Fan tokens and cryptocurrencies make their way into sport
For the establishment in the financial sector, cryptocurrencies and the ‘Blockchain’ are new innovations not to be trusted, but some of Europe’s biggest football clubs are starting to get involved. Is it hype or the future?
Blockchain and cryptocurrencies are not terms typically associated with sport, mainly because they are not widely understood.
A Blockchain is a growing list of securely linked digital records called blocks. These blocks – or linked records – are all publicly available via the website blockchain.com and provide a level of transparency that could bring a lot to sport, certainly around areas such as ownership and transfers if people understood how to use them.
“A lot of noise has been made about the Blockchain by people who have no idea what they are saying,” says Pablo Dana, founder of Heritage Sports Holding (HSH).
Dana knows more than most.
HSH owns a growing number of clubs and Dana wants to use the Blockchain for player trading using the new digital technology to secure more transparent transactions.
“We are leading the way to eradicate corruption, money laundering and other nasty things you can see in the game by adopting Blockchain tech as a solution to give fans the transparency they deserve on their beloved team,” Dana says to Play the Game.
HSH owns a portfolio of clubs and at one, Gibraltar United, Dana plans to introduce contracts for players with payment options in a cryptocurrency from the 2019/20 season.
Cryptocurrencies and ‘fan tokens’
Digital records on the Blockchain are also used to create cryptocurrencies, such as Quantocoin, which Dana is a partner in.
Anyone buying a cryptocurrency cannot withdraw this at a high street bank. There are no physical dollars, simply a digital record, which can be used as a form of token representing a market determined financial value.
This idea of a ‘fan token’ giving supporters a tradeable ‘stake’ with limited rights in a club is beginning to appeal to the sports industry.
Serie A champions Juventus and French giants Paris Saint Germain (PSG) are both planning to launch their own cryptocurrency through a token system to give fans an opportunity to influence club decisions to a certain degree.
The two clubs are working with Socios.com, which has been inspired by the number of members – or socios – at big Spanish clubs. Atletico Madrid, for example, has 123,000 members/socios, while La Liga champions Barcelona has 143,459 socios.
Socios.com has raised $60 million via a private placing and says it wants to “onboard” more than 50 football clubs and create additional $300 million of funding for clubs, which must commit to fulfilling votes cast by fans.
Alex Dreyfus, chief executive of socios.com, says to Play the Game: “When the management decide on the colour of the next jersey or where the next summer tour will be your voice will be something.
“Also, there will be a finite number of tokens and you will create a rarity. That is worth something to clubs and you have a fan market place like ebay. You can buy and sell your token and your voice.
“Of course, Juventus and PSG are not going to ask about the clubs’ choice of manager or the line-up, but a smaller club in say Serie 2 or 3 they will definitely ask their 10,000 fans if we should hire this coach or have this line-up.”
Investment group the London Football Exchange (LFE) launched its own platform on the Blockchain in April, where fans can buy LFE tokens that provide ‘fan experiences and football club shares’.
Using cryptocurrencies to raise money
Cryptocurrencies have also been used to buy into clubs and try and raise finance.
Dana used Quantocoin (QTC) in August to buy a 25% stake in Italian Serie C club Rimini, which is selling 70 million QTCs at $1.2 each in a fundraising that is running until April 2019.
Brazilian club Avaí FC is also using Blockchain to try and raise $20.5 million. Fans buy Avaí tokens at $1 each, but take up is slow. By mid-October, the club had only sold 650,000 Avaí tokens. If a soft cap of selling eight million is not reached by November 5, all funds will be reimbursed.
Until recently, the stories and clubs involving cryptocurrency were low-level.
HSH wants a portfolio of 10 and 12 clubs by 2020 but Gibraltar United has never qualified for UEFA competition and UD Los Barrios play in the sixth tier in Spain, while Rimini play in Serie C and Mantova are in Serie D.
Clubs on the LFE platform reportedly include Italy’s Bari, FC Lugano from Switzerland, Polish side Lechia Gdansk, Oldham from England, and two lower league Spanish sides, Rayo Ciudad Alcobendas and Alcobendas Sport.
Arsenal is only taking sponsorship money from CashBet. The involvement of big clubs like Juventus and PSG may change the situation, but supporters will not get the sort of ‘voice’ that comes with a financial shareholding.
Dreyfus adds: “We believe that the shareholders structure should not be fan-related. We want to create a separate layer that is independent to the financial structure.”
Hype or a game changer in sport?
Club cryptocurrencies will only offer fans a chance to vote on questions offered up by the owners, who are unlikely to ask any difficult questions. This will not confer any of the ownership rights that groups such as Supporters Direct are lobbying for.
This makes the voice being offered look empty and Blockchain was dismissed as “hype” at the recent World Football Summit in Madrid by the European Clubs Association, but could extend to third party ownership (TPO) of players.
TPO is currently banned by FIFA, in part due to objections that the ownership of players is often obscured by lack of transparency. The public availability of data could change this with tokens launched on Blockchain offering a stake in a player.
“One of the trends that I see is the tokenisation of clubs and players,” said Eneko Knorr from cryptocurrency fund Pheidon at a panel on Blockchain and the Football Disruption at the recent World Football Summit in Madrid.
He added: “This is real, it’s not science fiction. Tokenisation is happening. You can take a building and divide it into tokens and sell it all over the world. If you have a promising player who has to work in Pizza Hut to live, you can put money into future earnings of this player.
“It’s forbidden now in the regulations but I think this will be an interesting trend. The basis of Blockchain is that it’s a public ledger and everyone can see it.”
Dreyfus dismisses this. He says: “There are many projects where you can buy a stake in a player of talent and you get your money back if they perform. That has existed forever.
“Does Blockchain help this? Maybe, but I don’t think this is the best usage of blockchain. For me, Blockhain should be used to innovate. Not to do something before that never really took off. Statistically, what are the odds that the person you are going to put your money into is going to be the next Neymar or Mbappe? Zero.
“We are not a big fan of that; our model is completely different. Our model is to give fans a voice.”
While companies and clubs are exploring the possible commercial benefits of Blockchain, fans will only get the chance to answer questions that club owners want asked.
Further adoption of tokens as a cryptocurrency to make more money out of fans and give them the impression they have some influence on club affairs seems the likely short-term impact of Blockchain on sports governance.