The sports industry is booming, and blockchain technology is playing a key role. The Business Research Company (2023) has reported that the sports industry is growing at an annual growth rate of 5.2 % a year and is projected to reach $512.14bn in 2023.
According to a Business Wire article (2019), the growth of the sports market can be divided into two categories: participation sports and spectator sports.
Participation sports has the largest share, accounting for 56.4% of the market growth. Meanwhile, spectator sports make up the remaining 43.6% and is the fastest growing segment, with an annual growth rate of 5.9%.
In 2022, the global participatory sports market had a value of $312.33bn, which increased to $326.80bn in 2023 at a compounded annual growth rate (CAGR) of 4.6% according to a report from The Business Research Company (2023).
The sports market is divided into various sources of revenue such as gate revenue, media rights, sponsorship, and merchandising.
In 2023, sports media rights is valued at $55bn (The Business Research Company, 2023), while sponsorship was valued at an estimated $77.6bn in 2022 (Businesswire.com, 2022).
The US generates the highest source of revenue from media rights (Sports business.com, 2022) at $24.85bn a year.
The NFL is the most profitable sport and recently signed a 7 year sponsorship deal with Google. The deal gives Youtube exclusive rights to the Sunday Ticket valued at $2bn a year (saleh, 2022).
The UK sports accounts for the second largest source of income at $4.75bn in 2022.
The English Premier league has media rights deals worth £10.5bn ($14.2bn) between 2022-2025, that’s £3.5bn ($4.73bn) a year (Bassm, 2022).
Is Blockchain significant in the Growth of the Sports Industry?
According to a research study on the sports industrys’ business model innovation (Lv et al., 2022), sports companies that utilise blockchain technology have statistically higher innovation efficiency.
A Data Development Analysis (DEA) is a programming model that evaluates the efficiency of business entities (Charnes et al., 1978), and was used to determine the innovation efficiency of 15 sports businesses that adopted blockchains ( including Amazon who sponsor NFL and broadcast live sports) compared to 35 sports businesses that did not.
The results showed that sports businesses that adopted blockchain technology had significantly higher innovation efficiency than sports businesses that did not.
Innovation gives business an advantage as it can get them into emerging markets (Henderson, 2017) and is a part of having a successful business model (Lv et al, 2022).
The research study requested by sporting organisations showed that blockchain can help sports companies become more profitable and is adding to the sports industrys’ growth.
How blockchain and NFTs are revolutionising Sports
The key factors leading to blockchains adoption can be seen through the growing popularity of emerging technologies like blockchains, cryptocurrencies, NFTs and the metaverse.
Blockchain companies’ popularity and spending power has allowed them to sign several major sponsorship deals with sporting entities in top flight European football, American football, Nascar, formula1 and more.
Also blockchain technology has increased fan engagement opportunities for sports clubs and athletes, allowing them to enter new markets (Hoffstetter et al., 2022).
Blockchain and NFT services for the Sports Sector
Develop Sports NFTs, fan tokens and blockchains for you sports organisation and increase profitability and fan engagement.
Click HereCrypto Sponsorships
Spending on Crypto Sponsorship was valued at an estimated $2.4bn between 2021 and 2022 over 18 months according to Bhasin (2023) in a Bloomberg report and expected to reach $5bn by 2026 (Nielsen Sports’ global sports marketing report, 2022).
Crypto.com has a $700M sponsorship naming rights deal with the former Staples Centre arena, home to teams like Los Angeles Kings NHL, LA Lakers and LA Clippers of NBA now known as the crypto.com arena (ESPN, 2021).
Club Fan Tokens
Club fan tokens are digital assets issued by professional sports clubs such as football clubs that give fans a range of rewards and benefits.
They are cryptocurrencies typically issued on Ethereum Virtual Machine (EVM) compatible blockchains, like Chilez or Binance Smart Chain, and are used to increase fan engagement and reward loyalty.
Benefits typically include access to exclusive merchandise and VIP experiences, as well as voting rights and rewards.
Use of fan tokens have made European football clubs £74.78bn ($90bn) from sales (Minter, 2022 ), providing another source of income during the pandemic (Tassev, 2021).
Fan tokens allow fans to have more control over their clubs by giving them power to make decisions that affect the club. They are also another source of revenue for clubs.
The Metaverse in Sports
The sports industry appears to be embracing the Metaverse with an NBA game between the Sacramento Kings and San Antonio Spurs being broadcast in VR (PR Newswire, 2022).
The NBA have partnered with Meta to deliver VR broadcasting of matches over Meta Horizon Worlds (Coliseum, 2023). Fans can watch live matches with the Meta quest headset and also shop at the virtual store. Fans also have access to a VR sports hub app.
Through the use of Virtual Reality (VR) technologies, fans get an immersive experience of the sporting event without actually being present at the stadium. This technology can give viewers the feeling of really being part of the game.
NFTs in Sports
NFTs are highly secure digital assets, as each NFT is unique and nearly tamper-proof due to its cryptographic code (Augment Blockchain, 2023).
NFTs can signal an end to black-market tickets (Augment Blockchain, 2023) which will increase sports clubs profitability.
Likewise, clubs can become more environmentally friendly and cut further costs associated with ticket printing.
Cheaper tickets could lead to wider benefits for sports clubs.
When tickets are expensive, clubs have less fans attending matches and when cheaper, there are usually more fans (sports journalisms gs, 2018), as can be seen when comparing Premier league clubs and Bundesliga clubs.
Bundesliga clubs like Dortmund have cheaper tickets and one of the highest attendances in Europe (sports journalisms gs, 2018).
Research has shown that when there are more fans, teams get better results (Bilalić et al., 2021).
This effect is known as the home advantage effect.
Therefore, using NFTs to cut costs can lead to teams performing better in their leagues.
Also, sports clubs can offer fans NFT digital twins of physical memorabilia that they can use on social networking platforms and the metaverse; or strictly digital memorabilia like unique photos and video clips.
NFTs can give fans access to exclusive content that is not available anywhere else.
NFT memorabilia may increase in price over time like physical memorabilia, one advantage of NFT’s over physical memorabilia is that they do not get damaged over time therefore are more likely to keep their value.
Blockchain in Sports
Another factor leading to blockchains adoption in the sports industry is the key security benefits offered by blockchain technology.
For example, a 2015 data leak in Major League Baseball (MLB) led to sporting clubs adopting blockchain technology (Grow, 2017).
MLB team the Louis Cardinals, were under federal Investigation for theft of intellectual property after an official from the club gained access to computers of league rivals the Houston Astros, illegally accessing information such as training regimes, email accounts and scouting reports (United States Department of Justice (DOJ), 2016).
An official from the club pleaded guilty to the computer intrusion.
Through the use of blockchains, sports clubs hope to safeguard important data such as tactics from rivals.
Blockchain have an additional layer of security through cryptographic hashing.
They offer permissioned, permissionless and hybrid versions of databases.
Is Blockchain Technology Good for the Sports Sector?
The Popularity and Growth of Cryptocurrencies
Due to the popularity and the growth of cryptocurrencies during the Bull market of 2020-2021, cryptocurrencies value rose tremendously with companies making significant profits.
Crypto.com’s CRO token price grew from $0.058 in Jan 2020 to $0.89 in Nov 2021, the price grew over 15x in that period according to Coingecko API.
Crypto.com formed several sponsorship deals including a deal for the former Staples Centre Arena worth $700M over 20 years (ESPN.com, 2021).
Another company that did well was FTX; the FTX token (FTT) price was $2.18 in Jan 2020, and rose 14x to $84.18 in November 2021, the huge success enabled them to form a sponsorship deal with the Miami Heat worth $135M over 19 years (Reynolds, 2023 ).
Crypto companies were able to form sponsorship deals with major sporting clubs by likely offering more money according to a Fitch Ratings (2022) and by “artificially inflating” sponsorship prices to outbid competitors (The Sponsor).
Also Crypto.com, FTX, Binance, e-Torro and Coinbase all had adverts at the 2022 Super Bowl that was dubbed the crypto bowl with crypto companies spending $39M (Kelly, 2023).
The Market Crash & the Breakdown of Crypto Sponsorships
After the market crash that followed, several sponsorship deals broke down. Crypto.com’s price; as of Feb 27th 2023, is now $0.08 according to Coingecko API, with the token falling 10x in value.
The negative market conditions forced crypto.com to pull out of a deal with UEFA champions league valued at $495M (thesponsor.com).
Crypto.com lost some deals but still has a $700m deal for the naming rights of the former Staples Arena.
Other companies did not survive the winter.
Several companies filed for bankruptcy, including Blockfi and FTX.
FTX’s sponsorship deals with the Miami Heat broke down (Reynolds, 2023).
Some of FTX’s owner’s have been charged with fraud by the SEC (2022, 2023).
The price of the FTX token, FTT, dropped to as low as $0.89 in Dec 2022 after the bankruptcy, hack and fraud investigation.
The price is currently $1.50 on the 27th Feb according to Coingecko API.
Luckily for sports clubs ending sponsorship contracts is not so bad as they usually can find replacements, although they may not get as much money from the new sponsor (Fitch ratings, 2022).
Cryptocurrencies and Their High Volatility
Cryptocurrencies are volatile commodities and will suffer from extreme rises and falls in price.
Cryptocurrencies have always been volatile and this can be seen since Bitcoins inception in 2009 up until today.
If sports clubs or personalities accept payment in cryptocurrencies such as Bitcoin, as did Cunningham; the Pistons Point guard in a deal with Blockfi (Nelson, 2021) for an undisclosed fee, market crashes can affect their balance sheets.
Cunningham would be down around “33.8%” on his Bitcoin payment (Levy, 2023) towards the end of 2022.
So far Bitcoin is up over 50% since then as of 08th March 2023 according to Coingecko API.
Market volatility is not one sided.
Former BitMex Exchange CEO; Aurthor Hayes, believes that prices of the cryptocurrency bounce back after market crashes (Wan, 2023) and that it is part of a cycle.
This can be seen with Bitcoin where In 2017 Bitcoins price rose to $19000, a year later it dropped to $6000 then in 2020-2021, Bitcoins price rose to $68000, it then dropped to as low as $13000 in 2022-2023.
Bitcoins price is expected to rise in the future, with Arthur Hayes mentioning a mega cycle ending by 2026 (Wan, 2023).
Some people such as Jessie Myers; a Bitcoin maximalist (Meyers, 2022) believes that Bitcoin will go as high as $258,000 by 2030 and $10M in the coming decades (Suberg, 2023).
However, not all companies will survive the market crashes which can be extremely harsh.
Blockfi, FTX, and Terra Luna, all failed.
If payments were paid out in these native tokens,clubs and athletes would have lost a lot of money.
Cryptocurrency Hacks
Although Bitcoin and Ethereum are unlikely to get hacked, smaller blockchains could and have in the past (Reiff, 2022).
Also decentralised applications (Dapps) that run on top of blockchains, through smart contracts, can get hacked (not the blockchain itself), due to bugs.
For example, the Orion Protocol built on top of Ethereum was hacked for $3M (Nwobodo, 2023) due to bugs with third party libraries that allowed a reentrancy exploit (Alchemy, 2022).
The Benefits of Blockchain Technology for the Sports Sector
The pros for sports clubs are numerous.
For example, more money from high value sponsorship deals.
Cryptocurrency companies have inflated the price of sponsorship deals and are willing to pay a lot more than other companies (The Sponsor).
Also using Blockchain allows sports clubs to enter new markets (Hoffstetter et al., 2022) such as new fan bases from tech savvy gen z audience (Edge, 2022).
Another benefit of blockchain is increased innovation efficiency, which is the ability of a business to increase efficiency, productivity and profitability (Marikyan, 2022).
Evaluating Crypto Sports Fans tokens
Cryptocurrency fan engagement tokens allow fans to take part in making key decisions involving their clubs activities for example choosing the warmup song, or friendly first 11 through voting polls.
They are great for increasing fan engagement.
Fan tokens give fans more control over their clubs by giving them real decision making power and making them feel part owners of their clubs.
Fan tokens increased clubs revenues by £77bn through sales of fan tokens in 2022 (Minter, 2022).
However, there have been some concerns shown by regulatory bodies.
The Advertising Standards Agency (ASA) in the UK clamped down on football fan token ads that didn’t make it clear that fan tokens prices were variable (ASA, 2022).
The ASA told Arsenal FC that they need to “ensure that they made sufficiently clear that the value of investments in paid-for Fan Tokens was variable and as cryptoassets they were unregulated,” and that “The ads must not appear again in the form complained about” (Pessarlay, 2022).
Arsenal FC fans only need to buy one token to participate in fan activities, which is valued at $3.67 as of 08 Feb 2023 according to Coingecko API.
Regulators want to make sure clubs do not trivialise telling fans that the price of fan tokens are variable.
The ASA even banned Arsenal FC ads that contained the information required at the bottom of the ads because the positioning of the information was not prominent enough (ASA, 2022).
One way to mitigate the risks associated with fan tokens for fans is to inform them that their value changes according to market activities.
The cryptocurrency market is volatile and so there is potential for fans to lose money.
Studies have shown that when clubs lose unexpectedly (especially during the champions league), fan tokens lose value. When there is big news or an event, the price tends to go up (Scharnowski et al., 2021).
Concluding Thoughts
Overall, Blockchain technology is a powerful tool for sports teams to take advantage of and has contributed to the growth of the industry.
This can be seen through increased innovation efficiency according to Lv et al., (2022), and through increased liquidity of memorabilia, security (Grow, 2017), sales of crypto fan tokens (Minter, 2022) and NFTs and growing interest from younger fan bases (Edge, 2022) due to the increasing popularity of the technology.
Also through more money from crypto sponsorships, with crypto companies paying a lot more than other companies (The Sponsor).
However, the risks associated with cryptocurrencies such as market volatility, susceptibility to hacks and rug pulls are a concern, as can be seen during the market crash, where several sports sponsorships deals broke down after some crypto companies filed for bankruptcy and others pulled out of touted deals because of poor market conditions.
For sports clubs the risks are limited as they can usually get new sponsors fast, and they have an option to go back to traditional tech companies (Fitch ratings) if they find crypto too risky.
According to a Bloomberg report, crypto sponsorships will rise from $2.4bn in 2021/2022 to $5bn by 2026 (Nielsen Sports’ Global Sports marketing Report, 2022).
Crypto and blockchain will continue to play a big role in the sports sector’s growth, especially by 2026 if the market crash and crypto winter ends, as is expected sometime in the future (Wan, 2023).
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