Opening Investment in Sports with Blockchain - Part 1
As decentralized and institutional finance continue to find new uses cases enabled by blockchain, there are opportunities to create fast-moving, new products that give investors exposure to industries that are difficult to access. Consider professional sports in the U.S. There is no stock to buy besides the fantasy sports, athletic apparel, and television networks. But investors don’t just want to invest in a cable network—they want exposure to the big business of sports itself.
Sports is a tempting industry for investment. It’s one of the largest drivers of the entertainment economy—live sports, concessions, television ads, bars, and restaurants during big games across the world with local economies bolstered by winning seasons and more. Research by AT Kearny estimates that the global sports market is worth between $480-$620 Billion, with tremendous room to grow across regions. Since global sports have been stopped in response to the Covid-19 shelter-in-place mandates, the impacts of sports on adjacent industries are becoming more apparent than ever.
Now, sports are starting to open back up. Hockey’s going to try a playoff, golf is swinging at a safe distance, and many other leagues are making plans for a return to competition. The pause in sports has answered an unasked question: Do we really need sports? The answer is, emphatically, YES. The athletic prowess, the community connection, the benefit for local economies all show we need sports on a human level.
A return to sports as we’re launching Avalanche’s revolutionary technology platform makes me think about how market-based industries should take advantage of the coming burst in enthusiasm for competition and connection. Blockchain solutions are already working to connect with sports to create meaningful value in sports-themed digital assets. More untapped ideas have room to grow in an innovation-ripe era.
In this two-part series, I’ll explore sports on the blockchain. First with the landscape of current sports-themed blockchain projects, and second proposing how Avalanche will enable a sophisticated advance in sports derivatives markets beyond the scope of wagering on match outcomes or digital trading cards.
Sports On-Chain Today
Sports-related projects for blockchain solutions generally fall into one of two verticals: 1) betting and 2) collectibles and gaming. Betting in general stands to benefit from blockchain from transparent, auditable record-keeping and book-making, and opening up payments options. There’s also an interesting use case for book-makers to use deposited funds to generate interest by lending in DeFi protocols while maintaining ownership of funds. However, these core uses for betting are fundamentally like the value-add for many industries: transparency and trust.
Where current projects in sports and blockchain get exciting is in provenance. Guaranteeing the authenticity of a given item, digital or physical, is an incredible opportunity that many blockchain projects are delivering today, and providing that provenance of authenticity for fan or investor ownership of sports assets is a growing use case for blockchain.
For example, sports are leading the way for experimentation in new types of contract equity. NBA player Spencer Dinwiddie of the Brooklyn Nets created a platform for fans to invest directly into his revenue potential through contracts verified and maintained on Ethereum. There are 90 tokens available for $150,000 each for sale to accredited investors. They return 4.95% interest monthly and allow Dinwiddie to collect $13.5 million of his $35.36 million contract upfront.
Dinwiddie’s experiment is positioned as an investment and opportunity for fan engagement, a chance to make closer connections to favorite players, and also share in their successes financially instead of merely basking in the glory of a player winning for your fandom. Long-term financial incentives as fan support? New asset classes altogether? The experimentation is wild, but sports also bring decentralized tech innovation to a much broader mainstream audience—and potentially market—reach.
Another area of sports innovation is in unique collectibles. Non-fungible tokens (NFTs) are unique tokens with authenticity and ownership verified on the blockchain. Many NFT gaming experiments are live, including the famous CryptoKitties that was the first major stress test of the Ethereum blockchain in 2017. Dapper Labs, creator of CryptoKitties, is making a new sports game based on NFTs. In partnership with the NBA, NBA Top Shot provides game players with collectible tokens that include digital art and in-game moments on video from favorite players and games.
Dapper Labs is betting big on the passion for sports and the unique collectibles market, there are already over 300 active players in their product validations and testing chats. There’s also compelling evidence that unique digital art, verified as one-of-a-kind on the blockchain, has value akin to physical art or rare collectibles. It’s still not anywhere in the same league financially as fine art but the digital collectibles industry is seeing significant experimentation and investment.
Parisian company, Sorare, is taking this another step into the sports gaming business with fantasy sports matches verified on the blockchain, but using NFT collectibles as player tokens that are used in user vs user fantasy soccer matches. Essentially a card trading game, but with decentralized ledger ownership of the digital cards, players can buy and trade officially licensed cards to put them in fantasy sports matches. Unique cards are regularly selling for between 5-8 ETH, around $1,000-$2,000 each at time of writing, and this is with a fraction of the global soccer market invested and licensed on the platform.
Andresson-Horowitz refers to these phenomena as New Fan Engagement Models, and they certainly are that, but they are something more as well. Unique digital sports contracts are also investments that open the potential for investors to take positions in this highly lucrative industry. Realistically, digital fantasy sports trading cards aren’t going to make it into a fund’s portfolio, but a futures contract on long-term player performance or what’s essentially a bond on Dinwiddie’s contract are innovations that could scale across leagues and players to access the significant funds. Player wages reflect fan support for the industry through media contracts and ticket sales.
There are also tons of options for innovation still completely unexplored for blockchain authentication. Teams and leagues verifying trades and contract deals, venues verifying seating and rewards, fans verifying commitment and longevity to a team or player...all kinds of possibilities come into play when dealing with a passionate and prosperous industry.
The market for sports is there, and it’s not going away. It’s growing. And it’s going to come roaring back as people around the world turn to familiar experiences to give them a respite. I’m excited about sports because of the potential of bringing a variety of alternative markets to finance. Blockchain systems, and Avalanche especially, are suited to manage the innovation and high technical demand needed for building these new experiences and investments.
In my next post, I’ll propose a new type of financial instrument based on sports wagers. NOT wagers themselves, but positions that rely on wagers, which rely on the outcomes of sports. Alternative derivatives are possible on an open platform for interoperable markets, and that’s exactly what Ava Labs is building.
If you’re already excited to learn more about the strides we’re making in technology and business, get in touch.
