CAPE TOWN - The Wild West of crypto-assets is poised to consume its latest frontier, the lucrative world of the English Premier League (EPL), as clubs in cahoots with digital platforms plot a course in revenue mobilisation that could rake in millions as they embrace the digitisation revolution.
For millions of EPL fans, including in South Africa, it may also be a question of “Buyer Beware”. They are being bombarded by clubs, including Arsenal and Aston Villa, with allegedly misleading ads and claims on social media, luring them to buy Nonfungible Tokens (NTFs) by exploiting and monetising fan loyalties and emotions.
“NFTs,” stresses Susannah Streeter, senior investment analyst at Hargreaves Lansdown, the UK’s premier private investor platform with £138 billion (R2.8 trillion) in AUM, “are being eyed by football clubs as potentially fresh revenue streams and are sold by offering one-off perks to fans as digital collectibles.
“The owner of the token won’t possess the original digital file of the asset, just a certificate of ownership.”
The tokens, stamped with a unique digital code, confirms the holder has purchased all, or a portion of the work or asset. Their value is determined by the specific assets they represent.
They are nonfungible – they can’t be replicated and are designed not to be equal. This differentiates from cryptocurrency tokens like Bitcoin, which can be exchanged for any other Bitcoin token.
NFTs, adds Streeter, operate using blockchain technology such as Ethereum, so each unique token is recorded on a digital ledger shared on the network, and once it has been logged it can’t be deleted. This can reduce fraud as it increases transaction transparency and helps with verifying the authenticity of assets.
Various stakeholders are buying into the hype. Deloitte Global, the global auditing and consulting group, could not resist opening a recent report on NFTs with the question: “What fan wouldn’t want to buy an unforgettable sports moment?”
According to Deloitte, sports NFTs in 2022 will likely be directed towards sports with large fan bases and revenues – football, basketball, baseball, American football, and ice hockey.
Over time, however, it predicts “all sports are likely to have some form of NFT offering”.
Sports NFTs is forecast to generate over $2 billion in transactions in 2022 – double the 2021 figure, with 4 to 5million sports fans globally purchasing or gifting NFT sports collectibles.
NFTs are entrenched in US sports and promoted as potential additional revenue streams for sports leagues, teams, and individual athletes whose income declined because of the pandemic.
The real reason is that football clubs and their platform partners stand to make millions from sales of customer unique digital media, fees and commissions for intellectual property rights that respect existing third-party rights over underlying digital assets. The largest US soccer NFT platform, for instance, saw $128m in sales at end Q3 2021.
The reality is that regulating the anarchic world of crypto-assets, cryptocurrencies and NFTs is a nightmare even for developed jurisdictions, leaving hapless fans at the mercy of platforms and their promoters.
How disconcerting that in the UK, with London the single largest global financial centre, it is the Advertising Standards Authority (ASA) that has taken the role of gatekeeper of crypto trading, regarding NFTs as a “red alert” priority issue.
Last week, the ASA censured Arsenal Football Club, the latest in a spate of rulings against companies flogging coins or tokens without high-risk warnings in their ads.
This in response to a complaint from an Arsenal fan, alleging mis-selling of NFTs “through ads on the club’s Facebook page and website by taking advantage of consumers’ inexperience or credulity and trivialising investment in crypto-assets”, which further “failed to illustrate the risk of the investment”, and which “did not make clear the ‘token’ was a crypto-asset which could only be obtained by opening an account and exchanging with another cryptocurrency which had to be purchased”.
Arsenal’s defence was that it partnered with Socios to provide fans “access to a digital platform where they could interact with each other and collect Fan Tokens to influence and engage with club decisions”.
The tokens are meant to be used for entertainment and fan experience purposes only.”
The ASA fully upheld the complaint and warned the club that the ads must not appear again in the form complained about, and any future ones on NTFs must clearly state their nature and risks.
“The onus of policing the crypto game,” explains Streeter, “has landed with the ASA because there is so little regulation of the crypto Wild West.
“The Bank of England and the Financial Conduct Authority will likely bring in new rules, but they have hesitated until now, due to concerns bringing them into the regulatory sphere may add more legitimacy to these highly risky assets.”
“Lest I be accused of a being a digital Luddite or killjoy, it is the misuse and mis-selling of NFTs that is in question.”
Streeter warns that the limited availability of these tokens has “turned them into speculative assets”.
If fans or investors want to buy tokens, they should do so because they see an intrinsic benefit in holding the asset, and not simply for speculative short-term gain.”
Investors should proceed with caution, she says, “as rapid crazes have a tendency to fade fast”.
“Some tokens may well go on to become collectors’ items, in the same way as physical works of art. Some coins might rise quickly in value on a wave of fan purchases.
“But there is a risk that the initial frenzy will wane, and the asset could end up being almost worthless.”
EPL clubs can ill afford the risk of further reputational damage if too many fans get their fingers burnt by assets which sharply rise then plummet in value. The beautiful game alas has in recent years been embroiled in a spate of scandals!
Cape Times