deen

10 January 2022

Market Opening: Shift of control, power, and cash flow in the sports industry

Patrick Heusser

Patrick Heusser

CEO at Crypto Finance (Brokerage) AG

About the author

 

Is a major shift of control, power, and cash flow coming to the sports industry?

In September 2019 and January 2020, I spoke about the first attempt at tokenising an athlete’s contract. Spencer Dinwiddies tried to tokenise his three-year contract (of roughly $34m) to receive the annual salary paid out upfront. The interesting part of the tokenised contract terms was the upside potential in the event that he would be offered a better contract when entering his third year. Unfortunately, and which in my mind was rather scandalous, the NBA denied him this upside potential clause with the reasoning that it was “gambling”. However, if you ask me, the NBA was terrified of this unprecedented case and the potential power and income source that could break away from them.

In 2022, the topic now returns, but with the same goal from a different angle. Maybe I should begin by telling you what I believe is the goal of athletes and fans. I think the sports industry is ready for a major shift in control, power, and cash flow. In my view, the COVID-19 pandemic has not only forced companies to rethink where and how their employees can perform their work, but also some sectors of the sports industry. Not because they want to but because they are running out of cash. On the other side, many of the fan bases feel more and more left out as they are unable to engage with the team and players. And they feel that they are just there to buy as much merchandise they can afford to keep their favourite club operational.

I have never purchased a jersey of a player or any other fan merchandise. The only spending I do is buying tickets for a game. Nevertheless, if I had the possibility to support my favourite sports team or player in a more equal partnership way I would be more than ready to do so. However, as long as we have league associations and player/club agents that hold all the power, control, and upside for potential gains, I am not interested in investing. To shift this, we need the associations of the different leagues and the clubs to become more open. This is easier than said than done, of course, and a bit complicated due to different ownership structures across the globe.

For example, in the US most of the ML (major league) teams in basketball, football, and baseball are owned by super rich people, and are viewed as a collector’s item. These people have no interest in democratising or becoming more open regarding their investment. Not in terms of the franchise or regarding the individual players. In Europe, some soccer clubs had an IPO and are publicly traded. That opened up the door for private equity funds to buy a majority stake in a sports club, which leaves the hard working fan left out again in terms of having any direct influence. See this example of Liverpool FC.

Maybe we need to start a bit further down. Mid-sized franchises, which are open to a new owner, who do not need to be a billionaire or a large corporation, but a DAO (decentralised autonomous organisation) as to increase fan engagement.

I had a short discussion with a colleague that inspired me to write this market commentary. It looks like WGMI United is raising money from different sources to then form a DAO, which will make a bid for a professional soccer team in the EFL2. There are only vague details available as to what this DAO will then do, and how the DAO will be managed. However, it is certainly a very interesting experiment, and I will follow it closely to see how it evolves.

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