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The No-Brainer Web3 Use Case For Sports
Authored by ex Adidas & SMS Leader Tareq Nazlawy, what is the no-brainer Web3 use case for sports?
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Introduction - Editor’s notes
👋 Welcome back to another edition of Sporting Crypto!
Every week since its inception in September 2021 Sporting Crypto has been written by me (Pet!).
These next two editions, including today’s, will be written by our first guest contributors ever!
Today Tareq Nazlawy takes the reins.
Tareq is someone I’ve gotten to know incredibly well over the last 2 years and featured in Season 1 of the Sporting Crypto Podcast. He has been an incredible ‘node’ in the Sporting Crypto network and I’ve enjoyed sparring with him immensely. Tareq has an incredible resume, starting as a BCG consultant before spending over a decade at Adidas — culminating in directing the apparel giant’s first ventures into Web3. Since leaving Adidas in mid-2022, Tareq launched and has since shuttered a Web3 agency called ScienceMagic Studios. Very few have the Tareq does in this intersection, and it’s awesome to seed his thoughts in Sporting Crypto today!
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Web3 Loyalty has had a rough ride in the last 18 months. Many thought it was the killer use case, but it hasn’t taken off. We’re almost tired of hearing about the first pioneers stepping back: Starbucks announced the close of its Beta Odyssey program; Nike has directed more focus towards gaming environments. Even Salesforce – an enterprise loyalty giant – closed its web3 studio to focus on AI.
Why? Was the theory wrong? Was the execution wrong? Or is it just timing? And which use case – if any – will actually demonstrate the value of digital assets for brands and IPs?
What you’re about to read is the perspective of someone who just closed a web3 studio focused on engagement and loyalty for brands and IPs. So, the insights here are hard-earned. After all is said and done, I still hold the hypothesis that digital assets are a uniquely valuable tool in unlocking trapped value in consumer and fan relationships. But the formula hasn’t been cracked. Yet.
The punchline: The pressure for brands and IPs to grow direct connections with fans and consumers will drive demand for new media which enables that. The no-brainer application for digital assets is the “connective tissue” in the martech stack of the future.
Discussed in this edition of Sporting Crypto:
The Business Problem - Maximizing Love And Money ❤️
Where Does Blockchain / Web3 Come In? ⛓️
What's Not Working? ❌a) Blockchain is transformative, versatile – and confusing b) “Wait… did you just say we can make money up front??” c) “OK… so we make more money, but later?”
So What’s The Answer?🤔a) Sport is the most fertile territory b) Tap into the 99% of fans who aren’t at events c) Offer free-to-claim digital memorabilia to “Prove I Give a F*ck” d) Monetize the ways we already know how
Is There Any Supporting Evidence For This Hypothesis? 🖊️
The Business Problem - Maximizing Love And Money ❤️
Let’s not start with answers. Let’s start with problems.
All consumer businesses operate on a cocktail of Love and Money. Brands and IP rights-holders manufacture a desire which can be fulfilled with a product or service which a consumer buys. Both face challenges in maximizing Love and Money, albeit slightly different in nature.
For brands, it’s getting harder to occupy the same emotional space with consumers as they used to. Entertainment is king. Supreme competes with YouTubers selling merch for the same dollars in a teenager's (or parent's) wallet. In the war for attention the cost of acquisition is increasing, which will only become more extreme as cookies get ‘canceled’ and costs-per-click get more expensive.
So, aside from tapping into the veins of culture to win new consumers, it’s crucial to give existing consumers EVERY reason to come back. An endeavor which we typically call “loyalty”. That means wrapping products in experiences which create feelings of value, playability and belonging. If your commerce experience is boring, you’re dead.
For IPs Love often isn’t the problem – sports teams and entertainment franchises are amongst the most watched symbols in the world, from Manchester United to Marvel. However, if they don't have a direct relationship with their global fanbase, it places limitations on monetizing that Love.
For example, a globally recognized football (soccer!) team may have 100M followers on social media - but only 500K fans have accounts with the club. And only 50K can fit in the stadium each week. This is a missed opportunity for direct monetization (eg, selling subscriptions and merchandize) and indirect monetization (through more lucrative deals with sponsors who want those fans’ attention).
In short: IPs need to turn anonymous fanbases into known audiences, disintermediating broadcast and social media to feed more value to fans and monetize it.
Where Does Blockchain / Web3 Come In? ⛓️
Listen back to any web3 panel from any conference in early 2023 and you’ll soon spot a pattern: web3 was touted to revolutionize engagement and loyalty with consumers and fans. I sat on a couple of those too.
In theory, digital assets are an incredibly powerful and versatile new “primitive” who’s properties can deepen the connection with consumers and fans. I don’t think I need to teach TPan’s audience to suck lemons, so to keep it simple:
Digital scarcity promised aligned incentives between holders of the same asset family, eg an NFT collection or fungible token. This gives brands the opportunity to give consumers a stake in more playable experiences, motivating them to join their community, keep coming back and contribute to it.
Interoperability promised frictionless brand partnerships i.e. a consumer’s status in one brand’s ecosystem can unlock privileges in a partner brand’s ecosystem. Brand partnerships are notoriously difficult to operationalize. For example, offering members of Beyoncé Bey Hive preferential access to the adidas Ivy Park drop was a nightmare. If Bey Hive members held digital assets it would have been simple.
Composable digital assets are the “LEGO bricks” of the digital realm. This property is interesting when you consider that brands could orchestrate co-creation of value with consumers, attributing value to contributors along the way. It means brands don’t have to create everything themselves any more.
In theory.
What's Not Working? ❌
10 years of corporate innovation have taught me that for a new technology to catch on in an enterprise setting, it needs to be a NO BRAINER for the majority of the humans involved. In my opinion, we’ve strayed pretty far from that sweet spot.
Let’s evaluate:
1) Blockchain is transformative, versatile – and confusing
There’s a reason it’s called getting “red-pilled”. Blockchain's greatest strengths are also its Achilles heel. The properties and applications of the technology are so numerous and diverse, it's hard to compute.
It's a store of value It's a programmable asset It's an investment class It's a collectible It’s an avatar It's an interoperable membership It's composable LEGO bricks It's a way to orchestrate communities and DAOs It's decentralized, hallelujah!! It's the path to a fairer, more inclusive and productive global society.
Who doesn’t love a good paradigm shift… but sheesh… 🤯
If you need your leadership to take an education course to buy in to an idea, it’s the opposite of a NO BRAINER. Plus, didn’t some dudes just get arrested for this crypto stuff?? 🤔
2) “Wait… did you just say we can make money up front??” In any commercial organization, opening the conversation with “we can make money up front” is going to open some ears.
Since 2021, we’ve seen a raft of brands selling NFTs to a willing community, and then struggle with the burden of proving it was worth buying. The cost of entertaining a demanding community with new “utility” exceeds the proceeds from sale. Projects become hostages of their own making, which leads to the regrettable “slow rug”.
On the IP side, we’ve seen dozens of sports teams take cheques from fan token projects without fully appreciating (or caring?) that fans will have some expectation of special access. We’ve seen companies like Recur secure rights for IPs like Paramount’s Star Trek and fail to give holders anything of substance in return for purchase - and then close up shop! 🙈
Let’s face it – there are few token projects which people have bought into which have created sustainable value. Not only is it hard to pull off a viable value exchange … what does buying tokens have to do with ACTUAL loyalty??
The punchline seems simple: anchoring a loyalty relationship in a financial transaction where a consumer “buys in” is more likely to corrupt an authentic loyalty relationship than to enhance it. 3) “OK… so we make more money, but later?”
In short - yes.
Digital assets don’t cost much to create. So, either they can be seen as ultra-high-margin products we sell to willing punters… Or they can be seen as a gift we can afford to give
This is the “ “NFTs as cookies” approach: using digital assets to mark discrete engagements, which become a body of evidence for attention, commitment or fandom. Anyone who’s in consumer engagement understands how powerful this can be in acquiring consumers – especially if the experience is dope enough to OPT INTO, bringing valuable first party data.
But here’s what we need to believe commercially: if we recognize consumers and fans by giving them bookmarks, stamps or virtual ticket stubs, they’ll be ready to spend more. In other words, we are investing in “lifetime value” - predicted spend over several seasons.
So why isn’t it catching on? Let’s put web3 and digital assets aside for a moment.
Simply put: most organizations are still getting their head around life-time value as a concept. When push comes to shove, cash in the bank trumps a prediction of future value. It’s not that Loyalty doesn’t make sense – on the contrary. But it requires a degree of consumer-centricity, cross-functional collaboration and long-term commitment that is highly demanding. It becomes more difficult to prioritize in an uncertain macro environment too.
So now you can imagine that walking in through the Loyalty door with your web3 badge on isn’t without its hazards. Then consider that – for all the theory that abounds – no one has seen enough evidence to believe that digital assets will turbo-charge the effectiveness of their programs. In fact, the first movers seem to be stepping back. It’s not a NO-BRAINER!
SO… on first impression, it seems we’re stuck between a “rock and a hard place”: charging money up front is riddled with pitfalls and “free-to-claim” lifetime value models have yet to demonstrate a sustainable path to ROI.
So What’s The Answer?🤔
Where is the “soft underbelly” where value will first be unlocked? Here’s a hypothesis - and an invitation. I would love to spar on this with thoughtful people who strongly agree or disagree. Hit me up.
1) Sport is the most fertile territory
I’ve spent the last three years looking at use cases across fashion, media, music and sport. Sport is where I believe we are closest to seeing meaningful lift-off.
Why?
a) Emotion: No other cultural vertical comes as close to the status of religion as sport. There are arenas of worship; there are idols; there is community; there are songs. And in a world where so much entertainment is staged for “on demand” consumption, sport is the only unscripted drama left.
b) Serial engagement: No other cultural vertical has the same regularity in its timetable. Concert dates aren’t season-long; album and movie releases are “lumpy” by comparison; fashion collections aren’t frequent enough. Sport has a calendar. Everything else needs to “campaign” for attention.
c) Trapped value: Every week, billions of fans are tuning in to the sports and athletes they love on broadcast, streaming platforms and social. Yet most sports IPs know a tiny fraction – often <1% – of their global following. Every unmarked engagement is a missed opportunity to connect with a fan. Some of those connections (not all) contain untapped headroom to monetize.
d) Investment: the “business of sport” is in fashion. Sport hasn’t been at the frontier of digitally connected journeys. And investors are seeing the opportunity to unlock the trapped value, so money is moving towards solutions for direct-to-fan connections. As an example, the OTT direct-to-fan streaming market is worth $19B and projected to grow by 25%pa through 2030.
It’s not all roses though – sporting organizations and rights-holders are not typically advanced innovators. There are exceptions to this rule: the NBA is famous for its partnership with Dapper Labs for Top Shot (say about it what you will) and City Football Group have invested heavily in emerging technologies around their portfolio of clubs. But for the most part, the traditional licensing mindset prevails.
[Sidenote: perhaps it’s for this reason that the door might be more open for athletes to take advantage of this opportunity… discuss!]
2) Tap into the 99% of fans who aren’t at events
Hypothesis: the most trapped value is amongst the 99% of fans who don’t go to games. Some of the 99% are bona fide super-fans who are religiously part of the cultural conversation – but aren’t able travel the world to follow the circus, or have their kids’ social calendars to contend with at the weekends.
This is the group who are under-recognized. The ones who post on Instagram that they’re up at midnight in Berlin to watch the Superbowl in LA. The ones who can’t wait for someone to ask what they thought of the game this weekend. And who are desperate for ways to invest in their own fan identity.
The way to tap into this desire for recognition, status and access is not to ask them to buy a fan token which they can trade. Or to put archival video content onto an NFT and retroactively “scarcify” it. It’s to GIVE them something which marks every act of fandom.
3) Offer free-to-claim digital memorabilia to “Prove I Give a F*ck”
Back to the business problem: The pressure to KNOW fans and consumers is going to drive demand to explore new media which creates connective tissue between awareness (ref. sponsorship, endorsement, broadcast and social), acquisition and engagement (ref. account creation, time spent, data capture).
In other words, the winning use case is likely to centre around disintermediation. This is where digital assets will shine. Their relevant property is their verifiable scarcity and ownability. This property plays an important role in the emotional arc of a fan experience - it’s the PROOF I GIVE A F*CK (PIGAF™) layer which has been missing.
Imagine: You're a fan of your college team. You watch every week. Half of your social posts are about your team. You wear the jersey. You go to games when you can, but mostly they’re too far away. Now imagine that whenever you tune in, you can claim a memento capturing the story of that game. You collect these like you do ticket stubs - as evidence of your undying loyalty. Then one day, having a collection of these things unlocks dope products just for you and the others who have proven they deserve access.
Should this be something fans pay for? No. Fans are already paying their dues with their love and attention. This PIGAF layer offers symbolic recognition of that. Perhaps there are special edition items which are paid – but it would be a mistake to put that at the heart of the proposition. I haven't thought of Gary Vee as a role model since I went to see him "live" and he sent us his hologram. But he's 1000% right about “give, give, give… then ask”.
Crucially, this collectible digital memorabilia must be desirable and add to the entertainment value for the fan. For example, capturing the story of the event itself; playing into the drama of the unscripted by predicting outcomes; an aesthetic which speaks to the “language of fandom” in the sport. The ATP’s LOVE drop with Marty Grasser is great inspiration in this regard, using match data to generatively create individual pieces of art.
There's no feeling in the world like being SEEN. You give me that feeling, and I will give you my Love.
And my Money.
4) Monetize the ways we already know how
If we’re comfortable with using digital assets as collectible digital memorabilia for the 99% of fans, based on a free-to-claim “PIGAF™” experience, then we still need to monetize somehow.
Well, this is where we don’t have to reinvent the wheel. Let’s consider the two main branches of monetization:
a) Direct monetization with fans. Whether it’s physical merchandize or OTT streaming subscriptions, there’s a lot of investment going into this space. One principal challenge for rights-holders is that ~1% of their fans are known, so the main objective is to bring more fans into the funnel. Yes - there’s likely a new category of “digital merchandize” to explore. But for the time being, let’s consider this as the cherry on the cake – not the cake itself.
b) Indirect monetization with sponsors. Collectible digital memorabilia is effectively a new item of “inventory” that rights-holders can sell to brand sponsors. Hypothetical: when Jack Daniels next sponsors McLaren F1, McLaren will be able to add something new to the usual list of benefits like a sticker on the car, branding rights, driver time, hospitality and tickets etc. They could now also offer Jack Daniels the opportunity to have the brand appear on millions of collectibles, which fans will own. Not to mention that those digital assets which could unlock offers specifically for those engaged fans – which means onwards consumer acquisition and monetization for the brand. That’s worth paying for.
In summary: the “no brainer” use case for digital assets in the loyalty setting will be fan acquisition and engagement. For the most part, monetization will largely come through existing commercial engines.
Is There Any Supporting Evidence For This Hypothesis? 🖊️
At the end of last year, my team and I developed a proof of concept for a product called Trace for F1 fans, which was based exactly on the hypothesis above.
We created digital memorabilia for F1 fans in the form of art made from event data. Something only an F1 super-fan would obsess over. It was created *just* for fans to have “Proof I Give a F*ck” and to find out if they cared about that.
An example of the Trace capturing the story of the Brazilian GP. 4544 of these 3D assets were claimed
The results were more than encouraging:
over 15K fans created accounts in the first month
35% of fans claimed two or more ‘Traces’, putting it in the top 10% of apps for retention
60% of fans shared the experience with friends in person or on social
when asked, 51% of fans would be “very disappointed” if Trace didn’t continue next season (note, the threshold for early signals of product-market fit is >40%)
Notably, this was an entirely unofficial program without the participation of F1, any teams or athletes, or any promise of utility.
We did find that fans responded well to physical merchandize which you could buy depending on which Traces you own – it gave a tangible dimension to the collectibles. After all, everyone wants to have something they can’t wait to be asked about in the background of their Zoom calls, right?! Monetize the ways we know how.
Fans who owned a specific Trace could buy physical merchandize made from the art. Don’t tell F1 🤫
Similarly, the McLaren 23/23 collection, is a great data point of how this can scale up with the backing of an IP. Although the experience is less story-driven than Trace, fans turned up for them, with six-figure claim counts each race weekend throughout the season.
Both experiences demonstrate the basic fan desire for the “Proof I Give a F*ck” layer. And from here, there are plenty of features which make sense to explore, from identity components, to marketplaces, to predictions to social features.
All this is a good signal. However, there still needs to be more evidence of a sustainable commercial model. For example, Tezos sponsored McLaren for the opportunity to demonstrate the experience.
For products like this to make money, someone has to pay for the value of new account creation, data capture and engagement. And most sports IPs aren’t traditionally in the business of paying for things.
But some are. And what’s more - brand sponsors certainly stand to gain from having their brand emblazoned on new media like this. It’s “ownable advertising”. Sports sponsorship is a ~$50B market looking for better ROI. I like that tailwind.
As soon as we see one example of an IP capturing data and monetizing it, it will be confirmed as the NO BRAINER we’ve been waiting for.
Watch this space 👀
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