Fan Tokens: New Ponzi or New Paradigm?

In the past three months, the price of sports fan tokens has increased by 85%, while the cryptocurrency MKT has fallen by more than 10%. For a time, the popularity of fan tokens has risen again, and the public has begun to debate whether fan tokens are a new Ponzi scheme or a new paradigm.

From the earliest star cards to the current sports industry worth $500 billion, the NFL (National Football League) alone earned $17 billion in 2021. Sports has become a new way to make money.

Source: Tascha Labs

Compiled by: Chen Yiwanfeng

The sports industry makes money in three main ways: 1. Selling broadcasting rights to media networks; 2. Brand sponsorship; 3. Selling tickets, merchandise, etc. to fans, which applies to many types of sports.

football:

American Football:

From the numbers, it can be concluded that media rights are the largest source of revenue for sports. And half of the media network revenue itself comes from advertising: in other words, sports sell content rights to media networks, which then sell advertising. Media platforms are the middlemen between sports teams (i.e. sports content creators) and brands (i.e. advertisers).

So, ultimately sponsorship/advertising is indeed the largest source of funding for sports teams, directly or indirectly accounting for at least 50% of industry revenues:

The fan attention industry is a content business – creating entertainment to capture fans’ attention, which is sold to brands directly through sponsorships or indirectly through media networks.

What’s wrong with this business model?

First, the content business has become so competitive in a digital world of constant distraction. Consumption habits are changing, and passively watching games on a flat screen is increasingly not the way the younger generation prefers to consume sports entertainment.

Second, media networks aren’t what they used to be. Old, slow-growing platforms like TV networks are seeing their audiences dwindle. So will their ability to attract advertisers and pay for content rights.

Newer platforms, web2 giants like Netflix, are winner-take-all networks with greater bargaining power. Few content creators, including in sports, are better positioned to sell their content to them. The bottom line is they are a changing time, and the sports economy needs to evolve.

How Fan Tokens Can Be the Solution

Fan tokens are fungible digital assets issued by sports teams with the help of token platforms such as Socios and Binance. When they are issued on the blockchain, they become part of the on-chain financial ecosystem, which makes it easy for these tokens to have 2ndary MKT liquidity.

Socios, the largest fan token platform at the moment, is working to innovate and give fan tokens more value. For example, they are experimenting with burning tokens when a team wins a game, tying the token supply to team performance (unclear how regulators will view this). They are also trying to build a gamified app and even have a Pokemon feature where you can hunt for tokens.

So far, most of these experiments have been “meh” — either uninteresting, or not scalable, or not yet well executed, or all of the above.

The bottom line is that fan tokens have yet to find product-market fit, despite adding a boatload of $$ to participating teams.

However, I think web3 and fan tokens have the potential to disrupt the sports industry.

how?

3 Ways Fan Tokens Are Disrupting the Sports Industry

MKT opportunity size in ascending order:

1. Create new products for interactive sports and entertainment experience

This is partly what platforms like Socios are pursuing - making the sports audience experience participatory and interactive by allowing token holders to vote on things and gamify digital interactions with sports teams using tokens. The hope is that the interactive experience itself becomes a product that goes beyond passive viewing of sports, thus creating a whole new added value in sports entertainment.

2. Become another form of sports betting

A more immediate use case for fan tokens is to piggyback on the high growth area of ​​online sports betting, with tokens being a more casual, more accessible, and less stigmatized alternative type of betting ticket. On-chain tokens are global and borderless, naturally allowing Prediction MKT to have more liquidity and wider participation.

A big hurdle is OBV regulation. The correlation between the token value and the game outcome must be indirect enough that it is not seen and regulated as outright gambling, which may be achievable. The bottom line is that fan tokens can disrupt sports betting in the same way that OnlyFans disrupted Pornhub - by making an existing product more accessible, more interactive, and more appealing to peripheral audiences that are not traditionally the core users of the product.

3. Directly connect viewers/fans to brands

Audience attention is the sports industry's greatest monetizable asset. It enables value-added and profits in many industries.

Traditionally, much of this audience’s attention has been sold to brands and advertisers with media networks as the middleman, who capture the majority of the added value. Fan token platforms can change this by connecting brands directly to sports audiences, with the token value backed by advertising fees and shared with the audience, the token holders.

In other words, how fan tokens fit into the sports economy value chain:

You might ask, aren’t we just replacing one middleman with another? What’s the difference?

The difference lies in where the value is generated.

When media platforms act as intermediaries, they capture a lot of the added value, even though it is the audience that provides the attention and the sports teams that provide the content. With on-chain tokens acting as transparent organizers of the value flow, it is easier for the industry’s end buyers (advertisers) to pay the end sellers (teams and audiences) directly. Token platforms like Socios will also capture some of the value because they have network effects. But creators and audiences will capture more value compared to the old model. In addition, part of the value captured by the token platform is also passed on to the audience through the platform token.