For a technology that seems so new, Web3 has in one sense already lived a full life – and then died suddenly.
For a casual sports fan, who has never actually engaged with a Web3 product, that life has played out on the electronic billboards that surround football pitches and the corporate logos on team shirts.
“Global football sponsorship is generally a bellwether for global macroeconomics,” says Matt House, the founder and chief executive of SportQuake, a marketing agency that brokers sponsorship deals. “If you look at the 1990s we had Japanese consumer electronics, in the 2000s finance companies like AIG and then Middle Eastern airlines as those states became more prominent.”
Taken by this measure Web3 products – and cryptocurrency brokerages in particular – came from nowhere to scale the heights of the global economy in just a few years. According to the SportBusiness Deals Tracker, cryptocurrency and blockchain companies spent just €1.25m on sponsorship in the top four European football leagues in the 2018-19 season. By the 2022-23 season that had grown to €169.8m across 27 clubs.
Yet just as suddenly as Web3 brands appeared in stadia and on team merchandise, they have gone, as major Web3 sponsors like the cryptocurrency exchange FTX have become insolvent. Nothing better sums this up than the incongruous sight of Serie A club Inter Milan playing to a global audience of hundreds of millions in the semi-final of this year’s Champions League with no corporate logo on the front of their shirt. Inter have left their prime shirt sponsorship slot empty in recent weeks amid reports of missed payments from their sponsor, the blockchain protocol digitalbits.
Web3 products came from nowhere to scale the heights of the global economy
If we are to judge only by visibility, then, it is easy to dismiss Web3 as a passing fad in sport, whose time has already passed. But many Web3 companies remain, and the technology will continue to change the industry at every level.
Let’s start at the beginning.
Think of watching sport 15 years ago. You likely concentrated on a single game showing on a television and talked about it with the friends present with you. Today, you might be streaming the game on a laptop, scrolling Twitter for clues as to why a specific player has been left out of the line-up and looking at a specific player’s skills videos on TikTok, all while messaging friends about the game on WhatsApp.
What happened in between was the rise of Web2, or the social web, built on rapid advances in technology including greater bandwidth, ubiquitous Wi-Fi networks and the spread of the smartphone. This second iteration of the internet was characterised by interaction. Through social media websites and then apps, content was offered up in real time for users to comment on, share or splice with other material to create content of their own.
And this in turn has given rise to a new model of fandom characterised by content streaming, global fanbases, and the growing prominence of individual athletes. All of this fuelled by fans interacting and creating content on social media.
The premise of Web3.
The central argument of proponents of Web3 models in sport is that the ability to interact with sports stars and watch anything has given rise to demands among consumers, especially younger ones who grew up in a Web2 world, for ever more closeness to players and ownership of content. The ‘social media’ model, in other words, cannot meet the expectations for access and agency that it has unleashed.
“Everything in the Web2 world is broadcast, publishing and posting by sports teams and players to fans,” says Jeremy Pressman, a partner at ADvantage, a sports technology venture capital fund. “Web3 leans into how fandom has changed, to the demand for a two way relationship and the ability for fans to play an active role.” For Web3 enthusiasts blockchain technology, which records and verifies transactions on a digital ledger, can deliver this agency.
Whereas social media platform companies such as Facebook and Google capture and then jealously guard as much data as possible about their individual users, to better target ads, public blockchains such as Ethereum and Bitcoin use cryptographic addresses that offer a degree of privacy and also publish transactions for anyone to see. This combination of privacy at the individual level and full transparency at the aggregate level, it is argued, paves the way for businesses that benefit users, rather than chasing data. Adding cryptocurrencies and tokens, whose transactions are also encoded on blockchains, creates the possibility for products that have exchange value and can be easily traded.
Within sport, we have begun to see business models built on blockchain technology. These have three common characteristics. Firstly, direct ownership and stakes – in players’ careers, teams, or more prosaically, fantasy leagues, video highlights or player likenesses. Secondly, fungibility – the ability to sell assets that can give Web3 products lasting worth, as long as another fan also perceives the product to have value. And lastly a perceived respect for privacy and declined focus on data.
NFTs for the future.
Let’s consider first what are, after cryptocurrencies, the most well-known Web3 products: non-fungible tokens, or NFTs. NFTs are nothing more than digital images and thus endlessly reproducible. However, their value comes from the artificial scarcity that their issuer determines by limiting the number created and providing a serial number that ‘proves’ that a specific image is, in fact, authentic, while its facsimile is not. Serial numbers can be encoded onto a blockchain along with limits on further issuance to guarantee an issuer does not produce more.
One of the most high-profile sport NFT collections is the NBA Top Shot series issued by Dapper Labs. The NBA licenses Dapper to issue short clips of key moments from basketball games – a spectacular dunk, or on-the-buzzer game winning shot, say – as NFTs. That creates an official, NBA-endorsed, version of what, in the Web2 world, has already been shared by thousands of users as a GIF on Twitter or reel on Instagram.
Average prices for NBA Top Shots –or ‘moments’ as the wider class of video highlight NFTs have become known – climbed rapidly in the first year after the collection’s launch in 2020 with three separate LeBron James Top Shot NFTs selling for prices above $200,000 between February and August 2021. But since then sales volume and prices have declined rapidly. The $50,000 threshold was only breached once in 2022 and so far this year the highest price paid for a Top Shot is $19,999 – for yet another LeBron James dunk.
Around 10,000 different people still buy Top Shots each month
Despite this sell off around 10,000 different people still buy Top Shots each month. Although that is far below the peak of 184,000 buyers in March 2021, it has held relatively steady for the last six months, suggesting a core market of buyers remains interested. The NBA has also notably not pulled out of its licensing deal.
French company Sorare combines the idea of Panini World Cup sticker collections with the fantasy league model. Player cards are issued as NFTs that can be bought and sold and the rarest give access to closed fantasy leagues. Chiliz, meanwhile, offers the chance to vote on team decisions such as club crest redesigns, or stadium music, in much the same way Twitter polls or consultations with fan groups did in the past. Fans buy tokens issued by Chiliz for football, Formula 1 and rugby teams, to gain the right to vote in the polls for that team on a Chiliz app called Socios.
For Lewis Wiltshire, the CEO of Seven League, IMG’s digital arm that advises sports rights holders on sales and partnerships, this is the way that sports leagues and teams should use Web3 – as a way to offer a recognisable model of fandom to a new demographic. “Fandom evolves and changes with the platforms that are available to it, but fandom itself does not essentially change. Web3 technologies are simply the newest way clubs can offer fans to express a sense of ownership that people have always felt.”
In real life.
Both Sorare and Chiliz offer the potential for owners of their assets to gain ‘real life’ rewards. The best competitors in Sorare fantasy leagues win prizes that have included playing football on the Anfield pitch and tickets to the MLS All-Star Game. The more exclusive the fantasy league the better the prizes, creating an incentive to spend more on a rare Sorare NFT to gain access to closed leagues. For Chiliz the most active participants on the Socios app gain rewards linked to the team whose tokens they hold, for example access to a Formula 1 team’s paddock, joining training with a rugby team or taking over stadium announcements for a football club for one day.
“We want to lean in more towards what these cards can unlock in the day-to-day world of sport, the physical world more so than any potential metaverse,” says Michael Meltzer, head of business development at Sorare.
“Gone are the days when leagues or teams licensing image rights to an NFT creator is enough to create a successful product,” says Jeremy Pressman, from ADvantage, the sports technology focused VC fund. “There needs to be a second level where you can say: ‘OK I have this video moment, that is interesting. But what is the actual value of it? Where can I use it and what can I do with it other than sell it?’ ”
As clubs, leagues and arguably Web3 companies themselves adjust to this new reality the race is on to increase the real-world value of the products they offer. Indeed, talk to anyone from a Web3 company today and you are likely to hear the word ‘utility’ again and again. Companies emphasise the utility their product already offers fans, and explain how it will provide more utility in future.
“The value is really down to what a club is willing to give and what we can imagine with them,” says James Newman, the director of corporate affairs at Chiliz. “If you look at what we could offer in terms of fan experiences 18 months ago and what we have now, it’s night and day, and I would hope that will be the same again in another 18 months.”
Looking forward, Sorare is developing a gallery feature within its own app, so that fans can display their collections to each other and even Dapper Labs, while still marketing its NBA Top Shots primarily as collectibles, is beginning to attach practical benefits to its Web3 products too. Dapper auctioned an NFT for each NBA franchise in 2022, for example, that came with VIP access to the next five NBA All Star games.
As well as increasing utility, Web3 companies are seeking to define themselves as products that should be bought for enjoyment, rather than potential financial return. Clubs and leagues too, have reined in their enthusiasm. “You don’t really hear clubs talk about NFTs now. They say collectibles. And they tend to say tokens instead of coins. There is much more caution about Web3 language now,” says Rebecca Hopkins, CEO of The STA Group, a sports technology insights and events firm.
In this new vision of Sorare and Chiliz, the blockchain simply becomes a hidden delivery mechanism beneath the surface of businesses which are not hugely dissimilar to current social media platforms. Yes, there is still the element of fungibility – tokens and cards can be traded – but that is secondary to fan community on Chiliz’s Socios app, or the fantasy league games played on Sorare.
Here to stay.
The claim of Web3 proponents, of course, was not that the blockchain would offer a way to repackage existing models for some tech savvy fans, but that it would offer entirely new business models, which increasingly all people would demand. On that score, we are not yet in a Web3 era, although that does not mean we will never enter one.
In blockchain there is a genuine technology that offers a novel way to prove ownership and transact, on which ways have been found to build interesting value propositions for the sports world. So far the most durable of these appear to be rooted in traditional forms of fandom, fantasy player trading and fan input, for example. More ambitious models, including decentralised decision making and even ownership, are making some headway, often outside of existing league structures, but the current limitations of blockchain technology and the still relatively low level of popular adoption of cryptocurrencies are hurdles to their development.
For the sports industry, however, the question of whether or not Web3 will emerge as a cultural phenomenon to rival social media is moot. There is a demonstrated interest among some demographics of fans for the kind of fungibility associated with blockchain, so the industry should do everything it can to increase the so-called ‘utility’ of products being built in that space. Clubs, leagues and other actors should also be exploring the potential uses of the data about fan behaviour and engagement that blockchain built companies generate.
The potential of Web3
The most ambitious vision for Web3 in sport is decentralised control of a club with thousands of fans holding direct ownership stakes and taking every decision through blockchain votes. When WAGMI United, a consortium featuring Web3 investors and influences, purchased English League 2 club, Crawley Town in April 2022, it seemed they would unleash just that. Instead, a volatile period of ownership has turned into a parable about the risks of such an approach.
“Major football clubs are run by immensely experienced executives and owned by experienced investors. As businesses, they are too big and complex to be managed as a democracy,” says Rebecca Hopkins from The STA Group.
Fan Controlled Sports, however, is still seeking to realise such a democratic vision by setting up leagues from scratch outside existing structures. Its first venture, an American Football league called Fan Controlled Football (FCF) debuted in 2020 with four teams over which fans were given complete control over everything from team selection to in-game tactics.
For each play, fans are offered a choice of four possible options to vote on, and the winning selection gets relayed to the team on the field through earpieces, explains Sohrob Farudi the chief executive and co-founder.
The idea is to attract young fans who may have more interest in esports – video game team competitions that are live streamed on platforms such as Twitch, where FCF games are broadcast too – than conventional sports. The league has seen viewing figures rise and expanded the competition to eight teams for its second season in 2022.
But if FCF represents the more radical potential of Web3 in sport, it also shows the current limits of the technology. First while fans do get to call all the shots, they can not own stakes in the teams. Second, although the league does sell blockchain encoded NFTs, the most innovative part of the business, live voting on in game plays, does not run on the blockchain.
“The goal has always been to provide transparency in fan voting by leveraging blockchain,” says Farudi, “But the technology side is challenging. With the number of votes we need to process in a small amount of time, there aren’t any blockchains that could support that.”
Finally, while the initial plan for FCF was to appeal to a Web3 audience, who would use their own wallets to purchase NFTs to gain the right to vote on team affairs, the company has had to broaden its appeal in search of a larger market.
“The Web3 audience is engaged, but it’s relatively small,” Farudi says. “We’re looking to introduce a very Web2 friendly experience built on the rails of blockchain, and then slowly educating those new fans into what that means.”
