Estimated reading time – 8 minutes
(This article is published in the Sports Law & Taxation Magazine – March 2022)
What do Messi, Beeple and Don Diablo have in common? They are using NFTs as a new revenue stream. Discover how this blockchain solution shakes up the music, sports and entertainment industry and how it raises the ‘digital assets’.
NFT’s as latest innovation
A short introduction to start with. NFTs are Non Fungible Tokens; unique, blockchain registered tokens, just like other crypto currencies. Blockchain is a ‘digital ledger’ in which data is saved centrally, not decentral. Is a currency (like an NFT or Bitcoin) being traded? Then everyone who is connected to the blockchain ‘agrees’ with the emergence of a new owner. This way, the inventors aim for a more democratic technology.
NFTs, just like the amount of Bitcoin, are finite. That’s why NFTs are also used for numbering and trading art, common to certain paintings. But the special thing is: the numbering happens digitally, since digital art always has been infinite. A song can be streamed endlessly, just like the download of an image. In this, a Bitcoin and an NFT differ: the former is exchangeable, the latter unique. A Bitcoin is a Bitcoin, like a Euro is a Euro, perfectly exchangeable. NFTs are unique and numbered, like paintings – and digital albums such as NFT.
Application by athletes
Everyone who has a large fan base can deploy NFTs. To illustrate, imagine you’re a well known football player, with millions of fans and followers on Twitter and Instagram. You’d like to make money from the fan base you’ve grown during your career. But how do you approach it?
What you often see nowadays, is that a well known athlete hires a marketing agency to develop a business model for these kinds of fan relations. This agency then reaches out to certain brands to produce videos or other content, and to spotlight the brand. They earn money by advertising for the brand. However, lots of people and parties exist between the fans and the athlete. What happens when you take them out?
Cut the middle man
The idea behind NFTs is to skip some of these intermediaries and directly serve and exploit your own fan base. You could for instance record a video, such as a happy birthday wish for a favorite fan, and create an NFT out of it. This NFT can sell directly to your fan. With the NFT marketplaces having been developed on the blockchain, you don’t longer need the middle man.
These marketplaces offer various possibilities. You could set up auctions, therefore no longer needing an external auction house. By making use of a decentralized network, you can also bypass managers and agents.
NFT as a tool for fan contact
Here’s how you can optimize your fan contact via NFTs. It’s possible to give certain privileges to NFT buyers. Take a look at the band Kings Of Leon, for example. Fans who buy their album as NFT, don’t just have the album but are also entitled to a first row spot at their concert and have access to exclusive content. In a way, you buy a share in the act’s success.
That is great for the artist, compensating missed income from canceled gigs. And the fan gets exclusive content, which he can trade once again. If the artist becomes more popular, the demand for exclusive work grows, and the selling fan benefits. Win-win-win. Especially when your artist, in the NFT, stipulates to receive a percentage of the selling price. Mainly to independent artists, such an NFT offers huge possibilities, as they have to fight hard for a spot in playlists and don’t get help from a major music publisher.
Digital sports memorabilia
Back to sports. NFTs also are the future of sports memorabilia. An example of such an application in sports is the NFT that’s being sold on NBA Top Shot, a digital version of the traditional collectible basketball cards. If you are a sports fanatic and love to collect basketball cards, NFTs are the perfect investment. One of the most important reasons why fans want to own a collectors item, is to show it to others.
Blockchain technology makes it easy to show the complete history of a Top Shot: who is the owner, how many others exist, for how much it has been sold in the past and what, based on all this info, is the estimated value. Instead of a picture, an NFT can also be a GIF or highlight, such as LeBron James’ dunk which reflected a similar action by Kobe Bryant. Last April, such an NFT was sold for almost 400.000 dollars.
With NFTs, collectors don’t just own an item, they can also trade digitally and earn money. Massive investments in sports NFTs are expected. This will encourage fans, traders and investors to exploit this new money maker.
Messi, Don Diablo, Beeple and NFT
Not convinced of NFT’s possibilities yet? Hopefully, Messi, Don Diablo and Beeple can convince you:
- American artist Mike Winkelmann, aka Beeple, was the first to put a digital piece of art for sale as NFT. He did this through Christies, a traditional auction house. Not without effect; the work of art was sold for 58 millions of Euros.
- Within four minutes, Don Diablo sold the video registration of a digital concert (Destination Hexagonia) as an NFT, raising 600 Ether (or 1,8 million dollar, according to the currency of the moment).
- PSG asset Lionel Messi released three to four NFTs, this way giving fans access to the ‘Messiverse’.
The Argentinian superstar even received a welcome gift from his new club; fan tokens of Paris Saint-Germain with a value of 25 to 30 million Euros (Reuters). The days before his announcement, the trading value increased with 1,2 billion dollars. It’s clear that crypto’s found their way in sports. But what about digital assets?
NFT and digital assets
An NFT doesn’t just make a work of art, music or sports memorabilia more exclusive. It also brings a chance to realize direct contact between fans and artists. This direct contact is the most important value in the 21st century and is called the relation economy. Not only does it predict the future value, it is also possible to determine the current value. We express this fan relation as Digital Assets.
This is the definition of digital assets: rights and non-physical resources consisting of digital connections and contextual data, which gives a company a competitive advantage in the market, representing a financial value because of the optimisation of current and future cash flows. (2017, Doeland and Van Berkel)
Mining new streams of income is one of the five goals of artists and sportsmen, but also of sports organizations. These five goals are described in the Business Acceleration Framework, which I have developed. With the help of this framework, it gets easier to target structural and automated growth.
- Goal 1: Increasing the value
The brand value is the intrinsic financial value of the artist’s or athlete’s brand. It’s assumable that the brand value matches the expected cash flows of the brand in the future. The brand value is a new form of goodwill, that arises by combining all objectives mentioned below. The brand value is the sum of the goals two to five.
- Goal 2: Improving the reputation
The reputation of an artist, athlete or club is fully dependent on the efforts of the marketing team. Such a team creates a marketing approach, mostly a compact graphic overview on A4. In this, you find the approach of the project and the most important milestones. A rhythm in communication has to be included. This rhythm arises by communicating about product releases on a regular basis. We refer to it as the digital heartbeat of the organization, artist or athlete. Without heartbeat, there’s no life in the digital channels. The approach and the digital heartbeat have direct influence on the value (goal 1).
- Goal 3: Increasing the efficiency
When organizing a festival or concert, or playing as a sportsman or club, you want your efforts to become better known by the target group. Are you putting up posters, or using a Facebook campaign? Whatever you choose, it’s hard to avoid marketing costs – digital or traditional.
Digital communication with the target group, however, has one major advantage. You can apply context in the data of (potential) fans or visitors. Because of this, the marketing budget can be spent much more efficiently. Increasing the efficiency (Return on Ad Spent or Return on PR Spent) therefore is a nice chance to save costs and to communicate with your target group with more effect.
- Goal 4: Head for acceleration
It’s obvious that artists and sportsmen want to earn more money in the short term. You long for more shows that bring higher fees, or more sold festival tickets or bar turnover. This is what we call a quick win, and that’s also one of the five goals you should focus on. To come to such a quick win, you’ll have to accelerate existing business models. You will only succeed with the smart use of data and technology.
More specific, it comes down to the following three steps:
- Centralizing data, so useful, commercial insights can arise;
- Strengthening teams with knowledge, so they can also make profitable decisions with these insights;
- Optimizing the technological infrastructure, for the emergence of a constant stream of useful insights.
- Goal 5: Look for new cash flows
As an artist or athlete, you don’t only have to earn money by releasing music or performing on the pitch. Merchandise is a logical new or additional business model for artists or athletes to explore. Why wouldn’t you sell meet and greets, guest lectures or DJ tutorials?
As a sports organization, you can of course sell more food, drinks and tickets. T-shirts and other merchandise also are a logical new business model. In addition, you could also consider offering a (paid) livestream of a concert or match, so those at home can also become part of the experience. Meanwhile, there is a new cash flow for acts and sportsmen to add: the NFT. By in fact realizing goals 2 and 3, the possibility arises to generate new income with NFTs.
How to create an NFT
Those who want to create an NFT, have various options. As a creator, with do-it-yourself-platforms you can mine your NFTs easily and without permission. Quite handy if you want to issue digital art, sports memorabilia or tickets as NFT. Delve into the various options and make your choice from platforms like OpenSea, Rarible, Mintbase and InfiNFT.
Once you’ve chosen your platform and have your file ready, connect the platform to your Ethereum wallet (MetaMask, TrustWallet, etc). Upload the file to the platform and enter the description of the NFT. Consider creating a separate NFT or a collection, such as a deck of cards or an album of songs. You can also indicate how many royalties you’d like to receive in case of a secondary transfer. In addition, there’s a number of regulations and settings you can apply, like (un)locked content.
When all preparations are done, you’re ready to launch your very own NFT. You’ll need some Ether for the approval of the transaction on the Ethereum network. Because it’s very busy on the network, the costs per transaction are a couple of Euros at the moment of writing.
NFT is not a quick win
However NFTs have existed for some years now, their development is still in the initial phase. The world’s biggest artists and athletes make a lot of money with their NFTs, but for less known performers it is still hard to gain a position.
Let’s not confuse the tool with the goal, I have been preaching for some time now. The same goes for NFTs. It’s a means for realizing direct contact between artists, sportsmen and their fans. As an athlete, DJ or musician NFTs offer the chance to compensate for missed income by publishing exclusive art, music or memorabilia.
But whatever you do, don’t forget that an NFT is not a quick win, but a way to optimize and realize fan contact. Eventually, an optimized fan relation is decisive for being a winner or a loser in the relation economy. So; profit from NFTs to organize the fan contact in a smarter way. Automatically, your NFT will become more valuable, and the digital assets grow.