Background & Trends
Blockchain technology invention dates back to 2008; however, it is only in the year 2017 when terms, such as ‘Blockchain’, ‘Smart Contracts’ and ‘ICO’ (traditionally used by a narrow group of enthusiasts in niche industries) had a major breakthrough and entered the vocabulary of the mainstream population. Blockchain has the following key features which promise to revolutionize business processes across nearly all sectors:
- Immutable & Verifiable: it is tamper-proof against forging or editing. The hash function makes transaction unique for verification purposes
- Transfer of Value: enables the transfer of value between its users via tokens. Tokens can be thought of as a carrier of value.
- Programable: tokens can be preprogrammed as smart (or self-executing) contracts, which enable a new level of efficiency via automation and robotics.
- Decentralized: transaction records are located simultaneously on numerous nodes around the globe, which eliminates a single point of failure.
According to KPMG analysts estimate, the global sports industry is $600-700 billion USD with annual revenues of $150 billion. Gallup's research identified 63% of the world's population as sports fans, which amounts to a massive 4.88 billion people and potential investors. This is an “army of followers” that is higher in numbers than any religion in the world.
Association Football (a.k.a. European soccer) represents 43% of the global sports market and it also experiences one of the highest growth rates of 8% among sports industry sectors. According to AC Nielsen's research study, global interest in Football is scoring 46% of the population. However, despite the popularity of the game, only 22 football clubs are publicly listed on stock exchanges today, making it effectively one of the most closed markets inaccessible to a broad population.
According to a 2018 Deloitte report on trends in sports, the industry is expected to experience some transformative disruptions, with the impact of “digital coin” being highlighted as one of them. Indeed, the rapid evolution of the new Blockchain technology is already disrupting the industry and existing business models. The democratization of capital trends in the sports industry is expected to accelerate over the next 3-5 years, effectively shifting power into the hands of sports clubs, athletes, and their fans.
The industry is well propped to reap the benefits of DLT (blockchain) technology in the following three strategic directions:
- SECURITY TOKENS is “a growing movement to help non-billionaires buy into a league”. They will soon become the next chapter in the evolution of democratized capital in the global sports industry for its fair and more inclusive nature.
- NFT MARKETPLACES which enable sports teams and pro-athletes to monetize their brand and unique content.
- FAN-TOKENS which enable an ongoing fan-engagement and marketing initiatives by sports clubs & athletes, while providing alternative sources of funding.
Financial markets are a heavily regulated space. Both the US and the EU regulators are developing creating new legal frameworks that will govern financial instruments on the blockchain. As of the date of this publication, we know that the European Commission in Brussels is actively working on DFP (Digital Fiance Package) and MiCA (Markets in Crypto Assets) which will regulate CASPs (Crypto Assets Service Providers). In the USA, newly appointed SEC Chair Gary Gensler is eager to cooperate with the lawmakers for better regulation of STOs., while SEC Commissionaire Hester Pierce already proposed a new 'Safe Harbor" sandbox environment for decentralized crypto-projects.
There are close to 2800 professional sports clubs in the Top 5 sports around the globe with an estimated $252 billion in assets on their balance sheets. 6400 professional athletes employed by these sports clubs represent an aggregate of $20.5 billion in contracted salaries excluding remuneration sources from endorsement and sponsorship deals. These are real assets still waiting to be tokenized on blockchain. We expect that as early as in 2022 Security Token Offerings (STOs) will become the next frontier in the democratization of capital in the sports industry.
Over $230 million has been spent on “Non-Fungible-Token” (NFT) “video highlights” of NBA players on NBA TOP SHOT, built by Dapper Labs. The earliest investors in these NFTs are now millionaires. The NBA is internationally known and recognized, but the market opportunity beyond basketball for NFT experiences is far greater than what TOP SHOT has been able to capitalize on.
On April 15th, 2021 total market cap for Chilliz project reached its maximum at $4.3 billion and a great reflection on how far the sports industry and billions of sports fans have come in terms of understanding and embracing the benefits of DLT technology for the industry, and for fan-engagement in particular.
Additionally, on September 30, 2019, the State of California initiated an attack on NCAA amateurism rules by signing The Fair Pay to Play Act into law. It permits college athletes in the state to get paid for their name, image, and likeness through endorsement deals, sponsorships, autograph signings, and other similar income opportunities, thereby ending the era of “NCAA’s archaic and patently unfair rules on “amateurism.” According to researchers, 86% of young athletes live below the poverty line and this new law opens a new chapter with brand new opportunities for young promising athletes to monetize their talent.
This new law goes into effect on Jan. 1, 2023, in California. At least 17 other states made an announcement to follow the suit.
World Economic Forum. ‘Deep Shift Technology Tipping Points and Societal Impact’ report: "10% of global gross domestic product (GDP) will be stored on blockchain technology by 2027"According to PWC ‘Strategy&’ report on Initial Coin Offerings "[Token Offerings] are quickly replacing traditional VC funding models, effectively cutting out the middle man by allowing companies to raise their own funds directly. Hybrid models combining classic VC & PE funding with [Token Offerings] are also increasingly establishing themselves as a valid funding alternative.""Shark Tank's" Kevin O'Leary, in his interview to CNBC: “ "Asset-based coins will eventually replace small-cap stocks and IPOs"PWC report ‘Alternative asset management 2020. Fast forward to centre stage’: Between now and 2020, alternative assets are expected to grow to $13.6tn in our base case scenario and to $15.3tn [or double] in our high case scenario.Forrester Research. ‘Predictions 2019: Distributed Ledger Technology’ report: "The Most Innovative Projects Will Involve The Tokenization Of Assets. This has nothing to do with cryptocurrencies or tokens used as a payment instrument on blockchain. Representing digital or physical assets as tokens on a DLT-based network allows participants to reinvent processes and develop new business models. This is uncharted territory from both a business and technology perspective."