What links European soccer giants Paris Saint-Germain and Juventus with Brazilian second division side Avaí FC? On the pitch, not much. However, off the field each of these clubs have launched, or plan to launch, the sale of their own digital coins or tokens to raise funds.
Taking the principles of initial coin offerings (ICOs) and applying them to sport, fan token offerings (FTO) are an innovative way for clubs, large or small, to create and sustain engagement with fans.
Indeed, fan tokens are drawing interest from some of the biggest European clubs. PSG and Juventus have both announced partnership deals this season with the blockchain platform Socios.com to launch FTOs. These token offerings will give fans access to PSG or Juve-branded tokens, which will come with various rights attached for the fans. The tokens will also be tradeable on the Socios marketplace against the ChiliZ native token.
Meanwhile, Brazilian Série B soccer side Avaí recently became the first club globally to launch their own cryptocurrency. 22 million Avaí FC tokens were made available, each priced at US$1, to help raise funds which the club say are vital for it to challenge for a place in the top division.
Coins vs tokens
It is worth drawing some basic distinctions between a ‘coin’ and a ‘fan token’. Coins are exchange tokens often referred to as cryptocurrencies, such as Bitcoin or Litecoin. They are crypto-assets, not backed by a central bank, but which can act like money and denominate the exchange of value, essentially acting as a cash replacement. However, they do not provide the types of rights or access provided by fan tokens. Fan tokens may have tradeable value, but are not seen as being similar to money in the same way as coins.
Generally speaking, fan tokens, also referred to as utility tokens, are crypto-assets that can be redeemed by fans for access to a specific product or service, such as soccer tickets and VIP experiences. They can also be used by an issuer to activate certain functions of a specific project, for example, by giving voting rights to fan token holders on how certain aspects of a soccer club are managed. Alternatively, fan tokens could also be used to represent legal or beneficial ownership of a share in a company - such as the soccer club itself. Depending on how such tokens are structured, they can amount to what is known as a security token, ie. a crypto asset which falls within the definition of a regulated investment in the UK, typically providing rights such as ownership, repayment of a specific sum of money, or entitlement to a share in future profits.
Building fan engagement
Socios.com claims that FTOs enable soccer teams to create a completely new economy that can be monetised, whilst building a new fan engagement ecosystem. Using the rhetoric of FTOs as opposed to traditional ICO terminology is a smart move.
These ventures provide a unique opportunity for fans to engage with their soccer club - without acquiring a shareholding - by voting on certain club issues such as man of the match awards or jersey design.
The fanbases of some clubs are bigger than the population of small countries, with global communities straddling all international boundaries. Moreover, the allegiance of fans to their clubs is certainly stronger than that of the average citizen to his or her central bank.
Therefore, in some ways fanbases are the ideal ecosystems in which to incubate new methods of measuring and exchanging value.
Appealing to the passion of fans will likely prove a successful selling point, but it is important not to ignore that a FTO shares many characteristics with an ICO.
Investing in ICOs carries both known and unknown risks, not least due to the general lack of regulation. In sport, the regulatory environment is still evolving to deal with the use of cryptocurrencies. The specific characteristics of each token must be considered on a case-by-case basis as it is likely that where clubs issue security tokens these will be regulated investments and will fall under the jurisdiction of the regulatory authorities, such as the Financial Conduct Authority in the UK.
The trading value of a soccer club cryptocurrency will naturally depend largely on how the team fares on a competitive level. If fans of a soccer club feel that they have lost money due to the club’s poor performances, there is a risk of reputational damage, or even legal claims.
However, where used responsibly in a manner that captivates fans while warning them sufficiently of the risks of investment, FTOs provide the potential for soccer clubs to reach new heights of fan engagement. Such arrangements raise funds and offer supporters the chance to be involved in club matters in a way which past public listings or collective fan ownership models for clubs have arguably not successfully achieved.