Back of the Net: Cryptocurrency Stands to Win Big in the Football Sector
Blockchain and crypto are taking hold in football. Here’s how.
As advocates of blockchain put forward theses for revolutionizing a plethora of industries around the world, European football — one of the most ubiquitous industries — is not an exception.
French soccer club Paris Saint-Germain (PSG) revealed in a Sept. 11 press release shared with Cointelegraph that it is partnering with blockchain platform Socios.com. The main outcome of the partnership is to launch a Fan Token Offering (FTO) that will give fans access to Saint-German club tokens, which come with voting rights and can also be representative of VIP status for their holders.
The Socios platform is powered by chiliZ, a Malta-based sports blockchain venture that has already secured the support of major industry players, such as Binance and OKEx. In a previous correspondence with Cointelegraph, chiliZ CEO Alexandre Dreyfus said that the venture has raised $66 million in funding to date.
One of the features that Socios hopes will prove popular is the ability for token holders to vote on club matters. Unfortunately for fans, the tokens will not come with the kind of authority to weigh in on transfers or to give insight on the goings-on of the corporate hierarchy. Fans will, however, be entitled to decide on “cosmetics” (choosing the club’s jersey color, the stadium anthem and logo), selected sporting aspects, such as Man of the Match, summer tours and friendlies matches.
Fans who wish to use their new powers on executive decisions may be disappointed to find their authority remains decidedly tokenistic. Dreyfus notes that the purpose of the strategy is not to shake up football clubs’ corporate hierarchy but rather to maximize monetizing fan engagement via crypto.
Token holders will be able to trade them on the socios.com marketplace, although only against the chiliZ native token ($CHZ). The FTO is reportedly due to take place before the start of the next football season.
The platform aims to hit the ground running — and once it does, it doesn’t plan on stopping any time soon. Dreyfus wants to have hundreds of clubs on the platform, starting with the biggest first. Socios is already making exclusive, five-year deals with all the clubs they are signing in order to ensure they have time to develop their product to perfection. Dreyfus also stated that the interest they have raised since partnering up with PSG stands to benefit others in the crypto community:
“Since we have announced our partnership with PSG, we have had a lot of people asking where they can buy the token. This will be very valuable for the crypto ecosystem, as we will have to partner with exchanges and fiat platforms to onboard these new users.”
PSG’s move is just the latest step in football’s modernization
Although the most recent to do so, PSG is not the first club to dabble with blockchain and FCOs. The technology is gaining traction with major players in the industry, with Michael Owen launching his own cryptocurrency and Lionel Messi endorsing a blockchain smartphone. In January 2018, English Premier League football club Arsenal FC partnered with CashBet to launch its new cryptocurrency, CashBet Coin. This crypto initiative differs from that of PSG in the sense that CashBet Coin is specifically designed for iGaming. As has been revealed by the CEO of the project, Mike Reaves, the token “will improve the online experience for real money, casino, social, skill-based, esports and sports betting players through increased trust and transparency, faster payouts, reduced fees and dedicated player protection.”
The two FCOs are part of a growing crypto movement taking hold in British football. One organization at the forefront of implementing both blockchain technology and cryptocurrency is the London Football Exchange. The organization is looking to reinvigorate the football sector by creating a system of “inter-related components,” comprising of sports, media, finance and foundations.
Charles Pittar, Corporate CEO of the London Football Exchange, shed light on the organization’s aims:
“Our vision is to allow football clubs to take advantage of the token funding economy for their financing needs by providing them with a tokenized financing infrastructure, which involves token-design and issuance services.”
Pittar further explained:
“The LFE aims to become a ‘one-stop shop’ for clubs of all sizes to raise capital via equity sales and also offer LFE contributors a wealth of fan experiences and social interaction.”
The token will provide incentivizing investment opportunities for a global fan base that can be used both in the local market but also in participating partner venues and businesses. The more LFE token holders use their coins, the more LFE points they will receive. Token holders would also benefit from discounts and exclusive offers, though specific details of what these may be have not yet been disclosed.
How clubs and fans could rekindle an affair
Blockchain, the technology upon which cryptocurrency relies, is designed to ensure absolute transparency. If properly implemented, this could bring a fresh and honest approach to the valuation of football clubs, which became a sensitive topic from the early 2000s when oligarchs from all over the world developed an interest in acquiring the football clubs and running them as the enterprises. While this model sounds like a norm in United States, European sports fans had no such experience before the 21st century.
After the Glazer family completed a controversial takeover bid for Manchester United Football Club in 2005, a fan campaign called “Love United Hate Glazer” began. The group of Manchester United fans were angry that the finances behind the Glazer family’s controlling share takeover came largely from loans, meaning that the previously financially stable club would now be laden with debt, incurring interest payments of over £60 million per year. In August 2010, the Glazer family was unable to repay bondholders, resulting in the overall interest rising from 14.25 percent to 16.25 percent. The club’s overall debt exceeded its earnings by more than five times. Campaign activists began organizing nonviolent protests and distributing posters with their anti-Glazer slogans emblazoned across them.
Soon after this, a group of wealthy fans dubbed the “Red Knights” met with Manchester United Supporters’ Trust and a number of investment banks with the view of buying back the Glazer family’s controlling interest. The group raised the Supporters’ Trust membership to over 100,000 to demonstrate the popular support for a fan takeover of the club. In spite of its noble intentions and the efforts of a core of dedicated activists, the bid essentially failed due to overinflated pricing and a lack of transparency in the sale process.
The very nature of blockchain technology means that all information is publicly available and all entries can be traced back to those who made them. This kind of dynamic could stand fans in better stead to resist disastrous takeovers or to even launch bids to buy the club for themselves. All information would be readily accessible in the instance of a takeover bid and inflated pricing could become a thing of the past.
The LFE argues that blockchain will prove beneficial for clubs and fans alike, thanks to the related brand association and exposure, helping less prestigious clubs more successfully float their shares on the stock market. Due to the truly international nature of football fandom, even small, obscure clubs can enjoy support from passionate groups around the world. The LFE hopes to use blockchain and cryptocurrency to bring together clubs and fans, while monetizing the process in the meantime.
CEO Charles Pittar describes the model:
“This global exposure will encourage fans from farther afield to build a portfolio of clubs in the same way we may buy stocks in London, New York and Tokyo.”
Crypto as a payment method
Blockchain has already made its first notable impact on football club ownership. Italian Serie C club Rimini FC 1912 became the first club in the history of the game to be acquired through cryptocurrency. Gibraltar-based firm Quantocoin made the payment in a cryptocurrency of the same name for ownership of 25 percent of the team.
The small British Overseas Territory of Gibraltar has already made a name for itself in the crypto world with an increasing number of businesses setting up shop there. The favorable tax rates on Gibraltar — affectionately known as The Rock — have allowed for the creation of an enviable business environment. However, due to United Kingdom’s stringent immigration laws, some players had difficulty setting up bank accounts once they had signed for local clubs. Premier Division Gibraltar United owner Pablo Dana saw an opportunity where others were put off by the maze of red tape. His solution: pay all the players in cryptocurrency. As of next season, all player contracts will stipulate that payment will be made exclusively in cryptocurrency.
Dana says that crypto has allowed him to run his football club transparently while also providing him with a method of paying his players uniformly. The Italian-born owner also said that such a small club would not normally have been able to attract and keep foreign players under normal circumstances.
Dana told Forbes about the island’s unique approach to regulation and fintech:
“It was the first [place that] regulated betting companies 20 years back, when everyone was seeing them as horrible. They put compliance and Anti-Money Laundering regulations and created a platform — they have the intelligence to do the same with cryptocurrencies.”
It's clear that cryptocurrency is set to make a big impact on the way that big business and club ownership transactions are carried out in football. However, the technology isn’t only providing solutions to the matter of club ownership. The transparent qualities of cryptocurrencies and blockchain have the potential to revolutionize the purchase of the most valuable and commonly traded aspect across the football industry: the players themselves.
Sales made simple
In 2006, two Argentine football players — Javier Mascherano and Carlos Tevez — arrived on the British Premier League side, joining West Ham, under dubious circumstances. Ostensibly, the two players had simply transferred from the Brazilian side, Corinthians. However, it turned out that the club had not actually owned the two players in the first place. Upon investigation, the footballers were actually owned by a group of companies. This wreaked havoc with the contracts that West Ham had drawn up and resulted in the club being fined an eye-watering £5.5 million. The fallout of the botched sale resulted in the abolition of third-party ownership in the Premier League.
The implementation of blockchain in drawing up smart contracts for the purchase of football players could stop this kind of debacle from repeating itself. Given that the two players were owned by a consortium of companies, the ledger entry for the sale could be clearly and transparently tracked. Lu Zurawski, practice lead for retail banking at ACI Worldwide told The Independent:
“The ledger entry for a single player could be divided into multiple shares, each capable of being sold individually to create a fractional ownership scheme. Depending on the type of ledger technology used, these shares would be tradable and could be bought and sold via exchanges — teal folding money being used in exchange for player tokens.”
A blockchain-based ledger could do away with the days of murky corporate ownership of football players and could usher in a new era of transparency. In addition to dispelling the malingering presence of corruption that has besmirched the reputation of the game and the industry as a whole, blockchain technology would be able to create a clear, immutable record of ownership. This would create trust among players, fans and owners alike while giving all parties involved equal standing for future transactions. Ross Peet, managing partner at Yes&Pepper told The Independent:
“If you follow that chain of thought to its ultimate conclusion, we could be entering Star Trek territory where the Tokenisation of Everything (TOE) will mean money becomes obsolete and we can exchange anything for anything. Next stop the stars. Proper, big, world changing, future thinking, awesome stuff."
Beating the scalpers: Crytpo makes ticket ownership less cryptic
The London Football Exchange has also started to explore other ways in which blockchain can help improve the current, antiquated systems that exist throughout the sport. When asked to think about football, many supporters and casual enthusiasts alike will be immediately transported to the uniquely tantalizing atmosphere of the stadium. This is the true heartland of many dedicated fans. However, getting there without a serious blow to the bank balance can be easier said than done.
For the LFE’s token holders, however, paying extortionate prices through illegal resellers may soon become a thing of the past. Token holders will have access to tickets at a cheaper price and directly from the club itself.
Football business expert Michael Broughton of the advising firm Sport Investment Partners spoke to the BBC about how this could also help clubs clamp down on misuse of season tickets:
"At present, most sports venues do not know exactly who is coming into the stadium. At Premier League football clubs, it is not unknown for people to let friends use their season tickets when they cannot get to games.
"The football clubs may know a ticket was used, but not always by whom. So they will never be able to target any further club marketing toward these spectators. You will have less fan engagement. Most clubs and stadiums have this issue.
"If you put your ticketing system onto the blockchain, you can verify if people attended or who they gave their tickets to. If people want to transfer these tickets to friends or others, then it has to be recorded on the blockchain."
The appeal of this idea is not contained to British clubs alone. The Union of European Football Associations (UEFA) successfully trialed a mobile-based blockchain ticketing system, according to an Aug. 16 press release.
The “successful implementation” of the ticketing system took place for a limited 50 percent share of tickets available for the 2018 UEFA Europa League final in May. The test ran smoothly, leading the UEFA to increase the second trial to include all available tickets for a match between the Spanish giants Real Madrid and Atletico Madrid, one of the football world’s most hotly anticipated fixtures. The UEFA is set to roll out more blockchain ticketing distribution in the near future.