From the International Olympic Committee to Major League Baseball, Bellator and the French Football Federation, barely a week has gone by in 2021 without a major sports rights-holder announcing a partnership in the growing non-fungible token (NFT) space.
But it remains an area of the digital ecosystem that is something of a mystery for many outside those who are familiar with blockchains, cryptocurrencies and decentralised digital identities.
Capital Block, a division of the Capital Sports Media agency, though, is on a mission to educate sports industry executives who, in many places, are still scratching their heads about the scale of the opportunity in front of them.
The agency’s foundations in NFTs began through a partnership with Turkish Süper Lig football club Galatasaray to enhance fan engagement and brand loyalty across a variety of digital channels, including cryptocurrencies. The deal kick-started a number of similar agreements across Turkey – a popular market for crypto adoption, as investors have sought to shelter against inflation and the turbulence of the lira currency, the value of which dropped to an all-time low in late October.
“The Galatasaray deal propelled us, and we started getting inundated with requests surrounding crypto partnerships and other opportunities for clubs. That helped to launch our crypto, blockchain and NFT division – Capital Block – with NFTs being a key focus,” said Capital Sports Media chief executive Tim Mangnall, a seasoned investor in cryptocurrencies.
“As a company, our background in crypto has given us an understanding of what an NFT is, and we identify as the first NFT sports agency.”
Mangnall, and Capital Block, are committed to addressing the key questions asked by rights-holders who suspect NFTs present an opportunity but are unsure how to make the most of it.
Firstly, there is a need to understand what an NFT is.
At its basic level, an NFT is a digital asset that has a unique code. This non-interchangeable code can be connected to any kind of digital asset, including a photograph, audio file, illustration, video or animation.
The code itself is registered on a blockchain – a digital ledger that is more commonly known for underpinning the use of cryptocurrencies.
Typically, rights-holders’ NFTs are available through so-called batch ‘drops’ via a variety of online platforms, either on an off-the-shelf basis or via auctions.
The buyer then holds the asset in their digital wallet on devices like a smartphone. Some simply collect NFTs, while others use them in games. The tokens can be traded in the hope of generating a profit from the initial investment.
“Clubs do not necessarily need to get bogged down in how crypto works to get on board with NFTs, but they do need to understand what an NFT is and what a blockchain is,” Mangnall said.
Perhaps the biggest barrier to the mainstream breakthrough of NFTs in an industry in which everything is quantified – from mark-ups on drinks sold on stadium concourses to multi-million-euro broadcast rights contributions – is convincing rights-holders that NFTs actually have value.
After all, any digital asset can be copied, even if there is only one ‘owner’ of the unique code that sits underneath the file on the blockchain.
“It is about having ownership of this asset. You are owning a moment in history. It is like with art: you can own a print of a famous painting, or the original,” Mangnall said. “Clubs should not look at this as solely a revenue opportunity though. It is a huge fan engagement opportunity, and sport is just scratching the surface.”
For rights-holders – including leagues and individual athletes, as well as clubs – incremental revenues can be generated through a cut of any future sales of the same digital asset, as well as the original sale.
After the market cooled in the second quarter of 2021 following a surge at the start of the year, NFT advocates are once again bullish about the sector’s prospects.
In sport, football-focused NFT trading platform Sorare raised $680m through a Series B funding round in September, valuing the company at $4.3bn. In the same month, Dapper Labs added Spain’s LaLiga and the NFL to a client roster that already included the NBA’s Top Shot NFT marketplace and completed a $250m funding round that valued the business at $7.6bn.
There have been several high-profile examples of NFTs in the worlds of art and gaming that have fetched six, seven or even eight-figure dollar sums through auctions, although prices for off-the-shelf digital offerings on NBA Top Shot can start at less than $10.
There are hurdles in the way of NFTs entering the sporting mainstream, though – and Capital Block is determined to clear the path by advising clubs on the best route forward, from the right assets to exploit to the best blockchain platform to use.
With clubs keen on stability and wary of being caught up in another passing fad, they need to be convinced that NFTs can serve as standalone digital fan engagement tools that can generate a positive, minimal-risk return on investment.
In order to do this, in rights-holders’ collective psyche, NFTs have to be separated from the volatile world of cryptocurrencies. Furthermore, the market itself, bursting with some 4,500 disparate blockchains, cryptocurrencies and NFT platforms of varying capabilities, needs to converge so reliability and reputation can be enhanced.
“It is understandable that clubs are nervous as there are so many NFT platforms available, and they don’t know who they are or what they offer. But that is where we come in, to advise them throughout the process,” Mangnall added.
“Fans also need to understand what NFTs are, and I think we are still three or four years away from NFTs circulating amongst the truly mainstream followers of sport. At the moment, the crypto community is accounting for 99% of NFT sales, and we are at 0.5% of where this is heading in sport.
“There needs to be education, of course, and the average fan needs to experience NFTs. That is when it will really take off in sport.”