The Next Frontier of Fandom: Can Fan Tokens Triumph?
Recently, the Fourteenth Report of Session 2022-2023 of the Culture, Media and Sport Committee concluded with regard to the interaction between Non-Fungible Tokens (NFTs), blockchain and professional sport, that they are concerned that clubs may present fan tokens as an appropriate form of fan engagement in the future despite their price volatility and reservations among fan groups. Due to this, they recommend that any measurement of fan engagement in sports, including in the forthcoming regulation of football under the Independent Regulator for English Football, should explicitly exclude the use of fan tokens. I can see why the Committee have come to this conclusion at this current moment. The Report mentions that fan tokens are being marketed as equivalent to other legitimate club memberships, which could mislead fans into having unrealistic expectations of these tokens. This issue is not to do directly with the technology and the tokens themselves, but rather, the weak advertising regulation framework surrounding them at this moment, which the Committee aptly concludes needs drastic improvement in the third section of their Report.
There are some issues with the mechanics and approach of using fan tokens to drive engagement. However, to wholly ban or exclude such cutting-edge technology might not be the ideal solution. There have been instances of fan tokens being used productively in the sporting ecosystem that I will discuss below. Given some time, some clubs might just get it right.
The Report mentions that fan tokens in the UK are being advertised as equivalent to other legitimate club memberships, which also offer merchandise, increased access to tickets and other rewards to demonstrate their value. Notwithstanding the fact that the UK advertising framework around crypto assets needs improving, there are football clubs who have made clear that their fan token programme is distinct from their season ticket membership. Los Angeles Football Club (LAFC) in the United States has just released LAFC Gold, its new Loyalty Club. LAFC mention that membership to LAFC Gold does not include match tickets, but that “LAFC Season ticket holders automatically receive all the benefits of LAFC Gold and more”1.
Additionally, the Report argues that under such token schemes, fans may have been promised a greater say in how their team is run, but in reality, that often meant only the ability to vote on trivialities. Critics also argue that all the perks from owning fan tokens should also belong to season ticket holders. I (and clearly LAFC) agree that these perks should ideally belong to season ticket holders too, but we must realise that we are in the development and growth stage of this nascent digital asset and blockchain technology; no one club is going to get their digital loyalty package right on the first try. The rounds of trial and error are needed before we see the winning concepts take root and the losing concepts fade away.
It is not the case either that the benefits and rights available under sporting token schemes are always frivolous. Socios, in partnership with Atletico Madrid, recently conducted a binding vote on their platform on the decision to keep their new 2016 club crest or return to the older Atletico Madrid club crest. 68,894 members (49.61% of the total Socios Atletico membership) voted and 88.68% voted in favour to return to the old crest2. If you ask me, that is a huge decision that was enabled via ownership of fan tokens. Imagine how much more can change in the future with the ability for clubs to garner a global vote on certain important objectives or events for fans, with or without a season ticket, with or without a post code in the city of the club.
The Report then states that these fan tokens are generally underpinned by a “volatile, unregulated cryptocurrency” which brings the added complexity of being a tradable product. This, though true for the majority of fan tokens now, is not set in stone. To give just one example of how blockchain technology and token issuance and exchange can form the basis of sustainable and meaningful engagement in the sports space, take the example of Krause House. Flex Chapman, the founder of Krause House, created a Decentralised Autonomous Organisation (DAO) with the initial intention of purchasing a National Basketball Association (NBA) team. Although the attempt fell short, the members of the DAO are now owners of a BIG3 team: the Ball Hogs. DAOs could have a huge say in the future of fan engagement, without some of the baggage and problems associated with some token issuance schemes in the sports space.
With the rise in fan-led content in the mainstream media (shows like The Overlap and popular YouTube channels like Mark Goldbridge’s), the next wave of culture could very well result from these online collectives. Chapman has analogised a global fanbase to water flowing through a river. Water in the river has energy which, without any innovation, goes unused and undeployed. With the innovation of dams, we can now harness this mass of energy to produce hydroelectricity. He likens the DAO to the dam, an innovative way to harness the power of fan energy, powered by the blockchain. With blockchain technology, the concept of ownership comes to the fore because provenance is transparent on the blockchain.
The concept of ownership can be broken down separately into “equity”, “governance” and “access”. With most fan tokens currently in the market, “equity”, “governance” and “access” are tied together – fans invest in fan tokens with “volatile, unregulated cryptocurrency” and the tokens provide them access to the club with the ability to vote on proposals. On top of this, on purchase of the tokens, fans have historically generally also expected a rate of return on their investment (the “equity” portion). However, Krause House has managed to separate the “governance” and “access” components from the “equity” element to prevent fans from expecting a return on investment from their governance tokens. For “access” to Krause House, there are separate NFTs (each linked to a piece of art from a famous artist) available for purchase purely to enter the gated Krause House Discord community and these are also used as a proof of membership for community events. Separately, there are community tokens called $KRAUSE used for the “governance” aspect, which are earned through social recognition or by making a governance proposal (rather than voting on one). One can earn $KRAUSE by attending Town Halls, contributing blog posts, creating content, and even helping other community members.3 These $KRAUSE tokens can then be used to vote on governance proposals to help steer the DAO and their assets, including the Ball Hogs. As these tokens are earned from contributions and not bought, there is no initial sum of money being used to purchase them. This reduces the propensity of fans to expect a financial return on their governance tokens and thus reduces the likelihood of them suffering financial harm. In the context of football in the UK, there could be a future where fan formed DAOs sit on the board of football clubs alongside other shareholders, which could take fan engagement to the next frontier.
I am not necessarily surmising that in the future, thousands of fans running a team will be the new normal (though Ebbsfleet United did try in 2008). I am just stating the possibility of further development of NFT and blockchain technology towards an acceptable standard can be beneficial not just for sports clubs and crypto asset companies like Socios, but for the average fan who wants to support Liverpool FC and let his or her voice be heard all the way from across the globe. There are many possibilities to take fan engagement to the next frontier, some of them still unexplored. If the United Kingdom truly wants to be a global cryptoasset technology hub, a breakthrough in this space could reap dividends.
2 Atletico Madrid members score victory for fan power as old badge set to return - Football España
3 Notion – The all-in-one workspace for your notes, tasks, wikis, and databases
