Fan Tokens: New Ponzi or New Paradigm?

Sports fan token prices went up 85% in past 3 mos while crypto mkt went down >10%.

Are fan tokens a new ponzi or a new paradigm?

How web 3.0 may disrupt the $500 billion sports industry… or not 👇

How sports industry makes money today

Sports is big biz. NFL (National Football League of the US) alone made $17 billion in 2021.

 

Sports industry makes money in 3 main ways:

1. selling broadcasting rights to media networks
2. sponsorships from brands
3. tickets, merch, etc sold to fans

These apply to many types of sports, such as soccer…

…and American football:

You may conclude from numbers that media broadcasting rights is biggest source of revenue for sports.

Not true.

B/c half of media networks’ revenues themselves come from advertising:

In other words sports sell content rights to media networks who then sell advertising.

Media platforms are the middle man btw sports teams (i.e. sports content creators) and brands (i.e. advertisers).

Keep this 👆 in mind. We’ll come back to it in a sec.

So end of day sponsorship/advertising is really the biggest source of money for sports teams, directly or indirectly accounting for at least 50% of industry revenue:

Pop quiz: what’s the most monetizable asset of sports industry?

You’re smart. If you stare at chart below for a sec, I’m sure you see the answer:

Audience attention.

The industry is a content biz— creating entertainment to draw fan attention which is sold to brands either directly via sponsorship or indirectly via media networks.

What’s wrong with this biz model?

Two things.

One, content biz is getting so competitive in the digital world of constant distraction. Consumption habits are changing & watching a game passively in front of flat screen is increasingly not the way younger generation likes to consume sports entertainment.

Two, media networks are not what they used to be. Older platforms, e.g. TV networks, that are slow to evolve are seeing audience decline. So will be their abilities to attract advertisers & pay for content rights.

Newer platforms, e.g. web2 giants like Netflix, are winners-take-all networks w/ larger bargaining power. Few content creators— sports included— will get a better end of deal selling content to them.

Bottomline is the times they are a-changin’. Sports economy needs to evolve.

How fan tokens are trying to be a solution

Fan tokens are fungible digital assets issued by sports teams w/ help of token platforms like Socios & Binance.

When they’re issued on a blockchain, they become part of on-chain financial ecosystem that makes it easy for these tokens to have 2ndary mkt liquidity.

If you’re unimpressed by these tokens, you’re not alone. They honestly don’t do much right now.

As a sports club token holder you can vote on trivial things like which banner to display on a certain match day. You care? I don’t.

You can also win perks like team merch & tickets to real games. But those perks don’t scale.

Socios, the current largest fan token platform, is trying hard to innovate & give fan tokens more value.

E.g. they’re experimenting w/ burning tokens when a team wins matches, tying token supply to team performance (unclear how regulators will think of this). They’re also trying to build a gamified app, even having a pokemon feature where you can hunt for tokens.

So far most of these experiments are “meh”— uninteresting, or unscalable, or not yet executed well, or all of above.

Bottomline is fan tokens have not found product-market fit, despite raising boatloads of $$ for participating teams.

And yet, I think web3 & fan tokens have the potential to disrupt sports industry.

How?

3 ways web3 can disrupt sports industry w/ fan tokens accruing value

Size of mkt opportunity in ascending order:

1. Creating a new product of interactive sports entertainment experience

That’s partly what platforms like Socios are going for— to make sports audience experience participatory & interactive, by allowing token holders to vote on stuff & using tokens to gamify digital interactions w/ sports teams.

Hope is interactive experiences will be a product in itself that audience values beyond passively watching sports, thus creating a brand new type of value added in sports entertainment.

The vision is admirable. But real-life interactions aren’t scalable. I’m hopeful abt digital interactions but right now they aren’t executed well & still act like a solution looking for a problem. ’Tis a smaller opportunity than the two we’ll discuss below.

(BTW, like this so far? I help you get smarter about web3 & macro. Subscribe to my newsletter for updates.)

2. Becoming an alternative form of sports betting

A more straightforward use case for fan tokens is to piggyback on high growth sector of online sports betting, w/ tokens being an alternative type of betting tickets that are more casual, more accessible w/ less stigma.

Sports betting industry is projected to grow to $160 billion by 2030.

But that's way too underestimated.

Fan tokens will act like de-facto betting tickets & totally change what this industry looks like by end of decade. pic.twitter.com/IYW89xcDeh

— Tascha (@TaschaLabs) August 1, 2022

On-chain tokens being global & borderless naturally allows prediction mkts to have more liquidity & wider participation.

A big roadblock is obv regulation. Association btw token value & game outcomes has to be indirect enough that it’s not perceived & being regulated as outright gambling. This may be achievable.

Bottomline is fan tokens can disrupt sports betting in similar way that OnlyFans disrupted Pornhub— by making an existing product more accessible, more interactive & more appealing to peripheral audience who aren’t traditionally core users of the product.

3. Connecting audience/fans with brands directly

Remember what we talked abt a min ago— audience attention is biggest monetizable asset of sports industry. It makes much of industry’s value-added & profits possible.

Traditionally much of this audience attention is sold to brands & advertisers w/ media networks as middle man, who capture most of value-added.

Fan token platforms can change this by connecting brands directly to sports audience, w/ token values backed by advertising fees & shared w/ audience, i.e. token holders.

In other words, here’s how fan tokens can fit into sports economy value chain:

You may ask, aren’t we just replacing one type of middle man w/ another? What’s different?

The difference is where value accrues.

When media platforms are intermediary, they capture bulk of value-added, even though it’s audience who provides the attention & sports teams who provide the content.

W/ on-chain tokens as a transparent organizer of value flows, it’s much easier for the ultimate buyer of the industry (advertisers) to directly pay the ultimate sellers (teams & audience).

Yes token platforms like Socios will capture part of that values too b/c they have the network effect. But more values will go to creators & audience compared to the old model. Besides, part of value capture by token platforms go out to audience too via the platform token.

Now this is is the biggest opportunity for fan tokens imo.

p.s. I’m sure you can see a similar web3 value distribution model not only can apply to sports industry but to many others as well.

35 business ideas of how web3 could improve or disrupt the most successful companies:

— Tascha (@TaschaLabs) July 24, 2022

How likely this vision will happen

Companies like Socios have done the unimaginable— onboarded most of large sports leagues in Europe, US & around the world, i.e. secured the supply side of a network economy.

This is a VERY hard thing to pull off. Kudos to them.

Main risks right now are regulations & execution.

Regulation will determine how far web3/tokenization innovations can go, at least in short-to-medium term. E.g. user onboarding is very clunky right now at least in the US, partly due to compliance.

Execution is another risk, e.g. navigating vested interests in this industry to carve out a viable path for new biz models & for token value accrual. This is not easy. Execution will determine how much the disruptive potential we talked abt above will be realized.

So far, not much to see yet. But I’m cautiously optimistic.

 

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