Fan Tokens Are Coming To The NFL & MLS

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Hey Friends,

Crypto exchanges have poured billions of dollars into sports sponsorships this year.

For example, FTX and Crypto.com have committed more than $1 billion combined to various sports leagues, including the NBA, MLB, UFC, and Formula One.

Still, the National Football League (NFL) made their stance crystal clear in September — no NFL team would be allowed to sell sponsorships to crypto trading firms.

People were perplexed, of course. Why would the league office want to sit back and watch virtually every other professional sports league and team financially profit off the crypto industry’s rise without participating themselves?

We still don’t really have an answer to that.

Sure, the NFL announced a digital collectibles partnership with Dapper Labs later that month—the same company that runs NBA Top Shot—but most people still believe the NFL is setting up to sign something much bigger.

But in the meantime, Robert Kraft and the New England Patriots appear to be creatively side-stepping the rule.

The Kraft Group, the holding company for various sports-related assets, including the New England Patriots and MLS’ New England Revolution, announced a partnership with Socios last week.

These are just marketing partnerships for now, but this makes the Patriots & Revolution the first NFL & MLS teams to sign with a fan-token platform.

For those that aren’t already familiar, Socios is a blockchain fan-token platform.

They define themselves as “a direct-to-consumer (D2C) platform that leverages blockchain technology to provide the world’s leading sporting organizations with the tools to engage with and monetize their  global fanbases.”

Still confused? Here’s how it works — Socios partners with professional sports teams to create fan tokens minted on the Chiliz blockchain. Fans then purchase these tokens for the opportunity to win rewards, access VIP experiences, vote on team decisions, participate in franchise appreciation (in theory), and more.

But despite Socios currently working with more than 80 professional sports teams globally, including Arsenal, Juventus, Paris Saint-Germain, and FC Barcelona, the blockchain fan-token concept hasn’t fully caught on in North America…yet.

I believe there are several reasons for that.

Conceptually, I think fan tokens are a good idea. There are a lot of sports fans that would love to own a piece of their favorite team and be able to participate in the decision-making process and financial upside of the organization.

But the problem is that it’s highly unlikely a major professional league or team would ever fully decentralize itself through a Decentralized Autonomous Organization (DAO) or other structure.

Instead, fan tokens offer a somewhat similar, albeit scaled-down, version of this.

Fan Token Key Benefits

1. Strengthens the relationship between teams & fans

2. Enables fans to participate in the financial upside (or downside) of a team

3. Creates new revenue stream for sports teams

4. Allows fans to vote on specific aspects of team operations

Of course, those are all good things, but there are still several problems with the current fan token structure.

Socios is the leader in the space, so we’ll use them as an example. When fans went out to purchase the tokens for FC Barcelona, Juventus, and others, they were under the impression that they would be voting on important club decisions.

Instead, they ended up voting on trivial things like pre-game music selection, social media designs, and player of the month awards. Those voting rights are inherently worth much less than the ability to vote on decisions surrounding the starting lineup, manager selection, and more.

That’s one category that will have to improve if you want mass adoption.

The other main thing problem is volatility. Socios requires you to purchase a fan token from the franchise denominated in Chiliz, their own token.

Not only can these markets be manipulated easier than equity, debt, or traditional crypto markets, but it means that a fan can theoretically lose money even if their PSG or Juventus token appreciates. How? If the underlying Chiliz depreciates at a greater rate.

Here’s a look at the 1-year price chart of Chiliz — it makes a 5% to 10% move in Bitcoin look like child’s play.

Furthermore, here’s a look at the PSG token.

You can see there was a big spike leading up to the Lionel Messi signing this summer, but after the deal was announced, the token plunged more than 50%.

You have to assume PSG fans were not expecting that.

Even worse, Lionel Messi’s ~$30 million welcome package included a “significant” amount of $PSG fan tokens, which have significantly depreciated since he signed the contract in August.

This email isn’t a complete analysis by any means, and I’m not an expert on the topic. Still, I think it’s important to be clear about potential pitfalls when introducing new financial products — people can lose serious money if they aren’t careful.

But that doesn’t mean these protocols won’t eventually become commonplace.

Socios currently has more than 80 sports partnerships globally, over one million downloads, and 900k+ active users, according to the company.

That’s a substantial business that is building a large moat and strong network effects within an industry that is showing tremendous growth.

Ultimately, we are shifting toward an economy built on distributed ownership. That much is clear, but the real question is, how will sports organizations use this technology to deepen the connection between their team and its fanbase?

Only time will tell, but this is a fascinating concept worth watching.

Have a great day, and I’ll talk to everyone tomorrow.

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