- Up to 95% of NFTs are now worthless
- Committee hears evidence of misleading ads and copyright theft
- Wants independent regulator to view NFTs as unacceptable form of fan engagement
UK MPs have said sports clubs and federations risk damaging their reputation and imposing financial hardship on fans by selling blockchain-based digital products such as fan tokens and non-fungible tokens (NFTs).
A report published by the Culture, Media and Sport (CMS) committee said that although NFTs offered teams and athletes a new source of revenue with very few financial risks, crypto-based products have proved “inherently risky” for fans.
Although NFTs are often marketed as digital items with collectible value, many are implicitly positioned by sellers or interpreted by buyers as investments. The value and volume of NFT sales have collapsed since the market peaked in early 2022, with one report suggesting 95 per cent might now be worthless.
The committee was also critical of fan tokens that promise owners access to membership perks such as voting rights, discounts, and exclusive events. It said that despite the inclusion of additional utility beyond collectability, fan tokens were not delivering what they promised given they were often marketed as equivalent to legitimate club memberships.
The report also cited incidents of fraudulent and misleading advertising, a lack of proper regulation, and instances of copyright infringement in the sector.
Among its recommendations to the UK government are that any marketing of crypto assets clearly communicates the financial risks, while it also says that the future independent soccer regulator does not acknowledge fan tokens as an acceptable measure of engagement.
“Traditional regulatory regimes have failed to protect both creatives and consumers caught up in the volatile new crypto world, said Dame Caroline Dinenage, chair of the CMS committee.
“Artists are at risk of seeing the fruits of their hard work pinched and promoted without permission while fraudulent and misleading adverts add an extra layer of jeopardy for investors involved in what is already an inherently risky business. The government must make sure that everyone in the crypto chain is working to properly protect consumers and the rights of creators.
“In the world of sport, clubs are promoting volatile cryptoasset schemes to extract additional money from loyal supporters, often with promises of privileges and perks that fails to materialise. Fan token schemes must not be used as a substitute for meaningful engagement with supporters.”
SportsPro says…
Blockchain divides opinion – especially when it comes to NFTs. Proponents see it as the future of technology, even society, and dismiss criticism as ignorance. Meanwhile, opponents see Web 3.0 as nothing more than exploitation and that the greed of early adopters is evidence that crypto-based innovation cannot be used responsibly and effectively.
The reality is, as with many things, a bit more nuanced. The ability to ‘own’ things in the digital world has purpose but the issue is that many crypto enthusiasts conflated ownership with value. Just because a fan owns a teaspoon at home, doesn’t mean anyone else wants to buy it.
The best use cases of blockchain within sport are the ones that deliver either tangible utility or are outright transparent that their products are collectibles. The Australian Open tennis Grand Slam’s ‘art ball’ concept and NFT commemorative tickets are two things that spring to mind.
However, there is no denying that there are plenty within sport, and beyond, that see NFTs as a cash grab. The early days of the sector were awash with questionable schemes, often promoted without thought by prominent athletes. Meanwhile, clubs and federations have neglected their responsibility to fans by not performing due diligence when entering crypto partnerships or sponsorships – as demonstrated by the collapse of several deals in the past 18 months.
The NFT market has probably peaked, and many fans are now more aware of such schemes. But that does not diminish the financial hardship some fans have suffered, nor does it excuse sport from its moral duty when seeking new revenue streams.
If sport is to realise the potential benefits of blockchain technology, then there needs to be stronger regulation and a greater sense of responsibility.
