Blockchain and Non-Fungible Tokens’ Growing Impact On The Sports Industry

BY ADAM GROSSMAN

Even though we have Block in our name, Block Six Analytics is not a blockchain company. However, we do see blockchain technology impacting our business in ways that are likely to surprise many in the sports industry. More specifically, blockchain could alter sports media and sponsorship in counterintuitive ways.

To start, we will give a brief summary of what blockchain is as there several books, documentaries, and articles that can provide a fuller description. Let’s look at the area where blockchain first became famous – currency. For money to change hands, a buyer needs to submit a form of payment (i.e. cash, check, or digital payment) and the seller needs to receive the payment. A clearing house needs to ensure that a transaction only occurs once (i.e., a person does not use the same check for two different transactions) and that both parties can be involved in a transaction. Banks, credit card companies, and digital payments providers (e.g., PayPal) provide this service for a fee as private companies.

Blockchain technology, typically via cryptocurrency, changes this type of transaction. The way that cryptocurrency works is based on everyone in a network having a public and private cryptographic key. The public key serves like the routing and account number on a check. It lets everyone involved in the transaction know that a specific person is making the transaction, derived mathematically from their public key.

What does any of this have to do with sports? Cryptocurrency enables everyone in a network to trace every transaction by looking at the blocks in online public ledgers. In sports, one of the most difficult things to track right now are tickets. When a team sells a ticket, it is a challenge to determine if a person used the ticket, sold the ticket on the secondary market (i.e., StubHub or SeatGeek), gave it to a friend, or did not use it at all.

Blockchain for tickets can eliminate these issues because all transactions would be public and decentralized. Every team (and potentially their sponsors) could see every part of a ticket transaction through the public ledger and track each part of the ticket’s journey through a block. This would potentially eliminate counterfeit tickets and payment processing because each ticket would be tracked no matter where it is sold.

Yet, ticketing may not be the most interesting application of blockchain technology in sports. In his book Life After Google: The Fall of Big Data and the Rise of the Blockchain Economy, George Gilder argues that Google has helped to lead to the creation of the “aggregation and advertising” model as the primary way to monetize content. The reason is that there is so much content it is difficult to know who is consuming it or when it is being consumed. In addition, people are not charged by the amount of content they consume. Therefore, content has ads in the form of banners, pop-ups, pre-roll, mid-roll, etc. that interrupt the experience audiences have to go through resulting in an inefficient process to pay for content.

Blockchain technology would eliminate most if not all of these issues with sports media in a way described in more detail in Gilder’s book. He states that Blockchain technology would enable the currency to become the “messenger” of content. More specifically, content would essentially contain an embedded code that, when accessed, would automatically charge the consumer. The transaction would be recorded in a public ledger in block format automatically and be tracked in a similar form to the way currency is tracked as described above.

Knowing and generating revenue for the content that people actually consume should be a boon to the sports industry. Rights holders can not only charge people every time they consume content but also track exactly where the content is seen. This would make it extremely efficient to remove any illegal broadcasts or streams of content because teams, leagues, etc. would know exactly where that activity is occurring by examining the public ledger.

This is essentially the logic that is also behind the rise in importance and value of non-fungible tokens (NFTs). As described by The Verge, “‘Non-fungible more or less means that it’s unique and can’t be replaced with something else. For example, a bitcoin is fungible — trade one for another bitcoin, and you’ll have exactly the same thing. A one-of-a-kind trading card, however, is non-fungible. If you traded it for a different card, you’d have something completely different.”  

NFTs have most famously be applied in sports via NBA Top Shot. Moments are highlights that are “all officially licensed by the NBA and minted on the blockchain in limited supply.” These Moments can be sold on the Top Shot Marketplace and are currently valued at up to $250,000. 

One natural question is how can these Moments be worth $250,000? In The Sports Strategist: Developing Leaders for a High-Performance Industry, my co-authors and I talk about the difference between functional and emotional benefits when it comes to sports. Functional benefits refer to the tangible value a product or service delivers to consumers. Emotion benefits satisfy a customer’s psychological wants and needs.

In sports, emotional benefits are often significantly more important than functional benefits. We demonstrate how many teams, athletes, and corporate partners have created their brand identities, developed competitive differentiation, and generated significant revenues by focusing on emotional benefits of their products and services. We feature case studies on Coca-Cola, FC Barcelona, and Andy Roddick as evidence of the success of this business model.

This analysis is one reason that Moments have most recently been compared to trading cards or artwork. Both trading cards and artwork have little functional utility. Both trading cards’ and artwork’s value, however, has been in the value of owning the original content. The emotional benefit of owning The Starry Night by Vincent van Gogh or the T206 Honus Wagner baseball card is more valuable than the functional benefit.

Blockchain technology is what enables this to be applied in a virtual context. The NBA can create and license a limited number of Moments because the originals can be tracked using blockchain. These moments are the original works similar to a limited-edition playing card or an original piece by a famous artist.

The value of scarcity NFTs can be more easily determined once they are considered in this context. In particular, B6A has developed multiple valuation approaches that focus on how specific assets drive specific outcomes. In particular, our Corporate Asset Valuation Model (CAV) Intellectual Property Analysis Platform (IPAP) can examine the value of name, image, and likeness rights in this context.

This does not mean NFTs generally and Top Shot specifically are not overvalued. This does mean that it is clear that those working in the sports industry need to understand how the underlying technology works and why it potentially has more significant value.