The first wave of football NFTs might be remembered more for high profile mis-steps such as Barcelona/Ownix or John Terry’s Ape Kids Football Club rather than success stories, but the commercial proposition is so compelling that rights holders have continued to experiment and the model is evolving rapidly. Liverpool’s Hero Club hit the headlines this week and serves as an interesting reflection of the current state of play. It’s also instructive for any sports organisation weighing up a similar project in this space. Let’s look at a few key features through a commercial/legal lens.

The Drop

Fans can choose between 24 one-of-a-kind “Legendary” NFTs featuring LFC players as superheroes auctioned to the highest bidder, or a larger batch of limited edition “Hero” NFTs (£56 each) depicting LFC stars with a unique combination of traits generated randomly and revealed only after purchase (similar to opening football stickers).

Of course the market demands that NFTs have some additional “utility” these days and buyers will also join the LFC Heroes Club gaining access to perks including unique experiences, virtual hang-outs, competitions and LFC retail discounts. The community even has its own Discord – watch for much more of this as sports wake up to the power of Gen Z’s social chat app of choice.  

Conscious of arguments that NFTs exploit fans by encouraging them to speculate in markets they don’t fully understand LFC have sought to emphasise their NFTs are digital art as opposed to investments and their value can go up as well as down. You can also buy them using real money, no need for a specific cryptocurrency. Trading will still inevitably happen (and LFC appear to be receiving a resale royalty) but hopefully fans are going into it with their eyes open.

The IP

Both NFTs feature stylised cartoon drawings of the players/manager. This is consistent with the hero theme but also necessary to avoid cutting across traditional player trading card rights exploited by the Premier League on behalf of all clubs (see the PL’s rumoured deal with ConsenSys). 

Player names and likenesses are obviously central. Unless LFC lawyers had a crystal ball NFTs probably won’t have been expressly provided for in contractual arrangements with players pre-2021 so they’ll have hoped to cover this under whatever general licence wording they have on use of player image rights in “licensed products”. Otherwise, extensions would need to have been agreed. Expect some interesting negotiations between clubs and players on this topic in future.

The drawings also feature club sponsor IP (and sponsor interests are expressly provided for in the Ts&Cs) so it seems this has all been considered in advance and they’re very much on-board.

A particularly useful feature of NFTs is the ability to “bake in” a share of revenue and resale royalties with contributors and other partners via the smart contract which underpins the NFT itself.

The Partners

It takes a number of different partners to bring an NFT project together. LFC’s NFTs will be created and sold via Sotheby’s Metaverse (which is powered by Sotheby’s-backed Web3 commerce platform Mojito) and minted using the Polygon platform. Companies such as Sorare have dominated this space in recent times but it seems LFC saw value in the heritage of the Sothebys brand as well as their expertise in this space (albeit not in sport). Rights holders with upcoming NFT tenders will be pleased to hear Sothebys are keen to do more in sport.

The ESG

The environmental impact of NFTs is well documented. Some question why digital collectibles need to be linked to the blockchain at all. LFC have lauded the energy efficiency of Polygon and referenced their wider sustainability initiative the Red Way Programme. It’s safe to assume all green claims will be challenged these days, and indeed that’s proving to be the case, but at least LFC have thought about it and have a position to defend. Other brands take note.

Continuing a recent trend, there’s a strong charitable element to the project. The LFC Foundation receives a share of sale proceeds and resale royalties and is even reported to have plans to release its own NFTs celebrating the contribution made by staff members to the community. Sports organisations following this model should ensure they take advice on commercial participator arrangements, charity trading rules and tax consequences.  

In another sign of times, LFC consulted extensively with stakeholders including fans and the supporters group Spirit of Shankly prior to launch. Lucrative fan token deals were allegedly turned down based on negative feedback. The finished project has still received a hostile reception in many quarters but we may well see more sports organisations embracing this process in future as they seek to balance commercial and fan relations.  

Discussions were also had with the Advertising Standards Authority (ASA) and the marketing materials include a few noticeable consumer protection features. It would be interesting to know whether the superhero theme was discussed at this stage. As with betting, children are a particular concern when it comes to NFTs and cartoon superheroes would definitely be a concern in the context of betting ads due to their natural appeal to children. It will be interesting to see whether advertising rules on NFTs and other crypto projects begin to mirror betting in some aspects in future.

In conclusion, not all fans are happy and some in the NFT community are under-whelmed by the offering but if nothing else LFC Heroes will be a useful test for LFC and it provides us with an interesting reflection of the current state of play and issues for sports to consider when putting together a digital collectible NFT project.