Definition of Problem
Closed Nature of Finances in the Global Sports Industry - Only 28 out of 2894 professional teams in the Top 5 sports in the world (i.e. European Football, Basketball, American Football, Hockey and Baseball) are publicly traded companies where fan-investors are able to economically participate. European Football Player Transfer Market, in particular, is closed for economic participation by outsiders where only a few hundred participants determine the demand and supply dynamics and price formation of an asset. The closed nature of these markets within the sports industry make them inefficient with negative symptomatic consequences to various markets participants and the industry as a whole
Access to Capital and Asymmetry of Opportunities - According to a UEFA report, 80% of professional football clubs struggle financially, while the other 20% that belong to the "elite" group of clubs rely heavily on soft loans and funding from their rich billionaire owners. This creates an asymmetry of opportunities for clubs based on their ability to access affordable funding and effectively manage their cash-lows.
Low Liquidity and Seasonality - Markets in the sports industry can be highly seasonal. For example, 33% of European Football clubs' revenues come from the Players' Transfer Market during two narrow transfer widows in summer and winter with each of them lasting only a few weeks. There is currently no mechanism for clubs & athletes to smooth out existing seasonalities in the industry to assist with their cash flow management.
Struggling Young Athletes & Abusive Intermediaries with Asymmetric Power - According to Canadian researchers, 86% of promising young athletes live below the poverty line with very limited choices to get the funds they need. The struggle to sustain living is especially pronounced in the early stages of a career, preventing young athletes from their focus on training & results. Without any widely adopted platform in place, where young athletes could have direct access to a broad pool of funds it provides ample opportunities for abusive and murky intermediaries to exploit the situation. Indeed, according to FIFA President, Gianni Infantino agents, possess asymmetric disproportionate power in the market (see quotations below). According to the UEFA report, the average agent commission in 2017 was 12.6% or a massive $700 million, with registered precedents of commission rate going as high as 40%.
Low liquidity & Inaccurate Skewed Valuations With a very limited number of ‘bid’ and ‘ask’ orders from a small number of market participants, Clubs are unable to know the true value of their assets, e.g. their contracts with players. Clubs looking to buy or sell their players are likely to transact at negotiated price stemming from the negotiation skills of the parties, their subjective opinions with very little relationship to the real market price of an asset. In simple words, parties to the transaction are more likely to over-or under-pay for an asset in an efficient market
Shedding fans to Esports & Digital experiences. Traditional team sports are currently experiencing a slow erosion of their fan-base due to the loss of the younger generation which is choosing E-sports and digital experiences more and more often. It becomes harder and more costly to achieve sufficient levels of fan engagement for traditional sports. Professional sports teams and athletes find it necessary to embrace new tools such as collectible NFTs and Fan Tokens to protect their market position among sports fans.
Undemocratic and Non-Inclusive - The current setup of various markets with the global sports industry is very undemocratic as it excludes 4.9 billion sports fans and investors around the globe from direct participation. With no equal access to opportunities, the current format of finances and capital flows in the industry is perceived to be discriminatory in nature and unfair.
FIFA’s Gianni Infantino:
“The current framework promotes financial incentives to prevail over the interest and welfare of vulnerable parties such as players, particularly minors”
[Current setup] “allowed a small group of agents to wield influence on players and clubs”
“What is worrying is the inflation that these transfers trigger and the rat race that this entails with all the other clubs”
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