Author: DefiOasis Editor: Faust
Introduction: Web3 companies' enthusiasm for sports is best reflected in FTX. They previously spent $135 million to buy the 19-year naming rights of the Miami Heat's home stadium, and let Curry invest in FTX to become its brand ambassador. Coinbase, FTX, Crypto.com, etc. even directly placed advertisements in the American national event - the Super Bowl.
In recent years, fan tokens, star NFTs, and Web3 sports games have also been talked about by some fans. However, with the FTX crash and a series of Web3-related scandals, the honeymoon period between the sports industry and Web3 seems to be over soon. Sports stars who were once associated with FTX were implicated, the Heat also terminated their title sponsorship with FTX, and the Super Bowl directly banned any cryptocurrency-related company from advertising in 2023. The dismal performance of Crawley Town Football Club, which introduced Web3 governance, has made the sports industry question Web3 itself. In essence, is it sports events that need Web3, or is it Web3 that needs sports events?
Does it really make sense to combine Web3 native products such as cryptocurrency and DAO governance with real-world business scenarios such as sports? This article by DefiOasis will launch a critical discussion on this topic and use objective facts to explain why the relationship between sports and Web3 is "unsatisfactory".
The collision of sports and Web3
Throughout history, humans have had an instinctive yearning for competitive sports, which is even reflected in the Bible when talking about the origin of "Israel" (Jacob, the ancestor of the Jews, wrestled with the messenger of God and was recognized, so he was given the name "Israel", which means "one who wrestles with God").
In modern times, sports have gradually become a mainstream form of entertainment and have a huge market. In 2022 alone, the NBA's revenue exceeded $10 billion, while the NFL's revenue reached $18.6 billion. According to the "2023 Football Finance Report" released by Deloitte, the annual revenue of the top five European football leagues exceeded 17.2 billion euros, and the World Cup cycle financial report released by FIFA showed that the revenue of the 2022 Qatar World Cup reached $5.769 billion, and the event attracted more than 5 billion viewers, accounting for 62.5% of the world's population.
The strong appeal of sports has naturally attracted the attention of many Web3 companies. From OKX's sideline paint at Manchester City's Etihad Stadium, the naming of the Lakers' home stadium Crypto.com Arena, to Messi's partnership with Bitget, Suarez's partnership with Binance, all show the determination of Web3 companies to establish connections with fans of sports stars. In addition to inviting celebrities to endorse and other cooperation methods, Web3 has also derived unique scenarios such as fan tokens and star NFTs.
Sports fan economy: From collection to gamification: NFT and fan tokens
It can be said that NFT is one of the best ways to put sports IP on the chain. Mainstream sports NFTs are mainly collectible and gamified, and their native social and trendy attributes are widely loved by young people.
The well-known accounting firm Deloitte once optimistically predicted that the transaction volume of sports-related NFTs will exceed US$2 billion in 2022. However, according to data from LG Doucet, founder of The First Mint, the transaction volume of sports NFTs in the primary market in 2022 was approximately US$100 million and in the secondary market was approximately US$700 million, which was less than in 2021.
The Decline of Collectibles to NFTs
(Among the sports platforms with the highest transaction volume in the first half of the year, game NFTs represented by Sorare and collectible NFT platforms under DapperLabs are still the main ones) Collectible NFT is the first step for Web3 to enter the sports circle. Previously, football star Cristiano Ronaldo cooperated with Binance to issue multiple personal series of NFTs.
Today, we can still see the shadow of collectible NFTs in the traditional sports world, such as star cards. Whether it is collectible NFTs or physical cards, or star cards featuring star players, their value depends on the star's popularity.
Among the physical basketball cards that have been auctioned for more than $1 million, there are many big-name basketball stars such as Mickey Mantle, LeBron James, and Patrick Mahomes. The rarity and aesthetic design of the cards are their plus points. When the collection is presented in the form of a video, whether it is a famous scene of the basketball star will also determine its value.
(The famous moments of the stars are extra points: the highest price of the shot that made LeBron James the No. 1 scorer in history is nearly $20,000) In the field of sports collection NFT, DapperLabs is the undisputed leader. Its partners NBA TopShot, NFL All Day, LaLiga, UFC Strike, etc. cover the needs of fans of different top sports leagues. It can be said that DapperLabs and its cooperative products are the epitome of Panini-style card collection gameplay.
Among them, NBA TopShot is the most popular. With the endorsement of the NBA and the fan base, NBA TopShot's daily transaction volume once reached more than 40 million US dollars at its peak, and it has always remained in the top five of the NFT trading market. But the good times did not last long, and NBA TopShot soon declined. The reasons included too much supply of star cards in a short period of time, the limitation of exciting moments to active players, and the parent company being sued by the SEC.
(NBA is a league with high attention for sports NFT)
It can be said that the decline of collection to NFT is inevitable.
Similar to niche collectibles such as stamps, most of the players who collect sports NFTs are the intersection of sports fans and Web3 users. When the NFT market cools down, there is a lack of influx of players outside the circle, and the trading market falls into a situation where there is a price but no market. With the downturn in the NFT market and the operations of the project party, the activity of NBATopShop has been at a low point since it peaked in 2021.
(With the cooling of the NFT market and the project's operations, NBATopShop's activity has been at a low point since it peaked in 2021)
Gamified NFTs for Fantasy Sports
Although the activity of sports collection to NFT has declined, sports itself still has a huge fan base, especially the world's top sports leagues. With the entry of DraftKingsReignmakers, Sorare and others, the gameplay of sports NFT has been upgraded and injected with more game elements.
From the doldrums of collectible NFTs to the explosion of gamified NFTs, sports fans only need a tipping point to go into a frenzy.
According to CryptoSlam data, in the month before October 24 this year, NFT transactions showed a significant trend of PFP turning to gamification NFT. In the top five of the list, two sports event game NFTs appeared, both Exceeding well-known NFTs such as CryptoPunks and MAYC.
Sports games are usually dominated by realistic simulation competition and business simulation gameplay. However, the current mainstream Web3 sports games focus more on the "fantasy sports" business simulation gameplay with NFT as the core. This is a type of game that operates the team from the perspective of the club manager. Part of the reason for choosing this approach is that the realistic simulation games such as EAFC and F1 developed by sports game giants are already very mature.
These games have been recognized by the majority of sports players in terms of cost investment, graphics presentation and model maturity, and have established a strong market share on PC and mobile terminals. Therefore, it is relatively difficult for Web3 sports games to start again from scratch and get a share of this field.
(The changes in game NFTs represented by Sorare and collectible NFTs represented by DapperLabs over the past two years reflect the trends of the two)
Web3 sports games such as DraftKings, Sorare, and UltimateChampions have chosen the right "fantasy sports" gameplay, which combines real games with NFT elements. Players can choose the right lineup for simulated games by predicting the status of players and teams. This model is not new in the field of sports games. Similar to FM (Football Manager) and basketball fantasy, mature simulation game mechanisms have been formed.
But what is different from the past is that the core of Web3 sports games lies in the star card NFT, which players can trade on the secondary market, which makes the star card financialized and attracts a large number of speculators. Interestingly, the player's own growth space and rarity affect the price of player cards. For example, new stars in the early stages of their careers have great hype potential, while veterans who are about to retire are just the opposite. At the beginning of this year, the star NFT of NBA's new generation star Giannis Antetokounmpo was sold on Sorare for 113.888 ETH (about 186,000 US dollars).
There are two key points that make fantasy sports playable in the long term:
1. Keep data updated in a timely manner
Unlike most game fans, the appeal of sports games mainly comes from sports fans. Deep sports game fans have a high degree of overlap with real-life sports fans.
From EAFC (formerly FIFA) to NBA2K, although they have gradually evolved from stunning debut products to routine reskin products that have been criticized, they still maintain a strong ability to make money. Among them, the timely update of game data is the main reason for their best-selling.
In simulation sports games such as DraftKings Reignmakers and Sorare, players need to understand real player data, tactics and the overall status of the team, which can effectively attract fanatical fans.
For such players, once sufficient stickiness is formed, timely updates of lineup data are more important than changes in details such as graphics, actions, and gameplay diversity.
Although most sports games only undergo minor repairs every year, players are very tolerant and are willing to pay for more timely sports data. If player and team data are not timely, the appeal of such games will be significantly reduced.
2. Rarity-Favored Income Model
"Fantasy sports" games refer to the preferences of MyTEAM and UltimateTeam players for the rarity of stars, and generate revenue by dynamically adjusting the player card pool. This includes frequently increasing the upper limit of the card pool (player ability value, salary cap, etc.) to encourage players to buy card packs and participate in lotteries, or directly purchase game coins to obtain their favorite players.
However, the mainstream "fantasy sports" gameplay of Web3 sports games also has some flaws. For example, due to the long game cycle, the sustainability is weak, and it is difficult to ensure that players maintain sufficient attention during the full season of one year. In addition, the "entry fee + bonus pool" gameplay is generally considered to be suspected of gambling. For example, the entry fee, player selection (similar to betting), and sharing of the bonus pool in the game are similar to gambling behaviors.
On the surface, players need to rationally predict the performance of players, but in reality, luck is needed. In addition, the high threshold of the game itself is not friendly to new fans or non-fans.
Except for fantasy sports games such as Sorare and DraftKings, other sports blockchain games have not yet made waves. Previously, FIFA and EA broke up due to the sky-high renewal issue, and launched four Web3 games with different modes, but these games were not attractive enough to fans.
Specifically, there is a big gap between the gameplay, graphics and star portrait rights and mature Web2 sports games. In the future, as 3A-level sports games such as Goals try to enter Web3, this situation may improve.
New directions for sports NFTs
In addition to the above scenarios, the new way of playing that combines NFT with real sports is also an excellent attempt to turn NFT from virtual to real, such as NFT tickets. Ticket NFT has already had precedents in the music field, and its biggest role is to prevent ticket reselling and counterfeiting.
However, most ticket NFTs are one-time and have a short validity period. After entering the venue, the ticket NFT only has collection value. Except for rare NFT ticket stubs (such as the debut of a star, cooperation with a big name, etc.), its value is relatively limited. Sports events give NFT tickets the possibility of long-term use - such as season tickets for the team's home stadium. For some clubs with a large number of fans, team season tickets are basically "hard to get".
Ticket NFTs can be used as a team POAP, and clubs can launch loyalty points programs similar to "Odyssey", such as: purchasing team peripherals, verifying the number of attendances in the season, etc., retaining or eliminating season ticket holders, and allocating seats for next season's season tickets.
The club can also provide benefits to some high-point NFT holders, such as player-signed apparel, offline meet-and-greets, etc.
In July last year, Paris Saint-Germain sold three NFT tickets worth more than $220,000 for a friendly tour in Japan, and buyers can obtain unique rights. Although NFT tickets are a good solution, fans of sports games cover all ages. NFT itself has a small audience. In addition, many sports fans are older and more conservative, and they are slow to accept new things. At this stage, ticket NFT is more suitable for small-scale promotion.
NFT Governance
The decentralized nature of Web3 makes democratic decision-making possible for the team. Last year, the former owner of Chelsea, Roman Abramovich, had to sell his shares in the team for political reasons. Some fans wanted to protect the interests of the team. During this period of transition, they launched a crowdfunding campaign to buy 10% of Chelsea's shares, established ChelseaDAO, and hope to participate in key decisions of the team in the future.
(During Chelsea's turbulent period, fans hoped to raise funds to set up a DAO organization to take over some of the team's affairs)
For various reasons, ChelseaDAO ultimately failed to achieve its goal, but Crawley Town Football Club, not far from England, has launched a small democratic "revolution" with the help of NFT: a Web3 capital called WAGMIUnited acquired this football club in the English League Two, allowing fans to participate in team building through Web3 management (with NFT as the core governance), introducing voting to decide the team's signings, and allowing season ticket owners and NFT holders to vote together. Although this management method is very democratic, it seems to have nothing to do with the club's performance. Crawley Town's performance has been up and down during the season, and the head coach has been changed many times. The final result is only the 22nd place with difficulty in relegation.
The poor performance of Crawley Town may be related to the fans' lack of professional knowledge of sports management, which is also a common problem of DAO management - community voting relies more on common sense rather than professional knowledge. In addition, due to information asymmetry, it is impossible for all information such as the team's daily operations and locker room management to be known to the outside world. It is foreseeable that when the team hands over the overall decision-making to the fan DAO, this democratic management method that lacks innovation and long-term perspective will find it difficult to improve the team's performance.
Club Fan Token: A new attempt to empower fans In addition to NFT, Fan Token is another business model related to sports fans. Compared with holding NFT with poor liquidity and passively bearing price fluctuations, Fan Token proactively grants governance rights to assets. Previously, some fan groups hoped to operate the club through "DAO+Token".
Fan Token provides such an opportunity, allowing fans to participate in some governance activities, such as deciding the captain's armband, club bus design, warm-up songs, etc. for a certain game, so that fans have some say. In this model, the club can also benefit.
As the leader of Web3 sports fan projects, Chiliz has incubated fan tokens of many clubs, including AC Milan (ACM), Atletico Madrid (ATM), Tottenham Hotspur (SPURS), etc. Chiliz's incentive platform Socios.com generated US$12 million in revenue from fan tokens in 2021. Clubs that cooperate with these fan tokens can receive a share, adding new revenue paths for the team.
For example, in 2020, Barcelona’s fan tokens were sold out on the day of their launch, with sales revenue reaching US$1.3 million, part of which was given to the club, increasing its financial revenue.
(Socios.com has reached partnerships with multiple sports clubs)
However, the income from fan tokens can only provide limited financial help to the team, as broadcasting rights, match days and real-life commercial activities are still the main sources of income for sports clubs.
Let’s take Barcelona, which is facing financial difficulties, as an example. According to the Deloitte Football Money List, the club’s revenue in 2022 will be nearly 640 million euros. In comparison, even the revenue of Socios.com for all its partner teams in 2021 is just a drop in the bucket.
(Source of Barcelona Football Club's 2022 revenue composition: Deloitte Football Money League 2023)
At the same time, fan tokens have also become "a token used by fans to generate power with their love, and a target for speculation by non-fans."
On the one hand, token holders are limited in the number of events they can participate in each season. The number of events they can participate in each season is small and insignificant, and major matters are still managed by team and club executives.
On the other hand, the fan token lacks long-term investment value, and has become a disguised casino. If collectible star NFTs may be sold at high prices due to their rarity, fan tokens have no value anchor, and even the club's position in the league and performance in the game will affect the token price.
In the 2021 European Cup and the 2022 World Cup, the fan tokens of different teams experienced price fluctuations at different stages of the competition. Even during the team's off-season, the team's transfer operations, the departure of the team's top star, or the introduction of famous stars can also affect the token price.
It can be said that this kind of fan token with meme attributes is actually guided by the emotions of fans.
Web3 and sports IP in the cold winter
In the past, Web3 sports projects actively launched scenarios such as advertising display, NFT, fan tokens, and metaverse games to fans. All of these scenarios revolve around fans, which provides fans with rights and convenience, but this did not make fans buy in.
Firstly, the concept of fan base itself is very complex. Sports fans generally cover all age groups, including people of different cultural levels and ages. It will take a long time for most of them to accept a new concept.
Secondly, after witnessing Manchester United, AC Milan and other European giants introduce foreign capital and use the management ideas of listed companies to run the clubs, which led to turmoil for years or even decades, more traditional European fans are more resistant to foreign capital participating in team affairs, and this is even more true for Web3 capital, which has not yet been understood by most people.
Although this does not mean that Web3 Capital's investment in the team is doomed to fail, at least the failure of Crawley Town has left a deep impression on the fans. However, sports clubs have a large number of fans, which is why Web3 Capital is unwilling to give up sports projects. However, if Web3 itself wants to gain the recognition of fans, it must not only truly benefit the fans, but also prove its own value first.
In the 2021-2022 season, the crypto industry provided the NBA with about $130 million in sponsorship investment, becoming the second-largest sponsorship category that season, and major sports brands such as Adidas and Nike have also entered Web3 in recent years. Just as Web3 and sports were entering their honeymoon period, along with a series of scandals such as the FTX crash, Tom Brady, Stephen Curry and other stars who had endorsed FTX were implicated, and even the Miami Heat's home stadium co-title with FTX was terminated. To make matters worse, Voyager's bankruptcy and the breakdown of its cooperation with the Dallas Mavericks have stigmatized "Web3" in the sports world, and its reputation has plummeted.
The Crypto industry wants to use sports events to build a huge business empire, but the frequent negative news has not only damaged its own image, but also dragged some people in the sports circle into the water. This has forced the sports industry to face Web3 capital with caution and deepened the generation gap between them.
Is it that Web3 needs sports fans, or do sports fans need Web3? Although it is often said that the combination of Web3 and traditional sports can bring new income to clubs, it is negligible compared to mainstream sources of income such as tickets, broadcasts, and fan peripherals; in terms of popularity, Web3 capital seems to need to rely on the promotion of sports events to expand its influence.
However, Web3 and sports IP have not yet achieved the effect of "1+1>2" in terms of influence or revenue. Moreover, from the perspective of finding investors, traditional sports clubs have a more obvious preference for traditional capital, while Web3 capital represented by FTX obviously lacks such stability.
