2020 was not an easy year to be a sports team. Both in the traditional sports industry and the esports industry, the pandemic hit hard, with lockdown restrictions causing rights-holders to lose out on revenue from ticketing, food and drink and merchandise sales. To address the shortfall, a number of teams have turned to new technological innovations that have enabled them to engage their fans digitally. The most prominent of these has certainly been around non-fungible tokens (NFTs): digital collectibles based on blockchain that cannot be forged, destroyed or replicated.
Swathes of industries have been looking to NFTs, and the sports and esports industries are no exception. The NBA’s Top Shot NFTs have created a huge amount of extra revenue for the league, with $2.6m (€2.21m) in tokens reportedly bought within the first half an hour of going live. Similarly, in gaming, the WePlay Esports’ team has had some success with its own NFT, which it launched on the Binance marketplace in June last year. NFTs have provide a great way for teams to bring in extra revenue and engage their fans, particularly after the uncertainty of the pandemic.
However, NFTs have an unforeseen reputational risk that has gone largely unaddressed, as some teams are now finding. In some cases, they are being bought up by crypto enthusiasts looking for an investment or a quick buck from reselling. In fact, genuine fans make up a much smaller amount of NFT sales due to these collectors. This is something that we saw in the backlash when League of Legends team 100 Thieves launched its own NFT offering. Rather than being bought by fans of the team, the digital tokens were snatched up by crypto collectors. This kind of activity led to disapproval from supporters who have accused the team of caring more about revenue than their fans, and of having poor motives when creating NFTs.
Avoiding reputational risks
This kind of unforeseen risk can potentially cause reputational damage for sports teams and organisations. Luckily, businesses can optimise their NFT strategy to ensure a fan-centric approach, whilst simultaneously allowing NFTs to achieve their full commercial potential.
Sports and esports teams can transform NFTs from simple collectibles by attaching exclusive rewards and interactions to them. For example, teams could create NFTs of their players’ jerseys to sell to fans but could go further by including an exclusive interaction with the associated player on purchase. This kind of addition adds more value to the offering for fans, other than the prospect of increased resale prices. Not only that, but NFTs could come with additional personalisation and rewards upon purchase. This could include anything from adding a fan’s own name to NFTs of team jerseys, or personalised video messages from the players fans are purchasing NFTs of.
Adding these kinds of rewards will ensure businesses can make sure their NFT offerings do not appear disingenuous and have a focus on appealing to fans rather than accidentally speaking to crypto collectors. Using NFTs to their full potential, as a tool for building fan engagement, can set sports and esports organisations up for success in the long-term; fan loyalty increases as they are further engaged, building up a passionate fanbase for the future.
Addressing energy concerns
Another potential reputational risk of NFTs lies in the concerns around the energy consumption of certain blockchain platforms. As such, businesses need to consider what kind of blockchain platform they build their NFTs on. For instance, many NFTs are created on blockchains which use Proof of Work, which is an extremely energy-intensive consensus mechanism. This enormous energy expenditure originates in the way Proof of Work creates blocks. For a new block to be added to the chain, participants in the network have to race to solve a computational puzzle. This uses a large amount of computing power to run cryptographic calculations. This can cause a big increase in an organisation’s carbon footprint which could in turn cause a negative backlash.
NFT creators, then, should choose their blockchains carefully. They can explore alternative consensus mechanisms which go some way to address the issue of energy consumption. In some, the power to create new blocks is assigned based on the proportion of coins held by a miner. This means the associated blockchain uses a mere fraction of the energy of a blockchain using Proof of Work and doesn’t risk using even more as it grows.
NFTs are a fantastic innovation for sports and esports teams and players, with the potential to create new revenue streams and generate a more engaged and loyal fanbase. To make the most of the opportunity NFTs offer, and to prevent unforeseen downsides, businesses must ensure that their NFTs are not only well intentioned, but also well made.