UK lawmakers have issued a warning to sports clubs considering issuing cryptocurrency fan tokens, cautioning that it could potentially tarnish their reputation. The advent and rapid proliferation of non-fungible tokens (NFTs) and other digital assets in sports as well as the arts are facing scrutiny from the Culture, Media and Sport committee.
In an attempt to deter organizations from exploiting their fanbase, the committee advises caution. Concurrently, new practices instilled by the Financial Conduct Authority (FCA) mandate businesses engaged with crypto investments to publicize warnings, discouraging potential investors from participating unless they accept the possibility of losing their entire monetary input.
A unique and irreplaceable type of asset in the digital realm, NFTs can be procured and sold, though they bear no physical entity. Digital fan tokens behave similarly to ownership certificates for physical or virtual assets, and their possession enables fans to benefit from exclusive voting rights in fan polls or ticket ballots. Although some may be exchanged like an NFT, their value can fluctuate dramatically, presenting an opportunity for significant profit or loss.
Dame Caroline Dinenage, Head of the CMS committee, criticizes clubs for using these unpredictable crypto-asset strategies to coerce loyal fans into further investments, often under the guise of exclusive privileges and perks that ultimately prove elusive. She also affirms that the deployment of fan tokens cannot replace the importance of meaningful interaction with supporters.
The committee stresses that the unique bond between fans and clubs implies that logging fan investments on sports-related crypto-assets could lead to financial damages for fans and harm the clubs’ reputations. The growing presence of crypto-assets in the arts also raises concerns, as artists may find their hard-earned creative outputs unlawfully exploited and promoted.
NFTs, in particular, popularized in the domain of digital art creation and sale, do not provide purchasing parties with the actual art piece or the attached copyright. Regardless, these digital tokens provide a way for fans to partake in polls or ballots for exclusive tickets. However, their value has markedly decreased from its peak, causing much controversy and criticism over the monetization of fan engagement.
Large football clubs perceive crypto-assets as easy money-making opportunities and potential revenue streams in the wake of the pandemic. However, as excitement surrounding fan tokens and NFTs subsequently declined, so did the value of these assets as consumers realized the benefits were negligible.
Such a revelation led to a declining interest in these digital assets, resulting in decreased prices and stalled transactions. While Fan tokens can usually be exchanged with each other as like-for-like, “fungible” assets, NFTs carrying unique digital identifiers and intended to be one-of-a-kind collectibles cannot.
Formula 1 teams have also resorted to NFTs as a method to engage fans and offer membership perks over the past several years. This includes the Mercedes F1 team, which announced a series of NFTs in April 2022 in collaboration with the now-defunct exchange FTX, and the Williams F1 team that recently collaborated with crypto exchange Kraken to hold a poll for NFT holders to choose which tokens to display on their cars in the upcoming US Grand Prix. Oracle Red Bull Racing has followed suit, offering an NFT range via its partnership with exchange and sponsor, Bybit.
