There was no shortage of skepticism when NFTs first appeared on the blockchain scene. Following three years of cycles and experimentations, which NFT types have stood the market test the best? Deloitte brings some insight by delving into sports NFTs.
NFTs: The Problem of Measuring Value
How does one measure their value in a world where anyone can algorithmically generate NFT collections with little effort? After all, we have seen what happens when NFT speculation falls flat.
After the NFT boom of 2021, Bitay recorded a 97% slump in overall NFT sales volume the following year. However, NFT interest didn’t wane. Instead, NFT trading took place at drastically lower prices. DappRadar reported nearly doubling NFT trades during 2022, at 101 million compared to ~58 million NFTs during 2021.
In this battle for NFT attention, sports collectibles have demonstrated consistent sales. For instance, NBA Top Shot’s Moments (NFTs as video reels) accrued $216.5 million in sales during the bearish 2022. In other words, legacy sports served to anchor NFT value.
This is not surprising. Cardboard baseball cards have existed since the 1880s, creating a collector’s market with its ebbs and flows. It was only predictable that non-fungible tokens (NFTs) initially mimicked such collectibles in blockchain form.
Deloitte’s 2023 Sports Industry Outlook delves into the next step of this evolution. What can we expect from sports NFTs as the vanguard of the ‘virtualization of sports’?
Sports NFTs: Going Beyond Collectibles
Collecting digital highlights remains the baseline for sports NFTs. Here are some of the most notable partnerships Deloitte report points to:
- Sorare, a digital sports cards platform driving NFT-based fantasy games, partnered with the National Basketball Association (NBA), Major League Baseball (MLB), Major League Soccer (MLS), Bundesliga, LaLiga.
- Algorand, Ethereum’s competitor network, powers FIFA+ Collect for World Cup-related digital collectibles.
- Mystical Games, Sorare’s competitor developing original sports-based games, partnered with the National Football League (NFL) to launch the NFL Rivals mobile game. Dapper Labs also launched NFL All Day, as a dedicated NFT marketplace.
From these examples, it is clear that NFT flexibility is primed to go beyond collectibles into gaming. Furthermore, NFT utility can tap into sports tickets themselves, as Ticketmaster showcased by issuing commemorative NFT tickets.
Redeemable NFT tickets are exciting, as they can reduce scalping due to the verifiable link between the owner’s wallet and the NFT issuer. In turn, sports organizations could gain extra revenue via secondary sales. Regarding fans, they could seek NFT tickets as unlocks for additional privileges: exclusive venue access, interaction with athletes, physical merch, or even voting on the club’s decisions.
In this light, Deloitte concludes that sports NFTs should be inherently interoperable with the physical world to anchor their value and spur adoption.
PE Firms Getting Behind the Sports Wheel
The most crucial driver in sports NFT adoption will come from the role of private equity (PE) in sports. In the last few years, companies have established funds specifically designed for sports investing.
From college athletics to professional sports, a more complex commercial structure is poised to create equally complex fan engagement: gaming, social content, and e-commerce tying NFTs to physical merch and sports betting.
In 2021, sports teams saw $60 billion worth of PE investment. The following year, until August 2022, PE funds halved to $30 billion as Fed interest rate hikes took hold. However, there are some restrictions to consider. For instance, the NFL doesn’t allow for PE investment. At the same time, NHL, NBA, MLB, and MLS have some conditions, such as minimum investment levels and the limit on control percentage an individual or PE firm could exert.
In the grander scheme of things, PE firms see revenue potential in sports betting markets and media rights, including NFT rollouts. In the European scene, PE involvement has advanced much further. Deloitte gives a couple of examples:
- Eldridge and Clearlake Capital acquired Chelsea Football Club for $5.3 billion.
- RedBird Capital Partners acquired AC Milan for €1.2 billion.
- CVC Capital paid €2 billion for the media rights of LaLiga for the next 50 years.
Of course, this trend is bound to receive fan backlash, demonstrated when the US-based PE firm, Silver Lake, tried to buy the All-Blacks rugby franchise in New Zealand. Nonetheless, with the recession looming for the second half of 2023, we will likely see greater reliance on sports clubs for PE activity.
In the US, the NBA has already allowed sovereign wealth funds to start investing as of December 2022. With sports getting financialized, Deloitte forecasts greater emphasis on digital experiences, sports betting, and gamifying data analytics related to individual athlete performance.
Sports betting is a relatively recent phenomenon in the US, legalized in 2018 across 31 states. Since then, this market has snowballed. In H1’22 alone, this emerging market saw $42 billion worth of sporting bets.
This article originally appeared on The Tokenist
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