Why is there no sweet melon between sports and Web3?

What is the reason for the absence of sweet melons between sports and Web3?

Author: DefiOasis

Web3 companies’ enthusiasm for sports is superbly demonstrated in FTX. Previously, they spent $135 million to acquire the naming rights for the Miami Heat’s home for 19 years and had Stephen Curry become an FTX brand ambassador and stakeholder. Coinbase, FTX, Crypto.com, and others also directly advertised during the U.S. national event – the Super Bowl. In recent years, fan tokens, player NFTs, and Web3 sports games have become topics that some fans rave about.

However, with a series of scandals related to Web3, such as FTX’s collapse, the honeymoon period between the sports and Web3 industries seems to be coming to an end quickly. Sports stars previously associated with FTX have also been implicated, and the Miami Heat has terminated its naming partnership with FTX. Moreover, the Super Bowl event will ban any cryptocurrency-related company from advertising in 2023. The lackluster performance of Crawley Town Football Club, which introduced Web3 governance, has also raised doubts about Web3 in the sports industry.

At its core, is it sports events that need Web3, or is it Web3 that needs sports events? Do native products of Web3, such as cryptocurrencies and DAO governance, really make sense when combined with real-world commercial scenarios like sports? This article by DefiOasis will critically discuss this topic and use objective facts to explain why the relationship between sports and Web3 is “forced and not sweet”.

The Collision Between Sports and Web3

Throughout history, humans have had an instinctive longing for competitive sports, as even mentioned in the Bible when discussing the origin of “Israel” (the ancestors of the Jews, Jacob, wrestled with an angel and was acknowledged, hence being named “Israel,” meaning “a person who wrestles with God”). In modern times, sports have evolved into a mainstream form of entertainment with a massive market.

In 2022 alone, the NBA generated revenue exceeding $10 billion, and the National Football League (NFL) in the United States reached a staggering $18.6 billion in revenue. According to Deloitte’s “2023 Football Finance Report,” revenue from the top five European football leagues exceeded €17.2 billion annually. FIFA’s financial report for the World Cup cycle shows that the 2022 Qatar World Cup generated revenue of $5.769 billion, with an audience of over 5 billion, accounting for 62.5% of the global population.

The immense appeal of sports naturally attracts the attention of many Web3 companies. From OKX’s sideline paint on Manchester City’s Etihad Stadium, to the Crypto.com Arena naming at the Los Angeles Lakers’ home, and collaborations between Messi with Bitget and Suarez with Binance, all demonstrate the determination of Web3 companies to establish connections with sports stars and fans. Besides endorsement collaborations, Web3 has also spawned unique scenes such as fan tokens and player NFTs.

Sports Fan Economy: From Collectibles to Gamified NFTs and Fan Tokens

It can be said that NFTs are one of the best ways to bring sports IP onto the blockchain. Mainstream sports NFTs focus on collectibility and gamification, and their inherent social and trendy attributes are loved by young people. Deloitte, a well-known accounting firm, optimistically predicts that the transaction volume of sports-related NFTs will exceed $2 billion in 2022. However, according to LGDoucet, the founder of TheFirstMint, the transaction volume of sports NFTs in 2022 is around $100 million in the primary market and around $700 million in the secondary market, which is less than in 2021.

The decline of collectibles to NFTs

Why doesn't the relationship between sports and Web3 work?

(Among the leading sports platforms in terms of transaction volume in the first half of the year, game NFTs represented by Sorare and collectible NFT platforms under Dapper Labs are still dominant)

The transition from collectibles to NFTs is the first step for Web3 to enter the sports world. Previously, football superstar Cristiano Ronaldo collaborated with Binance to release multiple personal series of NFTs. Even today, we can still see traces of collectibles transitioning to NFTs in the traditional sports world, such as trading cards featuring star players. Whether it’s collectible NFTs or physical cards, as well as star player cards, their value depends on the popularity of the players.

Among the physical trading cards that auction for over $1 million, there are big-name players from various fields such as Mickey Mantle, LeBron James, and Patrick Mahomes. Rarity, aesthetic design, and whether the collection showcases the player’s iconic moments are all factors that add value to these cards. When collectibles are presented in video form, the value also depends on whether it captures memorable moments of the players.

Why doesn't the relationship between sports and Web3 work?

(Adding value with iconic moments: LeBron James' highest selling moment when he became the all-time leading scorer reached nearly $20,000)

In the field of sports collectible NFTs, Dapper Labs is undoubtedly the leader. Their collaboration with NBATopShot, NFLAllDay, LaLiga, UFCStrike, and others caters to the demands of fans from different top sports leagues. It can be said that Dapper Labs and its cooperative products represent the culmination of a LianGuainini-style collectible card gameplay.

Among them, NBATopShot is the most popular. With the endorsement and fan base of the NBA, NBATopShot reached a peak daily transaction volume of over $40 million and consistently ranked among the top five in the NFT trading market. However, the good times didn’t last as NBATopShot soon declined. The reasons include an oversupply of player cards in a short period of time, limited exciting moments to current players, and the SEC lawsuit against the parent company, among others.

(The NBA is a league with high attention to sports NFTs)

It can be said that the decline of collectibles towards NFTs is inevitable. Similar to stamps and other niche collectibles, most of the players in the sports collectible NFT market are a combination of sports fans and Web3 users. When the NFT market cools down and lacks the influx of players from outside the circle, the trading market becomes stagnant. With the downturn of the NFT market and the actions of project parties, the activity level of NBATopShop has been in a slump after reaching its peak in 2021.

(With the NFT market cooling down and the actions of project parties, the activity level of NBATopShop has been in a slump after reaching its peak in 2021)

The gamification of fantasy sports NFTs

Despite the decrease in activity of sports collectibles towards NFTs, sports themselves still have a huge fan base, especially in global top-tier sports leagues. With the entry of DraftKings Reignmakers, Sorare, and others, the gameplay of sports NFTs has been upgraded, injecting more gaming elements. From the decline of collectibles towards NFTs to the popularity of gamified NFTs, sports fans only need a trigger point to become obsessed.

According to CryptoSlam data, there has been a significant trend of PFPs (Profile Picture NFTs) shifting towards gamified NFTs in the month leading up to October 24th this year. In the top five on the list, two sports game NFTs appeared, surpassing well-known NFTs like CryptoPunks and MAYC.

Sports games typically revolve around realistic simulation and management gameplay. However, the current mainstream Web3 sports games focus more on “fantasy sports” management gameplay with NFTs at its core. This is a game genre where players operate teams from the perspective of club managers. The reason for choosing this approach is partly because realistic simulation games developed by sports gaming giants like EAFC and F1 are already very mature. These games have gained recognition from a large number of sports players in terms of cost investment, visual presentation, and maturity of gameplay modes, and have established a strong market share on PCs and mobile devices. Therefore, Web3 sports games face relatively greater challenges in starting from scratch and wanting to make a name for themselves in this field.

Why doesn't sports and Web3 mesh well?

DraftKings, Sorare, UltimateChampions, and other Web3 sports games have found the perfect balance with their “fantasy sports” gameplay. They combine real matches with NFT elements, allowing players to simulate matches by predicting player and team performances and choosing the right lineup. This game mode is not new in the sports gaming industry, as games like FM (FootballManager) and Fantasy Basketball have already established mature simulation gameplay mechanics.

However, what sets Web3 sports games apart is the focus on star player NFTs. Players can trade these NFTs on secondary markets, turning star player cards into financial assets and attracting a large number of speculators. Interestingly, the growth potential and rarity of the players themselves affect the price of their cards. For example, up-and-coming young stars have great speculation potential, while retiring veterans have the opposite effect. Earlier this year, the star NFT of NBA’s rising star Giannis Antetokounmpo was sold for 113.888 ETH (approximately $186,000) on Sorare.

The core of “fantasy sports” lies in its ability to maintain long-term playability, which is achieved in two ways.

1. Regular updates of time-sensitive data

Unlike most gaming enthusiasts, the appeal of sports games primarily comes from sports fans. Deep sports gaming enthusiasts often overlap with real sports fans. From EAFC (formerly FIFA) to NBA2K, while they have evolved from impressive initial releases to frequently criticized routine rehashes, they still have strong revenue-generating abilities, with timely game data updates being a major factor.

In simulation sports games like DraftKings Reignmakers and Sorare, players need to understand real player data and the overall status of tactics and teams, which effectively attracts passionate fans. For such players, once enough stickiness is formed, timely updates of lineup data are more important than changes in graphics, animations, or gameplay diversity. Although most sports games only receive minor updates each year, players have a high tolerance for them and are willing to pay for more timely sports data. If player and team data lack timeliness, the attractiveness of such games will significantly decrease.

Why doesn't sports and Web3 mesh well?

2. Revenue model based on rarity preference

“Fantasy sports” games take inspiration from players’ preference for star player rarity in games like MyTEAM and UltimateTeam. They generate revenue by dynamically adjusting the player card pool. This includes frequently increasing the upper limit of the card pool (player abilities, salary cap, etc.), encouraging players to purchase card packs and participate in draws, or directly buying in-game coins to acquire favorite players.

However, there are also some flaws in the mainstream “fantasy sports” gameplay of Web3 sports games. For example, due to the long game cycle, the continuity is weak, making it difficult to ensure that players maintain enough attention during the full year-long season. In addition, the gameplay of “entry fee + prize pool” is often considered to have gambling suspicions, such as entry fees, player selection (similar to betting), and sharing prize pools, which are similar to gambling behavior. On the surface, players need to make rational predictions about player performance, but in reality, luck is also needed. Moreover, the high barrier to entry of the game is not friendly to new fans or non-fans.

In addition to fantasy sports games like Sorare and DraftKings, other sports blockchain games have not yet made waves.

Previously, FIFA and EA launched four different modes of Web3 games due to the issue of expensive contract renewal, but these games did not attract enough fans. Specifically, the gameplay, visual presentation, and player portrait rights have a big gap compared to mature Web2 sports games. In the future, with the attempts of 3A-level sports games like “Goals” to enter the Web3 space, this situation may improve.

New direction for sports NFTs

In addition to the above-mentioned scenarios, a new gameplay that combines NFTs with real-life sports is also an excellent attempt to move NFTs from virtual to tangible, such as NFT tickets.

Ticket-type NFTs have already set a precedent in the music field, and their biggest role is to prevent ticket scalping and counterfeiting. But most ticket NFTs are one-time use and have a relatively short validity period. After the NFT ticket is used for admission, it only has collectible value left. However, excluding rare NFT tickets (such as a star’s debut show or collaboration with a celebrity), their value is relatively limited.

Sports events give NFT tickets the possibility of long-term use – such as season tickets for a team’s home games. For some clubs with a large number of fans, team season tickets are basically “hard to come by.” Ticket NFTs can be used as a club’s POAP, and the club can launch loyalty programs similar to “odyssey,” such as purchasing team merchandise, verifying the number of attendances in the current season, etc., to retain or eliminate season ticket holders and allocate seats for the next season’s season tickets.

Why is the relationship between sports and Web3 so difficult?

Clubs can also provide benefits to NFT holders with high scores, such as player-signed clothing, offline meetups, etc. In July last year, Paris Saint-Germain sold three ticket NFTs worth over $220,000 for a tour friendship match in Japan, and buyers could get unique privileges.

Although NFT tickets are a great solution, sports fans cover all age groups throughout the year, while the audience for NFTs itself is relatively small and many sports fans are older and more conservative, slow to accept new things. At this stage, NFT ticket promotion is more suitable for a small-scale approach.

NFT Governance

The decentralized nature of Web3 makes democratic decision-making for teams possible. Last year, due to political reasons, former Chelsea Club owner Roman Abramovich had to sell his shares in the team. Some fans wanted to protect the team’s interests, so during this transition period, they launched a crowdfunding campaign to purchase 10% of Chelsea’s shares and established ChelseaDAO, hoping to participate in key team decisions in the future.

Why is the relationship between sports and Web3 so complicated?

(During Chelsea's turbulent period, fans hoped to raise funds and establish a DAO organization to take over certain team affairs)

Unfortunately, due to various reasons, ChelseaDAO was not able to fulfill its goals. However, in the town of Crawley, not far from England, a small democratic “revolution” has taken place with the help of NFTs: a Web3 capital called WAGMIUnited has acquired a football club in the English League Two through NFTs, allowing fans to participate in team development through Web3 governance (with NFTs as the core governance), introducing voting for player transfers, and allowing season ticket holders and NFT holders to vote together.

Although this governance method is democratic, it seems to have little correlation with the club’s performance. Crawley Town has experienced fluctuations during the season, changing coaches multiple times and ultimately finishing in a difficult 22nd place to avoid relegation.

The poor performance of Crawley Town may be related to the lack of professional sports management knowledge among the fans. This is also a common drawback of DAO governance: community voting relies more on common sense than professional knowledge. In addition, due to information asymmetry, not all information about the team’s daily operations and locker room management can be known to the public.

It can be foreseen that when a team hands over its overall decision-making to fan DAOs, this democratic management method, lacking innovation and long-term perspectives, may not be able to improve the team’s performance.

Fan Tokens: A New Attempt at Fan Empowerment

In addition to NFTs, fan tokens are another type of business model related to sports fans. Compared to NFTs, which have lower liquidity and passive exposure to price fluctuations, fan tokens actively give governance rights to assets. There have been fan groups hoping to operate clubs through “DAO + Token”. Fan tokens provide such an opportunity, allowing fans to participate in certain governance activities such as deciding the captain’s armband for a match, club bus design, pre-match music, and other affairs, giving fans some voice.

In this model, clubs also benefit. Chiliz, as a leading Web3 sports fan project, has incubated fan tokens for multiple clubs, including AC Milan (ACM), Atletico Madrid (ATM), Tottenham Hotspur (SPURS), and others. Chiliz’s incentive platform, Socios.com, generated $12 million in revenue in 2021 through fan tokens, and clubs collaborating with these fan tokens can receive a share, creating new revenue streams for the teams.

For example, in 2020, the fans’ token of Barcelona was sold out on the day of its launch, generating sales revenue of $1.3 million, part of which was shared with the club, adding to its financial income.

Why is the relationship between sports and Web3 a difficult one?

However, the revenue from fans’ tokens provides limited help to the club’s finances, as broadcasting rights, matchdays, and real-life commercial activities remain the main sources of income for sports clubs. To give an example of FC Barcelona, which is facing financial difficulties, according to Deloitte’s Football Money League data, the club’s revenue in 2022 is nearly 640 million euros. In comparison, even the revenue generated by Socios.com for all partner clubs in 2021 is just a drop in the ocean.

Why is the relationship between sports and Web3 a difficult one?

Simultaneously, fans’ tokens have become “a source of energy for fans and a publicity tool for non-fans”.

On the one hand, the transactions in which token holders can participate are limited, and the number of transactions they can participate in each season is scarce and irrelevant. Major decisions are still managed by club executives. On the other hand, the long-term investment value of fans’ tokens is lost, turning them into a form of gambling. While collectible star player NFTs can still be sold at high prices due to their rarity, fans’ tokens lack an anchor of value, and even the club’s position in the league and performance in matches can affect token prices.

In the UEFA European Championship in 2021 and FIFA World Cup in 2022, fans’ tokens of different teams experienced price fluctuations during different stages of the matches. Even during the off-season, the team’s transfer operations, the departure or arrival of star players can also impact token prices. It can be said that these meme-like fans’ tokens are driven by fan emotions.

Web3 and Sports IP in the Harsh Winter

In the past, Web3 sports projects have actively launched advertising displays, NFTs, fans’ tokens, metaverse games, and other scenarios targeted at fans, providing them with rights and conveniences. However, this hasn’t completely won over the fans.

First, the concept of the fan community itself is very complex. Sports fans generally cover all age groups and include people of different cultural and educational backgrounds. It takes a long time for the majority of these fans to accept new concepts.

Second, witnessing the introduction of foreign capital to multiple European powerhouses such as Manchester United and AC Milan, and the operation of clubs using the management approach of publicly traded companies, has led to turmoil lasting for years or even decades. Traditional European fans are more skeptical about foreign capital participating in club affairs, let alone Web3 capital, which is not yet widely understood. Although this does not mean that Web3 capital investing in clubs is destined to fail, the failure of the Cloughly Town team has already left a deep impression on the fans.

But sports clubs have a massive fan base, which is why Web3 capital is unwilling to give up on sports projects. However, if Web3 wants to gain the recognition of fans, it not only needs to truly benefit the fans but also needs to prove its own value first.

In the 2021-2022 season, the crypto industry provided approximately $130 million in sponsorships to the NBA, becoming the second-ranked sponsorship category that season. Major sports brands such as Adidas and Nike have also entered the Web3 arena in recent years. Just as Web3 and sports were entering a honeymoon period, a series of scandals such as the FTX bankruptcy rocked the industry. The stars who endorsed FTX, such as Tom Brady and Stephen Curry, were implicated, and even the naming rights partnership between the Miami Heat and FTX was terminated. Adding insult to injury, Voyager’s bankruptcy and its fractured partnership with the Dallas Mavericks further tarnished the reputation of “Web3” in the sports world.

The crypto industry wants to build a massive commercial empire through sports events, but the continuous negative news not only damages their own image but also drags some people in the sports community down with them. This has forced the sports industry to cautiously face Web3 capital and deepened the generation gap between them.

Is it Web3 that needs sports fans, or is it sports fans that need Web3? Although it is often said that the combination of Web3 and traditional sports can bring new revenue to clubs, it is hardly significant compared to mainstream sources of income such as ticket sales, broadcasting rights, and fan merchandise. In terms of visibility, Web3 capital seems to need the promotion of sports events to expand its influence. However, whether it is influence or income, Web3 and sports IP have not yet formed a “1+1>2” effect. Moreover, from the perspective of finding investors, traditional sports clubs show a clear preference for traditional capital, while Web3 capital, represented by FTX, clearly lacks this stability.