Cultivating Culture Through Commoditisation, NFTs Present An Unparalleled Opportunity For The Sports Sector
Early in 2019, the National Basketball Association (NBA) and the National Basketball Players Association (BNPA) started their partnership with Dapper Labs, a production studio specialising in blockchain technology. Fast-forward to the present, the ground-breaking non-fungible token (NFT) marketplace, NBA Top Shot, allows fans to purchase and trade digital highlight clips and leads the market in digital sports collectibles.
Despite a recent dampening in expectations following a significant decline, wider developments in the sports sector indicate that the commoditisation of scarce, digital assets remains to stay. The creation and sale of unique digital assets can still generate a diversified revenue stream and drive fan engagement. For example, recently, Sorare, the French-based company that offers a fantasy football game utilising NFTs, raised $680m in an investment round led by the Japanese investment giant, Softbank.
This introductory blog will briefly explain what an NFT is and explore the opportunity and the relevant legal considerations in relation to NFTs in the sports sector.
Understanding NFTs
An NFT is a unique digital token, which serves as a digital certificate of ownership, that is “minted” (created) on a blockchain and is comprised of computer code. Within this code are the rules that determine how the NFT can be dealt with, such as the conditions for transfer and the limitations that will be imposed on the buyer. This computer code is commonly referred to as a “smart contract”.
The NFT and the linked digital work are not one of the same thing. NFTs are a mechanism for exploiting artistic creations, moments or ideas, which are often digital in nature, without the need to assign or transfer its ownership.
The Opportunity
NFTs allow rightsholders to engage with their communities by giving fans – wherever they may be - the opportunity to connect with their chosen sport through means that transcend the traditional rules of engagement. With NFTs, rightsholders innovate beyond the cornerstones of its core commercial strategy, by reaching out to the communities within the evolving audience of sports fans and inviting them to claim ownership over a specific part of sporting culture that resonates with them, such as the digital commemoration Andy Murray winning The Championships, Wimbledon in 2013.
Also, as rightsholders in the sports industry cannot sell or otherwise transfer any of the IP rights in that asset, they have a greater degree of flexibility when selecting the most suitable for ‘sale’ as an NFT.
With the above in mind, NFTs have the potential to be the most significant, technological development in recent times to disrupt the commercial activities of the sports industry.
Legal Considerations
Different from underlying digital asset, NFTs are referred to as a digital certificate of ownership; as the IP rights in the underlying digital asset will often remain with the rightsholder, it is more accurate to characterise the rights obtained on the acquisition of an NFT as a licence to a unique copy of the content that conveys limited rights, excluding the right to commercially exploit it.
Rightsholder should ensure that the rights in the digital asset by way of sale as an NFT are available. In any event, rightsholders should be prepared to review their existing agreements and navigate the contractual matrix with respect to its licensed content in order to ensure that it does not impinge upon any rights previously granted.
More importantly, with the heightening tension between athletes and stakeholders regarding the use of images in commercial activities that is already palpable in some sports, innovative use of content in developing technology might indeed accelerate the need to for athletes and rightsholders to come to a clear position as to the terms of use of one’s image. Thus, rightsholders should be also mindful of the risk of infringing on the image rights of those athletes and personalities appearing in the digital asset.
For further information about NFTs and sports sector, check out LawInSport’s article: