The Fan token platform IQONIQ just collapsed. Many NFTs licensed by sports brands auction for astronomical prices. At the same time, NFT scammers and snake oil salesmen are endemic: the largest NFT marketplace recently admitted that 80% of items in its store made with its free tool were fakes, imitators, or spam.

It begs the question: Why bother? Weren’t we happy with the world before blockchain-based trading cards and $PSG tokens?

Well…maybe not.

There is a real and important problem: Fans are getting further removed from the sports they loved. Exhibit A: The Super League fracas in football (AKA soccer), following decades of criticism that big money is ruining the game. Disillusionment makes a bag problem worse: Younger fans are less and less interested in sports, which threatens viewership ratings and the value of broadcasting rights—the lifeblood of the industy—are already in sharp decline.

Until now, crypto has provided all the wrong solutions. Fan tokens and NFTs like John Terry’s notorious baby apes leverage goodwill towards famous sports brands to extract quick profits from supporters.

Yet despite what we’ve seen during the gold rush of crypto’s early days, there is a compelling case to be made for NFTs. Done right, they could bridge the gap between sports brands and fans.

The rise of the “Fan Exploitation Model” in crypto

First…let’s take a look at what’s gone wrong.

The first big player in sports crypto has been Socios.com, which has launched fan tokens for over 120 sports franchises including PSG, Manchester City, Juventus, and FC Barcelona. Raking in millions for clubs and leagues, it’s been so successful that it’s now spreading to new sports in 2022, forging agreements with UFC, NHL, and the NBA.

Socios’s winning formula has been to entice soccer fans to buy its own cryptocurrency, Chiliz ($CHZ), in order to buy fan tokens for various clubs. Socios issues these tokens, such as $PSG, in tranches and splits earnings with clubs 50/50. In return, fans get to vote on matters such as the song that plays before a game. Clubs and leagues, who have suffered financially during the pandemic, cannot resist the temptation of this free money.

While Socios markets this as a “loyalty program,” it’s nothing of the sort. Yes, fans get to vote on trivial decisions like the design on a team bus or which song is played at halftime. But talk to any of their customers, and they’ll tell you these tokens represent a form of investment or stake in the club.

That perception couldn’t be further from the reality, with token prices fluctuating wildly, correlating neither to the performance of teams nor to the sentiment of fans. It’s really just a new form of unregulated gambling, subject to market manipulation by financial speculators and Socios itself, which controls the token supply.

https://twitter.com/uglygame/status/1396734808403890177

This is why we call this a “fan exploitation model:” supporters are mined for their capital in exchange for opaque, potentially worthless assets.

Did you say “worthless"?

Like IQONIQ, which recently shuttered its token business after defrauding sports brands and fans alike, the value of Socios’s tokens could go to zero anytime. The entire industry could be shut down by regulators, should they determine that these companies are misleading consumers.

In the absence of a major collapse or regulatory crackdown, clubs continue to relish the revenue generated by these tokens, and fans—even many of those who have bought into the tokens—are left with a vague, uneasy sense that something is wrong.

Pet Berisha, a journalist covering the intersection of crypto and sports, explains how this is a departure from traditional methods of monetizing fan loyalty:

At the same time, this is just another way that big sports franchises are trying to profit from their consumers. Mugs, jerseys, memorabilia and more - but now we’re moving to the digital version of these, right?

Well…maybe not. These tokens can also be traded on secondary markets and can have great volatility meaning fans or buyers can lose (or gain) lots of money by trading them. Again, you can of course do this with sporting memorabilia - but not with the same liquidity.

Where crypto can do good

While Berisha says he’s “not convinced by the current state of fan tokens,” he believes there may be many useful applications if they put fans first. Crypto has many advantages as a marketing tool that can bolster fan loyalty and delight fans, such as rewarding game attendees with NFT airdrops.

These new digital collectibles are much easier to distribute to fans. The NFL has already begun issuing NFTs to ticketholders, a modern take on the ticket stub souvenir that’s easily traded on secondary markets.

https://twitter.com/FTX_Official/status/1451311173111058433

There are other ways the unique properties of crypto to give back to fans. Our team is working on one idea.

The “Fan Empowerment Model”

FlipFam allows fans to win NFTs for free, by using their time and expertise to engage with sports properties in a simple prediction and trivia game. The player assumes no risk, investing only their time and expertise in playing.

NFT rewards can include licensed IP from clubs as well as real-world use value, such as access to experiences, loyalty programs, or merchandise. Rewarding your fans for engagement is a powerful marketing tool for the sport. But it’s also a way of empowering fans financially. NFT winners can sell these NFTs in marketplaces like OpenSea.

Thanks to something called smart contracts, the proceeds of these sales can be split between the seller, artist, and any licensees. Any time the NFT is sold, automatic payments are made to each party.

In this model, sports properties are incentivized to create real value for fans. If they are successful, fans, sports properties, and sports artists will get revenue from NFT sales. This financial alignment could build deep loyalty, increase fan engagement, bring fans closer to their sport than ever before.

This is an entirely new experiment in a rapidly evolving space. We hope sports franchises will embrace it, and you’ll see NFTs with benefits like season tickets, unique fan experiences, and merchandise soon.

Fan tokens are exceedingly good business for sports franchises right now, but there could be serious costs if they don’t make a change. If regulators clamp down or token prices collapse, there will be reputational damage for clubs. With new, more demanding audiences to bring onboard, is it worth the gamble?

Thanks to Albert Wenger, whose essay, ‘Web3/Crypto: Why bother?’ was the inspiration for the title and contents of this article. For those interested in reading more about Socios, sports journalist Martin Calladine has compiled a very thorough list of resources.

Visit FlipFam.app to find out more about our game.

But less clear is the question of whether fans like (or even understand) them. Many seem to be perplexed, angry, or resentful, questioning the worth they bring (e.g. votes for pre-game songs or bus designs) and a recent action by the UK’s advertising regulator underlines the confusion and financial risk to fans.

Will fan tokens offered by the likes of Socios.com grow into the mainstream, or will they be replaced by newer forms of tokens?

At FlipFam, our money is on the latter. Today’s fan tokens are perceived as a cash grab by many fans. While the appeal of free money has been irresistible to clubs seeking new revenue streams, we believe the industry will eventually realize that crypto offers incredibly profound opportunities in fan engagement.

Socios.com is reported to spend €20M a year on the Inter shirt sponsorship

The First Wave of crypto in sports

Far and away the pioneer in this space, Socios.com boasts 100 sporting brands and 1.3m users in 167 countries as of Q4 2021. What’s remarkable about this isn’t the user growth, which pales in comparison to the number of fans (there are 2.5 billion football fans alone); it’s the rapid adoption by clubs.

This is easily explained by the reality that Socios offers these brands near-zero marginal cost revenue. Proceeds from token sales are split 50/50 by Socios and clubs, requiring the clubs to offer fans extremely little in return.

“The “$PSG” tokens surged in value in the days before Messi’s free-agent move following the expiry of his Barcelona contract was confirmed, making real cash for savvy traders. Posts in social media channels speculated that the price would “explode” after the announcement. Less widely reported was what happened once the deal was done: the tokens plunged in value.”

— The Athletic

A narrow segment of blockchain-fluent users may constitute the first wave of crypto adoption, but can it sustain and reach broader audiences of mainstream fans? We are skeptical.

It’s not all about the money

For some, fan tokens are an unholy alliance between clubs and tech. This risks reputational damage to both, especially in the fallout of the Super League—a climate where fans feel increasingly alienated from ownership and “big money” in football.

https://twitter.com/PetBerisha/status/1476522113263673349?s=20

The real opportunity for crypto in deepening relationships with fans. Why? Less loyal fans provide far less financial support to clubs via ticket sales, merchandise, memberships, and indirectly through media licensing deals as viewership declines.

This scenario could be catastrophic…and it’s already happening. New generations of fans are losing touch with the sport, with other forms of entertainment competing for their attention.

https://twitter.com/midgevillafc/status/1472851927688007681?s=20

Time to restore credibility for crypto in sports

Fan tokens play into negative stereotypes about crypto: it feels scammy, and it’s expensive with a questionable return. But crypto can offer so much more. The time is ripe for a “Second Wave” of crypto where sports brands use new technology to offer amazing, thoughtful experiences for fans.

Journalist Pet Berisha muses, “Imagine giving away NFTs/POAPs [proof of attendance protocol] for attending specific games. If that game is a massive, historical moment - you can extend that experience for as long as you like because the fan owns something immutable, on a blockchain.”

At FlipFam, we’re building a game that allows fans to earn NFTs for engaging with their favorite teams, players, and clubs on a daily basis. Players that demonstrate the most knowledge of their teams can win more valuable NFTs. At first release, those NFTs are collectible artworks, but soon they will also have additional utility, such as unlocking fan experiences (e.g. tickets, trips, or meeting players) and merchandise.

Participating brands will have the ability to earn money on secondary sales of these NFTs—so yes, there is a potentially lucrative revenue stream. But more importantly, the club has a way of rewarding its most engaged fans all around the world—not with random giveaways, but allowing millions of fans to earn a piece of the club. To us, that sounds a lot better than demanding money at the door.

FlipFam is releasing NFT prizes this January. If you want an early look, join the beta—users with more points (higher levels) will earn rarer NFTs straight away.

In January 2022, we are going to be awarding prizes to users for contributing to the game. Users will win collectibles, created by some of the most talented artists in football. These pieces, such as this example by our partner artist Karl Thyer, can be sold outside of the application (some fetch prices north of £1,500/$2,000).

What’s more, the game will be free to play and will not include advertising. There is no fantasy game, no complex rules—you only need to consider the players and teams you love.

To sum it up: FlipFam allows you to play football predictions and earn.

What do these prizes look like?

Our prizes will take the form of non-fungible tokens (NFTs). You can play without knowing a thing about them…but if you want to claim one, we will help you get started.

At first, these NFTs are collectable artworks, perfectly suited for avatars. Each artist will release series, such as “Greatest Goalkeepers.” Unlike normal in-game prizes, these prizes are owned by players and can be sold in marketplaces like OpenSea.

Over time, we plan to launch more NFTs that will have additional utility beyond their artistic and collectible value. For example:

• NFTs that provide in-game benefits

• NFTs that unlock real-world experiences, such as first-access to game tickets

• NFTs that unlock physical objects, such as official merchandise

How do you earn one?

There are several ways that players can unlock these NFT rewards, and unlike other “play-to-earn” games, none involve spending money.

1. You play a set number of predictions

2. A number of your prediction ideas are approved

3. You successfully invite a number of others to the app

The common thread across all these actions is they improve the experience of the app for everyone: More predictions played and more players create more points for everyone to win; More user-submitted ideas bring more creativity into the game.

Loyalty and expertise pays off

Everyone gets a reward for their activity. But as you gain more points, you’ll also get more status in the app. Players with more status are eligible to win progressively rarer prizes.

For example, everyone starts with 500 points and “Fan” status. At this stage, you’ll only win relatively common NFTs. But once you reach 700 points, you have “Advanced” status and have a shot at winning rarer cards. You’ll then work your way up to “Expert” and then “Royalty,” at which point you’re able to win Unique NFTs.

Beginner users win the more common “Limited Edition” NFTs, but higher status users can win all cards, including the most valuable Unique prizes.

We believe this is the best system to reward truly dedicated fans. It also makes sure that players or bots don’t spam the app with poor predictions just to get prizes.

How is any of this possible?

One of the amazing properties of NFTs is their ability to generate royalties. For example: If an artist sells their work as an NFT online, they can get profits from the sale PLUS 10% of every subsequent sale.

We realized that the royalties alone could generate a lot of value. If our players were to sell their winnings on the secondary market, these could generate royalties for artists, FlipFam, clubs, players, leagues, or even charities.

Everyone profits. This technology has created an opportunity for fans, artists, and the sports industry to create wealth together.

It’s hard not to feel powerless as big money has moved the game beyond the reach of mainstream fans. Many crypto projects simply make that problem worse by monetizing fan engagement. Our team believes this model can offer a better alternative.

The next chapter

We’ll begin distributing our NFTs in January. If you want to get first access to these prizes, be sure to download the beta and start playing today. We look forward to hearing your thoughts and suggestions!