Non-Fungible Tokens (NFTs): The Future Role of NFTs in Sports Business
With the continued growth of the blockchain technology, 2021 has seen a huge growth in Non-Fungible Tokens (NFTS) or ‘Niftys’. The hype around these tokens undoubtedly originated from the concept of digital art, but the technology is now taking the gaming and sport worlds by storm. Since November 2017, there has already been a total of $174 million spent on NFTs.
As with most things associated with cryptocurrency, it is understandable that many are sceptical about its legitimacy. Non-believers are struggling to imagine how an asset that exists solely on the internet can be so valuable, while others whole heartedly believe that NFTs will shape and redefine ownership in the digital world. Whichever side of the fence you happen to fall on, simply dismissing NFTs as a craze is at risk of being a wasted opportunity.
NFTs leverage blockchain technology to create a unique digital asset. Recent examples include founder of Twitter Jack Dorsey’s first tweet, which sold for $2.9m; and a LeBron James’ slam dunk video on NBA Top Shot, which sold for $208,000. NFTs unique characteristics can easily be tracked and monitored via smart contracts on a blockchain to ensure that they can never be replicated.
In sport, the innovation is being driven predominantly by athletes themselves. Athletes have consistently been advocating for more control over their own likeness and trying to monetise their own brand away from their team for years. This new technology allows athletes to develop their own digital assets, and Bryson DeChambeau’s digital trading cards are a great example of this. In a pre-NFT world, athletes could create their own trading cards but unless they were authenticated by official companies, they would have little or no value. With NFTs, the underlying technology provides the reassurance to fans that the assets on are authentic, but also allow the fans to engage with that athlete more directly.
NFTs will no doubt have a significant impact on the way sports stars negotiate their image rights in the future. With significant amounts of money potentially on offer, there will no doubt be an incentive to retain these rights for themselves or at least ensure their contracts provide the appropriate consideration for them.
Athletes releasing trading cards and other memorabilia is only scratching the surface of NFTs potential in this space. So, what are the other budding considerations and applications of NFTs in the world of sports business?
NFTs are also providing a way for athletes to capitalise on image via innovative digital advertising. Tennis player Oleksandra Oliynykova recently leveraged this by selling ad space on her arm as an NFT for three Ether, which at the time was worth around USD$5,000. The winning bidder received 18 square inches on Oliynykova’s right arm on which to ink – within reason – any message they wish. This new wave of NFT uses creates a direct bridge between athlete and fan, and one which is open to all and not just dominated by the major sports agencies and brands.
A good representation of an early NFT from a rightsholder itself is the NBA Top Shot platform. Currently NBA Top Shot is the only NFT-sports based collectible available, and even in its beta release, has already generated $230 million in gross sales. As a platform that has seen a 23,200% growth compared to the previous quarter it would be no surprise if other major sports leagues are furiously discussing their own opportunities to leverage NFTs.
Sports teams are usually sitting on a huge amount of unused, private behind-the-scenes footage that could be offered to the public as NFTs instead of published to their social channels. It will be interesting to see whether other rightsholders are able to capitalise on the revenue opportunity that original content has not historically provided over and above the traditional broadcast deals.
Similarly, rightsholders could look to diversify their sponsorship revenue streams, and bypass expensive agencies taking a commission, by offering sports fans the chance to sponsor their favourite club directly. Hypothetically, fans could own the rights to have their name, picture, or brand on training bottles, sports equipment, arena infrastructure; the list is somewhat endless.
Whilst many remain sceptical about the value of digitally traded memorabilia, NFT and blockchain technology represents a significant opportunity to evolve event ticketing systems. Counterfeiting has been a significant problem in event ticketing forever. And whilst still very much a theoretical idea, tickets sold as NTFs has been suggested as a way to combat this issue. This system would not only re-assure fans that they are getting a genuine ticket but also allows clubs to accurately trace and monitor sale prices without any need for complicated accounting or external parties.
Even though the secondary ticketing market is not appreciated by most rightsholders and fans, the immutable nature of blockchain technology and its smart contracts would allow clubs to introduce a built-in royalty split for any secondary market resale of tickets. The fact that every NFT can be traced would ensure that whilst they are still paying a premium for tickets, they can be certain that the tickets they are purchasing are legitimate.
In a very short space of time, we have seen a number of innovative applications using NFT technology in sport. The wider use of NFTs in the sports industry is still all highly theoretically for now, however, those that approach this new technology with curiosity and creativity could open doors to an entirely new way of monetising sports. From fan loyalty and engagement programs to decentralised eGaming ecosystems, the opportunities appear to be endless.
Essentially, if there was a way to codify sports content as NFTs, where the rights to these are held as smart contracts on the Blockchain, the need for difficult paperwork would become almost non-existent and allow anyone to get involved. Making these rights more transferable to the public would undoubtedly open up brand-new unexploited revenue streams for rightsholders.
As a concept, NFTs are not likely to be going away anytime soon and arguably have the capability to change sports history. Not only do the tokens allow sports properties to diversify and exploit untapped revenue streams, but NFTs also have real potential to alter values and standardise processes, especially as its application and use cases are developed and fine-tuned.
We feel this is an incredibly exciting space. Blockchain technology is in its infancy and the broader use cases for it will no doubt make it an integral part of the future of the sports industry. Whilst there will undoubtedly be an initial period of growing pains and challenges, ignoring this technological revolution carries a great risk of being left behind.
ORIGIN Sports Group is actively involved in this space and have been working with a number of businesses within the market. If you are interested in understanding more about NFTs or are looking for a strategic partner to take advantage of this new technology, please get in touch.