Tokenizing Sports: Winning Opportunities

Over the past two seasons (2019/20 to 2020/21), the football-leagues’ industry has missed over €2 billion of revenue due to the COVID-19 pandemic. An industry that is driven by retail consumers has taken this crisis as a chance to diversify its revenue by launching new products. Opening its offering to digital opportunities, the industry has increased its commercial revenue by 3% to 105 million euros due to the fans’ digital engagement. 

Indeed, although the COVID-19/Lockdown crisis drove many players to high-pressure circumstances, the push towards digitalization it’s proven to expand the benefits that many business cases had not seen before. This fan experience shift towards technologies like DLT, AI, and G5 is generating an essential impact on the commercial revenues that might define their revenue streams in the next few years. 

With this, many innovative technologies emerging in the past years have become an excellent tool to unlock capital and revenue from these new offer-branches as digital investment. 

Tokenization of assets is undeniably one of these new tech-powered alternatives, on which many businesses have found an excellent use case to increase their liquidity and fungibility. Here, we identify the benefits and opportunities of tokenizing sports for the professional sports industry and its fans. 

Blockchain and other Distributed Ledger Technologies (DLT) promote liquidity, transparency, and efficiency.  Offering secure and automated decentralized transactions, DLT allows for lower latency and costs. These traits made DLT one of the best tools to base a structured and inexpensive digital investment infrastructure. 

Tokenization Acceptance and Opportunities for Customers

The pandemic accelerated technology-driven channels, engaging customers more deeply through digital platforms. As a comparison, a Deloitte report found that the main channel during the 2019/20 season for fan interaction was live football via traditional linear broadcasts (satellite or cable broadcasters). In contrast, the following report for the new season shown a decrease in broadcasting subscriptions (Ajadi et al., 2021). 

The Bundesliga, for example, reported a decrease in broadcasting rights by a third in Asia (outside China) and over 90% in Latin America. Although this was offset by an increase in North America, the Bundesliga expects a decline during the 2021/22 season, representing between €25-40 million (12.5-20%) (Ajadi et al., 2021). 

Regardless of this, digital platforms have allowed for a switch in the professional sports industry business models. Reports have shown that commercial revenues increased by 3% to 105 million euros for world football leagues, directly related to fans’ digital engagement, merchandise, digital collectibles, licensing activities, among others. 

Certainly, there is a huge opportunity in this realm. The top leagues are getting ahead of the game, enhancing fan engagement using new technologies like blockchains and other Distributed Ledger Technologies (DLT), Artificial Intelligence (AI), and 5G. Fans are responding with excitement.

Fans are searching for new ways to interact with their teams without compromising their health (by increasing the risk of infection, breaching social distancing). As reported, 58% of fans would like behind-the-scenes/non-live content production as interviews with players, watch-along with players, and live training sessions. 48% of fans would like to see more previews and highlights, transparency that can be obtained using blockchain-based decentralized applications.

Moreover, 41% of fans would like to have greater membership access, meaning a more significant opportunity to purchase match day tickets or discounts on the club store. For this, there are many business opportunities that can be efficiently programmed using DLT, such as digital collectibles (e.g., NFTs) or league bonds (security or utility tokens). These could both increase fan engagement and business revenues. 

DLT opens funding opportunities, making the investment process digital, faster and reliable, which allows issuers to reach all types of investors (especially retail). That is why funding is a great use case for tokenization in professional sports. Other great examples are collectibles and memorabilia. Involving blockchain and other DLTs in the transaction ensures the authenticity of the assets. And these are just two of the best use cases. There are many.

Definitely, tokenization in the professional sports realm is about to become the next big thing. It will allow the industry to reinforce its market share and to become digitally-resilient. We have compiled the most relevant and promising tokenization use cases for this industry, explaining thoroughly the benefits and improvements that DLT can bring for them. 

Opportunities for the big players: Football (Soccer)

In a recent survey performed by Deloitte of over 15,000 people, fans were identified in different levels of satisfaction within key attributes of engagement, distributing the stages of “fandom” by tagging themselves as: “Fanatics” (with an off-season engagement of every 14 days), love-it fans (every 21 days engagement); “casual fan” (every 30 days engagement); “not a fan” (sporadic engagement); and “not familiar with the sport.” According to it, regardless of the fandom stage, 65% of fans would like some form of content at least monthly during the off-season and a great “year-round experience” would make them more likely to be more engaged with the team in the coming season (55% would purchase a ticket in the future). Which certainly offers an excellent space for maneuvering with new opportunities to monetize that expected interaction. 

According to the survey, those identified as “fanatics” are more willing to spend a more significant amount of in-game tickets, concessions, merchandise, and broadcast/OTT options when they are engaged with the team on a daily basis (see Figure 2). On the contrary, “casual fans” prefer a weekly team/league interaction. This creates an opportunity for leagues to interact with their fans in a more customizable way, generating greater customer satisfaction and revenue streams. 

Understanding the fan as an individual is becoming an important aspect of the sports industry. And this community-building can be leveraged and schematically improved by using blockchain-based solutions, such as fan identification features, tokenized tickets, and creating off-season fan digital engagement experiences.

From 2019/20 to 2020/21 seasons, the world football leagues have missed over €2 billion of revenue due to the COVID-19 pandemic, according to Ajadi et al. (2021). Matchday revenue decreased by 17% to 257 million euros, and broadcast revenue decreased by 23% compared to the previous season to €937 million. However, commercial revenue increased by 3% to 105 million euros. 

The preceding figures reveal that fans are interested in supporting and interacting more with their teams/leagues and are willing to spend more on digital engagement due to the current situation. Hence, taking the opportunity of expanding business branches using innovative technology, it’s becoming a no-brainer within the professional sports industry. 

According to Ajadi et al. (2021), “satisfying demand and monetizing digital engagement to grow commercial revenue is critical.” In a global survey in late 2020 directed to fans from 20 different countries, Ajadi et al. (2021) found 93% plan to attend football matches when it is permissible to do so, and 52% would return immediately. However, 15% of fans said they would wait longer than six months to return to the stadium. 

Thanks to digitalization and technologies like blockchain and other DLTS, there are several ways to interact with fans. Many companies have created novel and interactive ways to engage with teams/leagues. There are significant efficiency gains and profit increases when opting for decentralized technologies due to the higher transparency and latency in processes like issuing and settlement. 

Certainly, fans are interested in supporting and interacting more with their teams/leagues and are willing to spend more on digital engagement due to the current situation. This opportunity seems the key to open new sources of revenue and connect further with fans. 

Final Remarks

• The efforts of major leagues, by increasing fan engagement through technologies like DLT, AI, and G5, are generating an important impact on the commercial revenues that might define their revenue streams in the next few years.
• It is becoming increasingly important to consider fans’ advice related to their customized preferences due to the possibility of one more year in the pandemic stage.   
• Understanding the fan as an individual becomes an essential aspect for the sports industry that can be improved by using blockchain fan identification features, tokenizing tickets, and creating an off-season fan engagement experience.
• Governments and institutions worldwide are working on supporting the technological changes and improvements brought with blockchains and DLTs, proposing a structure that protects investors, issuers, agents of the economy, and the economy itself. It is an excellent step for technologies to reach stability and credibility and will undoubtedly become the norm in the years to come (See Blandon, 2020). The professional sports industry is starting to be aware of this and has placed its bets in win-win business cases to enhance its market capture. 

Through DLT, the whole Sports Industry process can become more efficient, transparent, and affordable. Transactions are faster, automated and the entire system allows a significant increase in liquidity. To learn more about these opportunities, download our study: Tokenization of sports: Five use cases” 

If you’d like to know more about all the benefits of tokenization, get in touch to discuss all your business opportunities with one of our blockchain experts!

About micobo

micobo GmbH is a leading European software company for Security Token Offerings and Blockchain Software Development (DLT). It provides fully compliant software solutions for Security Token Offerings and advises structuring DLT- and Blockchain-based Securities. micobo empowers financial institutions with state-of-the-art technology focusing on providing a better customer experience and achieving measurable results. 

Through DLT, the whole Sports Industry process can become more efficient, transparent, and affordable. Transactions are faster, automated and the entire system allows a significant increase in liquidity.

micobo’s solution eliminates redundant verification processes and redundant information registered in isolated databases using distributed ledgers. It uses proven and a fully compliant set-up, adaptable to the customer’s needs.

Authors

Laura Andrade (la@micobo.com)

Luisa Blandon (lb@micobo.com)

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