rewarded with Chelsea tokens $CLSA from the club, which is now run as a DAO. These tokens mean I can vote and influence future player transfers and decisions about whether the manager is doing a good job.
I get a notification later that day that as I own both the NFT for the game and $CLSA tokens, I can access a community space for fans [RareCircles]. And given I own a certain amount of $PLYX, I also get to ask a question directly of the player. I am an owner of a number of other creators/celebrities tokens, each of which provide different benefits – from access to communities, to tickets, to personal coaching sessions, to merchandise, etc.
On my way home from the game I listen to music and play a game on my phone. My internet connection is via a decentralised wifi network [Helium]. I spend time in a metaverse [Decentraland] and the NFT ticket I bought earlier in the day allows me to enter the Chelsea arena, where I can compete against other fans in a bespoke Fifa match. While here, I also stream music, which others in the arena can also listen into. It’s a playlist i’ve made on [Audius] and I receive $AUDIO when it’s used by others, with the artists also gaining tokens directly. I purposefully added a particular song to the playlist, which I own as an NFT, and means I co-own and receive royalties alongside the artist [Royal].

There are also interesting new ideas being developed beyond this. Griffin Gaming Partners, a US venture fund, is backing companies like Super Team Games, which is building blockchain based sports games like STG Football, and Uncaged, which is working on esports games like MonkeyLeague with an in game token and NFTs. Further, blockchain based gaming communities are also developing, including ReadyPlayerDAO. More tangentially, companies like move.ai are emerging, which in this case is enabling real world movement to be replicated in the metaverse. It's definitely worth having a look at some of the videos on their website to understand how movement in sport could start taking shape in the metaverse. And there are also possibilities around unique viewing experiences in the metaverse too.

VII. Fan ownership

A core premise of web3 is community ownership. So it makes sense that there have started to be experiments related to fan ownership of sports teams.

1. Krause House DAO → is a community set on buying an NBA team. This was the first high profile attempt to own sports teams using a DAO structure. They haven’t been successful yet, but are on their way, with over 7k members and more than $3m in the treasury after an NFT sale. And while that’s someway short of a NBA franchise price, they have already bought the ‘Ball Hogs’, which is part of the Big3, an American 3 on 3 league.

2. WAGMI United → is a cohort of web3 enthusiasts who have bought League Two side Crawley Town FC. They sold fans an NFT, which has helped to raise some funds, but also offers utility to owners (see image). 5.5k people bought the NFT, which is currently available on the secondary market on OpenSea for 0.18 Eth (about £260).

3. Buy the Broncos → A community that has set up a DAO in an attempt to buy the Denver Broncos. They have established the DAO as a for profit cooperative (like REI in the US or the Coop Bank in the UK), in part to avoid being classified as a security by the SEC. But also so that they can pay a ‘patronage dividend’, related to fans’ contribution via the DAO. This could involve getting early season tickets, merchandise or contributing through research or individual stills (they have talked about needing lawyers…) Another part of the Buy the Broncos model that’s interesting is their plan to allow players and coaches to be owners of the franchise too, and possibly reward players with more ownership for playing well or staying at the club for longer.

4. LinksDAO → is building a new golf community around NFT ownership. So far there are around 9000 members and there is over $9m in its treasury. The proceeds from an NFT sale are going to be used to buy a golf club (or number of clubs), which NFT holders can then play. But the ambition is far bigger, with a broad set of partnerships in place, discounts and even a token-gated store (see our piece on web2.5 for more on this).

It’s unclear if any of these initiatives will be successful, but the concept of enabling fans to own a stake in the teams they support will become another important way to build loyal and engaged fans.

Sports as we know them have traditionally been controlled by the major leagues and clubs, who also own the media rights. The big question that emerges from a new fan based ownership model is whether this dynamic could be flipped around, with greater control and revenue in the hands of the fan led groups. If not, and the leagues and big clubs continue to dominate, the web3 tools we’ve explored here, including NFTs, could just be another way to extract resources from the consumer i.e. fan.

VIII. Fan controlled sport

It’s the Champions League final and the mighty Oxford United (you’ll have to google them) have taken Barcelona to a penalty shootout. Oxford fans all around the world (keep imagining) are on their phones voting for who should take the penalties and in which order. Recently acquired striker Ronaldo has a penalty to win it. Again the fans frantically vote on which corner he should go for. He strides up and puts it in the top corner, and Oxford have done it, they’re the Champions League winners for the first time…

…ok this is pretty far fetched, and not just the bit about Oxford United making it to the Champions League. But the idea of fan controlled sport has landed.

“In this league your voice matters: You make the decisions that will help your team on the road to the title. The better your picks, the more power you'll earn as you lead your squad to a championship.” This is the slogan for FCF, a relatively new American Football league. It’s called ‘Fan Controlled Football’, but what does that mean?

  • The sport is a scaled down and quicker version of normal American football (no ads, no kicking, no replays etc).
  • You sign up to a team and vote on draft picks every week (like transfers). This means you influence who plays for your team.
  • During the game, you vote on what the team should do on the field. Rather than screaming at the TV or at the manager, now you get to influence the plays that are called.
  • The better your votes (e.g. if you vote for players that do well, or plays that come off), the more points you get. The more points you have, the more influential your vote is next time.
  • Genius. And worth watching the clip below...
FCF 101 - fcf on Twitch
fcf went live on Twitch. Catch up on their Sports VOD now.

The nature of American football, which is stop and start, with particular predetermined ‘plays’ means it is well suited to this approach. But there is no reason this approach couldn’t be adapted for other sports. Let’s take a look at a couple of others.

Fan Controlled Cricket. Cricket has been searching for new ways to attract a younger audience, including through shorter tournaments like The Hundred (where each team gets 100 balls an innings). So how would fan controlled cricket work? It could involve fans voting on the batting order; who should bowl the next over; or even which ball the bowler should try to bowl next, which the captain on the field would have to set a field to. The Hundred also introduced a draft process to bid for players to mirror American sports. A new Fan Controlled Cricket league could replicate FCF with fans voting on which players to bid for each week. And perhaps the game could be adapted for indoor cricket? There is already indoor cricket (check out the video below) – what about taking over the millennium dome and hosting it there? And if you think cricket is just a quaint British pastime played in villages, you’d be right, but it’s much bigger than that too! There are more than 1bn cricket fans worldwide, many of them in India, which has the second highest rate of crypto adoption in the world according to Chainalysis. And the media rights for the IPL just went for over $6bn, putting it ahead of the UK football Premier League.

I’m not sure that this model is right for every form of cricket, and the purists will be turning in their graves. But it would be an exciting way to engage new fans, particularly in the shorter formats.

2. Fan Controlled Golf. Golf might not seem like the obvious sport for fan engagement like this. But let’s think about how it might work. Players could team up like they do in the Ryder Cup - perhaps ten teams of 12. There could be a number of tournaments throughout the season based on this model, which would be a cross between the Ryder Cup and a single matchplay tournament. Fans could get ‘membership’ to these franchise teams by buying a specific NFT, which would give them voting rights for that season. They could vote on who should be drafted into the team, partnered together for a particular round, and perhaps even on specific shots. For instance, fans could vote on whether a player should take the driver off the tee or lay up; or whether they should play a chip and run, or flop shot… Successful outcomes could reward fans with points, which could give them more voting power next time.

There are unlimited combinations or permutations of this idea for golf. But having more fan engagement, and adding an element of team sport, even if just for a few tournaments a year, could be really exciting. Watch out LIV Golf…

Parting thoughts

All these innovations are already being developed, whether on a small or large scale. And they are disrupting different parts of the sports supply chain: from advertising, to payments, to ownership, to player selection.

One hopes that some aspects, like creating a buzz around an NFT drop to take cash from fans in the hope of a speculative price increase, don’t catch on. But providing different forms of utility to fans, whether access to players or content, is clearly engaging.

The most compelling part of web3 and sport however, is creating new ways to connect fans with their clubs and other supporters. There is no reason why sports clubs couldn’t create DAOs for fans to discuss players or create podcasts or TikTok reels. It could be part of a wider democratisation of sport.

And if this sort of ownership structure is compelling, fan controlled sport is even more exciting. It won’t make sense for all sports, all of the time. But for some in the right context, it could be groundbreaking.

We’re looking forward to seeing the next wave of innovation!

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