What Sports can learn from a Penguin NFT Project

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Introduction 🔌🔧

Welcome back to Sporting Crypto!

For those who were not subscribers in the early days, we would often cover NFT and Web3 native projects in more depth. This is because they inspired the first wave of NFT drops by brands.

When Tareq Nazlawy, former director of Web3 at Adidas joined us on the podcast (Listen here!) — he said something that stuck with me:

Leaders at the most innovative brands in the world are paying attention.

To some it might seem that Bored Ape Yacht Club and other NFT projects are pure hype and speculation — but to others their novel approach to digital ownership and IP is groundbreaking.

The reality is: both things are true. 

Pictures of monkeys as NFTs were, and to many are, a bubble ready to burst. Still, they are also creating digitally native content at the bleeding edge that continues to inspire the next generation of consumer engagement on the web.

And so in today’s newsletter, I focus on what has been THE NFT project of the last 18 months: Pudgy Penguins.

Yes, in this Sporting Crypto newsletter - I am writing about penguin NFTs. But I promise you, it’s worth your time — and should be mandatory reading for your strategy/innovation/digital departments internally.

🔌 We are looking for sponsors for the newsletter throughout 2024 (mid-roll) and for partners for our events in Barcelona (February), NYC & Dubai (April) and Berlin & London (June). Email me back at this address if you want your brand to reach some of the most influential leaders in Sport & Web3.

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Pudgy Penguins are an NFT project that was hot in the hype of 2021.

Like many of the ‘profile picture’ NFT era, that hype ran its course and the momentum began to slowly dissipate.

The price of the NFT assets plummeted, and it looked like Pudgy Penguins would follow the course of many speculative NFTs; a slow death to nothingness.

So how did this same NFT project go on to create social accounts with millions of followers and get toy deals with Walmart and Smyths?

It’s a story that will no doubt be told at business classes globally in the future, such is the amazing success of this journey.

Discussed in this newsletter:

🐧 The Pudgy Penguins NFT journey🤔The Problem for NFT projects📈Pudgy Penguins Business model💼 What brands in sport can learn from this

🐧 The Pudgy Penguins NFT journey

Pudgy Penguins is an NFT collection on the Ethereum blockchain. 8,888 cute and cuddly Penguin NFTs.

During the hype cycle of 2020-21, Pudgy Penguins saw a lot of love and the prices of these assets rocketed — before slowly trudging down to 0.6 ETH ($1860 at the time) when crypto markets tanked.

The price fall was seen as disastrous by holders.

So much so, that they plotted to oust the founders of the project.

The community felt that the project was on the brink of collapse.

In April 2022, a young entrepreneur named Luca Netz offered 750ETH ($2.5m at that time) to buy the Pudgy Penguins project from the founders.

He recalls his reasoning at the time, to NFT publication NFT NOW:

Since the takeover, Pudgy Penguins have once again become one of the most popular NFT projects in the market, reaching a ‘floor’ (buy-in) price of almost $40,000. They have 1.2m followers on Instagram, 250k+ on TikTok and 125k+ on X (Formerly Twitter). Pudgy Penguin GIFs on GIPHY have reached over 10 billion views.

The success translated beyond the digital and into the physical.

In September 2022, Pudgy Penguins debuted a toy collection in 2000 Walmart Stores. There were 16 types of Pudgy Toys ranging from $2.99 to $11.97. Each toy comes with a unique birth certificate that allows the user to claim unique traits for their digital ‘Forever Pudgy’ character inside Pudgy World, an online virtual, by scanning a QR code.

Within ~7 months, they sold over 750,000 toys. You can do the maths, that is some real revenue for a project that had never made money without selling NFTs.

Most NFT projects that have accrued a lot of revenue through selling digital assets have looked at one market deeply, Gaming. Pudgy Penguins are no different, and in late 2023 revealed a free-to-play Pudgy World game due to launch in Q1 2024. I know this is a lot to take in, so let’s quickly summarise:

• Pudgy Penguins are a collection of 8,888 penguin NFTs

• The project almost died in 2022 before being taken over for $2.5m 

• Since then the buy-in price of the Pudgy collection has hit ~$40,000

• They have a social following of 1.5m+ across TikTok, Instagram and X

• They have sold almost 1 million Pudgy Toys and have distribution deals with Smyths and Walmart

• They’ve announced and are due to launch Pudgy Worlds in Q1 2024

Pudgy Penguins are on a tear, so why write about them now?

This week they launched Overpass, a licensing platform.

Pudgy Penguin NFT holders can now license their NFTs, all on-chain and transparently. And this isn’t exclusive to Pudgy Penguins — other NFT collections can also use the infrastructure to pool their IP.

I remember so many conversations with brand marketing directors who wanted to use a Bored Ape in a creative piece they had drawn up, without even thinking about infringement on commercial rights.

Now, there is infrastructure to allow the holders of these assets to monetise the IP they own.

For Pudgy Penguin NFT owners, they simply log in using their wallet and can review licensing opportunities.

There are also royalty bonuses depending on how rare your asset is, which is clever — to appease the owners of more rare penguins.

🤔The Problem for NFT projects

NFT projects have had a business model problem so far since their inception.

And because most brands have been inspired in their own Web3 activities by NFT projects, the economics haven’t stacked up just as of yet for them either.

I think Pudgy Penguins have started to build the infrastructure around their IP that has started to generate sustained success, regardless of what the crypto market is doing.

But first, let’s get back to the problem for most NFT projects.

So far, their communities are their revenue generators. 

Which creates a lot of friction.

Securities laws also mean that your community, the NFT holders, are not shareholders (or at least shouldn’t be!). You have to be very smart legally about how exactly you drive value to them. And to be clear, ‘value’ here does not have to be monetary. (Also to be clear, I’m not saying this NFT project is not a security — as I don’t know the entirety of it’s history, business set up or what they may choose to do in the future)

But most NFT holders do expect, that if they buy an NFT asset for money — that money to be used in a way that helps yield value for the project but also for the community.

But how exactly does this work when your community is also your customer?

If we think about an ‘NFT Company’ — they make money through primary sales of the NFT assets and also secondary market royalties.

The community, who like to think of themselves as shareholders (but are not), may not have a unified reason for being part of this project but do ideally want to see some reconciliation for the money they’ve parted with in some way, monetary or otherwise.

But how does an NFT project do that, when they are (so far) reliant on revenue from the very same community that expects value-generation?

It’s an incredibly difficult problem to solve because of this friction.

The NFT project and company have to make money, pay its employees and appease its *actual* shareholders, and NFT holders who feel like they are shareholders feel like they are due some sort of value accrual for essentially being the ‘first funders’ of the project.

This has made NFT projects think about a variety of ways that they could generate value for their community without infringing on securities laws, but most of these promises have fallen short.

📈Enter the Pudgy Penguins Business model

Pudgy Penguin have started to answer the complex question:

How do you generate value for your community, whilst driving revenue to your business without selling to your community — or breaking securities laws?

I for one am glad I am not solving that equation because it is exceptionally difficult.

Luca Netz, CEO of Pudgy Penguins, summarises it really:

NFTs gave us a way to decentralise IP.

And Pudgy Penguins are utilising it in a defining way.

They have created a way to allow their holders to monetise their digital content, without breaking securities laws (at the time of writing), and have generated revenue themselves as a business without selling more digital assets to their existing NFT holders, or by launching a token.

They have executed a strategy that allows their holders to monetise, whilst also being engaged in the community in novel ways (Pudgy World & Toys) and created Web2 distribution funnels that not only strengthen their brand, but drive real revenue through digital funnels, and retail distribution partnerships.

Most NFT projects have promised an animated series, games and more — but few have delivered the infrastructure that can help solve the Goldilocks equation.

Let’s see if this scales, but the innovation and execution impress me.

💼 What brands in sport can learn from thisBrand strategy in Web3 started as a fast-follower approach to Web3 native counterparts, but have slowly evolved to leverage and double down on what makes them great already.

Starbucks, with Odyssey, have created a Web3 loyalty platform that is a standalone product to the original Starbucks loyalty app but is still inherently connected.

Nike have created DOT SWOOSH, a Web3 platform to house their digital creations. It’s doubled down on the Nike proposition, just through a digital medium. They’ve augmented the Web3 user experience to include physical Nike products and also sold Web3-connected merchandise via Web2 channels like SNKRs.

Luxury brands like Louis Vuitton, Gucci and Tiffany’s have sold digital products at luxury prices — like they would their physical merchandise. Sometimes it has been successful, others it has failed to deliver much substance.

Reddit created Collectible avatars, allowing their community members to trade decorative avatars for their profiles.

In Sport, the best examples we have seen have been more primitive. McLaren and Manchester United have both launched Free-to-Claim programs covered on Sporting Crypto before, amongst others.

But Sport has not doubled down (yet) on what it has over any other industry — an undying fealty and loyalty to the brand.

Nike consumers could buy Adidas or Puma merchandise, depending on trends and what they see their friends wearing — but an England Rugby fan — will always be an England Rugby fan.

That superpower has not yet been properly leveraged by 99% of sports leagues, teams and athletes.

So if we apply the ‘Pudgy Principles’ — how does a sports team or league generate the same impact this modest NFT project has?

These of course are not like for like and don’t guarantee success, but many sports brands have looked at this solely through the eyes of monetary gain — which will of course end in creating propositions not fit for purpose.

Sports has the biggest opportunity in Web3 from a brand perspective but has so far seen the worst execution.

In the future expect a lot more community building, co-creation and engagement — as sports brands start to get more creative about how they engage digitally native audiences through Web3, whilst still connecting to the physical thing these fans love the most: sports.

💡 Sporting Crypto Spotlight - Ep. 13 of the Podcast!

In Ep. 13 of the Podcast I was lucky enough to speak to Solo Ceesay, Co-Founder and CEO of Calaxy to discuss Web3 Fan Engagement for the Future

Watch the episode on YouTube!

Or your podcast player of choice… if you’d prefer not to see our faces!

🍎 Find us on Apple Podcasts here [Link]

✅ Find us on Spotify here [Link]

More Sports & Web3 Stories

• NBA Superstar Rookie Wembanyama Says He’s Glad He Passed on NFT Hype (Read more here)

• Rario users face losses as cricket NFT platform announces product shut down (Read more here)

• Karate Combat’s Unique Monthly Users hit record highs (Read more here) 

• Cristiano Ronaldo trains NFT holders as court challenges loom (Read more here)

• Lionel Messi’s Inter Miami drops Crypto Sponsor XBTO (Read more here)

• Crypto exchange CoinW partner with Football Legend Andrea Pirlo (Read more here)

• NHL BREAKAWAY Launch product update (Read more here)

• From SportBusiness: independent study finds Fan Tokens deliver more than just fan engagement (Read more here)

• LootMogul Becomes the Official Cricket Metaverse Gaming Partner for Durban Super Giants (Read more here)

General ‘Stuff’ that Could Impact You

• Beyond the Hype: Visa's Web3 Loyalty Solution (Read more here)

• Reality+ chooses Hedera to Mint, Sell, And Trade digital collectibles for global brands and IP (Read more here)

• SEGA Embraces Web3 Gaming Through Finschia Partnership (Read more here)

• From Naavik: The 5 Most Anticipated Web3 Games of 2024 (Read more here)

• Friends With Benefits Software Company Raise $3m seed from a16z (Read more here)

• Which Brands Are Leading in Fashion NFTs? (Read more here)

• Netflix get into sports… become new home of WWE Raw beginning 2025 (Read more here)

• BlackRock’s Bitcoin ETF First to Reach $2B in AUM (Read more here)

• Polygon Labs and Warner Music Group announced two recipients of their inaugural Web3 Music Accelerator program (Read more here)

• Crypto Startup Figure Seeks SEC Approval to Issue Interest-Bearing Stablecoin (Read more here)

• The Tremendous Yet Troubled State of Gaming in 2024 (Read more here)

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