The alliance between the sports industry and Web3 companies makes sense when we consider the opportunities that arise from a vast audience of fans who are inquisitive about new ways of interacting with their favourite sports clubs and brands.
Although we have seen a drop in NFT sales and there are strong signs that a crypto winter is upon us, interest is still strong and we continue to expect a lot of innovation in this space. That said, brands should acknowledge that they are in a precarious position right now. There is no doubt that NFTs and Web3 in general offer brands significant opportunities to innovate, and offer unique, engaging and exciting experiences to customers. However, alongside these opportunities are a number of risks, both reputational and legal.
Innovation in sport
Perhaps the best-known application of these technologies in the sports industry comes from the partnership between the NBA and Dapper Labs. NBA Top Shot is an NFT marketplace where basketball video highlights are sold and traded by fans. With the hallmarks of authentication, provenance and scarcity, NFTs are a natural digital evolution of the popular basketball playing card collectibles.
Clubs, aware of the possibilities presented by this technology, have capitalised on fan devotion by selling NFT collectibles. In 2021, Juventus FC created an NFT consisting of a 3D digital depiction of the team’s home shirt, featuring signatures from members of the squad. Other clubs have taken this further, thinking about ways to use NFTs to provide season ticket members with exclusive access to behind-the-scenes content.
Unfortunately, such ventures don’t always go to plan. Liverpool FC’s NFT project performed less well than projected after only 9,000 of a possible 171,072 ‘Hero’ tokens (cartoon avatar depictions of the Liverpool squad) were sold after a six-day auction at Sotheby’s this April.
Another avenue that clubs and brands have explored is the new range of sponsorship deals available. Many football clubs have embraced sponsorship from crypto companies. Other sports too, notably F1 racing, have developed partnerships with crypto companies. The Staples Centre in Los Angeles, home to the Lakers, has even been renamed the ‘Crypto.com Arena’ following a 20-year deal with the Singapore cryptocurrency exchange.
Nevertheless, it’s clear that brands, however popular and established, should not rush into launching a Web3 project for the sake of it. There are some key points that both brands and clubs should keep in mind to ensure their campaigns don’t fall flat.
What should brands be doing?
The opportunities presented by NFTs for sports brands are extensive. NFTs provide scalable, customisable solutions for brands to engage and reward their communities. Before launching an NFT, brands should consider what they are trying to achieve and whether an NFT is the appropriate technology to do so. Fans will see through a cash-grab and projects that might have worked last year will probably be less successful now. While pure digital collectibles will forever be a good use-case for NFTs, the meta has changed and fans are looking for something beyond a low-effort JPEG project. The brands that will do well will be the ones that use NFTs to find ways to reward active community members and provide valuable utility.
With mass adoption of NFTs still some way off, a major challenge for brands is education. The average consumer will likely get their first NFT from a brand they follow. This means it will be incumbent on brands to educate their community on how to buy NFTs, how to keep them safe, how to avoid scams and hacking and, most importantly, why they should care about NFTs. This is a tall order for brands, but critical to maintain trust. Brands should also be ready to police marketplaces and social media channels for knock-off copy versions of the NFT and take swift action to issue take-down requests.
Brands should consider preparing a bespoke set of T&Cs for their NFTs. On the assumption that brands will be selling to consumers, these T&Cs need to be clear, accessible and compliant with consumer law. In the NFT context, this can be challenging. There is a question over which consumer law would apply to an NFT that is purchasable in numerous territories and it is also difficult to effectively ‘attach’ the T&Cs to the NFT in a way that is enforceable, particularly for secondary sales and transfers that typically take place on a platform over which the brand has no control.
The marketing and messaging around the NFT launch needs to be very carefully considered. The UK Advertising Standards Authority (ASA) has already listed the advertising of cryptoassets and NFTs as a ‘red alert priority issue’ for them and last year it banned Arsenal FC’s advertisements for fan tokens saying they were misleading supporters over the risks of investing in speculative cryptoassets. With fan loyalty to consider, brands should recognise the vulnerability of such consumers and, in turn, the risks to their businesses. They should take heed of the ASA’s advice to Arsenal FC not to ‘irresponsibly take advantage of consumers’ lack of experience or credulity’.
It is clear that NFTs and Web3 technologies bring exciting benefits to the sports industry including revenue potential and enhanced fan engagement. But with the coming ebb in the market, and heightened regulatory scrutiny, brands and clubs will need to plan their campaigns carefully to ensure they become a success.
Author note
.jpg)
Nick Breen, Entertainment & Media Partner at Reed Smith LLP.
