Lionel Messi’s transfer to Paris Saint-Germain (PSG) was in itself a massive commercial attraction, however, what added more to it was the initiation of financial structure, previously unheard of for a transaction of this nature, i.e., a one-off payment (as a part of his salary), understood to be worth around 1 million euros ($1.15 million), made in PSG “fan tokens”. The conversation around the manner in which the sporting world is evolving in the virtual space of ‘blockchain’ and ‘metaverse’ is like having a discussion about what “the internet” meant in the 1970s. The building blocks of a new form of communication were in the process of being built, but no one really knew what the reality would look like. While it was true, at the time, that an unknown idea called “the internet” was emerging, not every concept of what it would look like turned into reality. Similarly, there is also a lot of marketing hype wrapped up around the idea of the fan tokens, which is a rather broad shift in how sports fans interact with clubs using technology. Remarkably, as of January, 27th 2022, the market cap of these fan tokens was US$ 298,957,896/- with a 24-hour trading volume of US$40,722,163.[1]

Tersely put, fan tokens are a form of Utility Tokens[2] that entitle the token holders with a variety of fan-related connexion prerequisites. These tokens are generally used by sports clubs and music fan clubs to organize unique experiences for their fans, establish club leadership, goodwill and more. For instance, in the event a sporting entity issues fan tokens, the perks attached to such tokens would allow the holders to participate in non-managerial decisions of the sporting entity, such as voting on merchandise design, team bus design, official team anthem, etc. These tokens also come with a bag of rewards and other unique experiences such as tickets to the team’s home games, complementary jerseys, etc. [For the purpose of this article, the author shall stick to sporting entities only].

Sporting entities and fan token issuing entities collaborate and issue the fan tokens deploying a smart contract, on the market feature in which the issuing entity has its presence, based on their internal arrangement. While it’s a collaboration between two entities, it is the sporting entity that decides what rights and entitlements must be given to the token holders, and the issuing entity assists the sporting entity in suggesting the nature of rights to be granted, with their knowledge and expertise in the said demography. Both parties’ issue surveys and polls respectively, for the fans to understand the nature of engagement preferred by the fans and thereby vote on their choice of question raised and engage with the sporting entity accordingly. The terms and conditions of such polls and surveys (binding or non-binding on the sporting entity) are also laid out jointly by these two collaborators, ensuring best measures for the fan engagement.

These tokens are issued via a fixed base price process, referred to as the ‘Fan Token Offering’, which are then traded on exchanges, where their value keeps fluctuating. They can be bought for fiat currency or cryptocurrency, and are never ‘spent’, so the holders’ balance only decreases if they decide to sell or if they exchange them for another and are locked once they are used for voting for the duration of the aforementioned poll.

[1] Information accessed and borrowed from <>.

[2] A Utility Token provides access to the goods and services that an entity has launched or will launch in the future, which can be used as a type of discount or premium access to the services offered. Such tokens are intended generally as a funding mechanism camouflaged as a marketing strategy to attract and increase user engagement.

It’s difficult to parse what this exactly means because when you hear descriptions like those above, an understandable response is, “Wait, doesn’t that exist already?”. Sporting entities, have in the past, involved fans vide polls for stadium experiences, merchandise offerings, player rankings, etc., but is that what fan tokens really mean? Yes and No. Identifying former sporting entity polls as “fan tokens” would be comparable to identifying Google as the “internet.” Even if a fan, theoretically, received significantly similar belongingness with the sporting entity i.e., socializing, buying things, engaging and playing games/polls, it wouldn’t necessarily mean that the prevailing fan polls encompass the entire scope of fan tokens. Categorically put, fan tokens are digital assets that must be purchased for ownership and participation, which fluctuate in value, and have more merit in it, as the token owners receive perks and can occasionally vote on minor decisions (binding surveys and polls) to be taken by the sporting entity.

But it is worth the investment and hype?

Recently, European football’s governing body, UEFA, announced a sponsorship deal with, a cryptocurrency company which sells fan tokens, which can only be bought through its own blockchain called Chiliz. Not only UEFA, seventeen of England’s 20 Premier League clubs have at least one commercial deal with a company engaged in the cryptocurrency sector, with six, including Arsenal and Manchester City, having signed up with Not just football, other sports such as cricket, motorsport, ice-hockey, basketball, tennis and fighting (MMA, etc.), are investing heavily in fan tokens. The reason for this being – it is a new and innovative monetisation measure, which is helping in curbing the loss of revenue incurred on account of the loss of gate receipts, sponsorship revenue, broadcasting returns and other promotional activities, as a result of which it is assisting in dealing with spike in expenses for the reasons of additional costs being incurred, such as player fee without any event, bio-bubble arrangements, frequent testing obligations, etc. The Covid-19 pandemic has had a huge financial impact on businesses across the world, with most stakeholders suffering, and the sporting world was not spared either. Since the events were either suspended or the turnstiles were closed, the unprecedented loss of matchday revenue has had huge financial implications to be borne sporting entities.

Like other cryptos, fan tokens, too, are volatile, as the prices can shoot up and dive according to the supply and demand in the market. Interestingly, it has been observed that sporting fanatics who buy these fan tokens have suggested that the prices of such fan tokens are relatively influenced by the movements, performance and activities of the concerned sporting entity. Since the fluctuating prices of these tokens depend on the supporters’ emotions and engagements, it is quite evident that some sports’ enthusiasts see fan tokens as a status symbol, a bond with the sporting entity they support and a loyalty indicator instead of as a long-term investment, thereby deeming to add another feather to the popularity and demand of fan tokens, resulting in notable monetary returns for the sporting entities.

As a general, but most important principle in investment, a sporting entity must always consider and analyse the risk-reward ratio, which is notably uncharted and foreign, for fan tokens is an area, still new and unexplored. Below are certain points highlighted for the sporting entities to consider before stepping foot onto this unmapped territory.

  1. Regulatory Measures

Fan tokens are marketed and sold globally, and it becomes pertinent to understand the regulatory and governing regime of each jurisdiction. The digital assets’ market is unregulated in some jurisdictions and regulated in others. In unregulated jurisdictions, the volatility of the market combined with the lack of legal protection appears alarming for both – the sporting entity and the fans. The extent of protection to the sporting entity in this case would largely be limited to contractual protections. But the wider range of questions relating to the legality and validity of the transaction and undertaking remain. It is unclear how this would impact the credibility, validity, future and existence of the fan token that the token holder already owns in an unregulated jurisdiction. Also, the aspect of advertising and the regulations around it (if any) must be carefully analysed before marketing and promoting the fan tokens.

Thus, prior to investing, a sporting entity must necessarily consider the regulatory and governing risks, i.e., compliances, licenses and permissions, if regulated, and the scalable diversion of the authorities in regard with regularising (or prohibition) of the digital assets’ market and the impact thereon, if currently unregulated.

  1. Financial Reliability of the Entity

It is quintessential that the token issuing entity has a sound financial background to ensure effectiveness, both from a business perspective as well as for the economic stability, of the fan token. Safeguards pertaining to the management of a fan token must be built around the possibility of a financial disbalance such as bankruptcy, administration or any other related financial claims and actions. This is because of the area being a novel endeavour and thus, every step towards facing a hurdle would be innovative and unexplored. Question such as would the sporting entity be able to secure all rights to the fan token; would the fan token be transferable to some other platform; would the fan token no longer be tradable; etc. cannot be answered at present as neither are there any specific regulations nor are there any live examples, judgments or precedents in this respect.

Notably, a recent incident on liquidation of a fan token issuing entity surfaced with the Monaco-headquartered entity – IQONIQ going into liquidation, leaving multiple sporting entities potentially out of pocket. IQONIQ entered into various commercial deals, pursuant to which, now they owe (Club) Real Sociedad €820,000, while (Club) Crystal Palace have already started looking for legal actions they could take against IQONIQ over the missed payments of their sleeve sponsorship deals. In such situation, especially when the market is unregulated at large, it becomes difficult for the sporting entities to execute appropriate actions, as well the fans being left stranded. Thus, a prior due diligence and safety measures are recommended. It is anticipated that post such a huge loss, greater scrutiny and regulation will be demanded from governing bodies to regulate the way sporting entities engage with cryptocurrencies and related assets. This could slow down the crypto’s investment in sport sponsorship and other commercial arrangements.

  1. Ownership & Intellectual Property Rights of Fan Tokens

An important matter for consideration in respect of collaborations between the sporting entity and fan token issuing entity is that these collaborations are usually in the nature of partnerships, and as such, the fan token undertaking and all its assets, liabilities, properties, etc. are jointly owned by both the sporting entity and the token issuing entity. Therefore, several questions relating to rights and ownership of the undertaking arise especially when the contract between the two entities expires. What would be the extent of liability and accountability of each entity under such circumstances or if any claims are bought against the undertaking. What would be the status and validity of the tokens issued? Ultimately, the future of the fan token and the fan token undertaking will, to a great extent, depend on the contract and the terms and conditions agreed upon between the sporting entity and the token issuing entity at the time of collaboration unless governments, or authorities such as regulatory bodies of sports, international forums, etc., make provisions in respect of the same. Hence, the same must comprehensively be considered prior to finalising the terms in this regard.

  1. Commercial Risks

The sporting entity will have a number of pre-existing contracts with different entities relating to its various rights and intellectual properties. These could be in respect of marketing, advertising, promotion, reporting, broadcasting, etc. or could be in respect of management, operation, partnership, collaborations and other commercial rights. Some of these might even be the grant exclusive rights to the other entity and the breach of the same could affect the brand and reputation of the sporting entity and even expose it to expensive lawsuits. For instance, the sporting entity might have outsourced the process of sale of tickets of its matches to a third party on an exclusive basis, however, as we observed, part of the rewards conferred on the token holder are free tickets to the sporting entities game, etc. This might result into a conflict. Therefore, it is paramount, that necessary and satisfactory due diligence is conducted to ensure avoidance of such breaches.

The crypto market is extremely volatile and issuing such assets will always be deemed a high-risk investment strategy. Nevertheless, one cannot ignore that these digital assets are slowly becoming a major part of the contemporary dynamics and has caught the eye of the regulators as well. Given the current scenario, the sporting entity must always realise that fan tokens provide the fans with an opportunity to interact more with their choice of the sporting entity, offering them a sense of exclusivity. Such belongingness not only helps in enhancing the goodwill of the sporting entity, but also helps impacts, in some way, the performance of the players and of course the revenue returns of such sporting entity.

As desirable as this commercial arrangement may sound, a sporting entity must always ensure balanced and efficient issuance, nature, performance and monetary rewards of fan tokens. There are a number of circumstances under which the sporting entity might be compelled to discontinue the issue and circulation of the fan token. This could be owing to the operation of law, policies, rules and regulations amongst others. However, it is also possible that the sporting entity chooses and decides to discontinue the circulation of the fan token for various reasons such as non-feasibility of the venture, termination of the agreement with the fan token issuing entity, financial losses, misuse, exploitation or overuse of the fan token, redundance of the objective or purposes for which the fan token was issued, so on and so forth, thereby attracting a number of risks and potential lawsuits. Henceforth, it is paramount that the sporting entity considers all possible contingencies and provides and discloses comprehensive terms and conditions on the issue, purchase, sale, transaction and discontinuance or termination of the fan token, ensuring that the losses are mitigated.

Rashi is an Associate at TMT Law Practice. She graduated in the year 2017 from Institute of Law, Nirma University, Ahmedabad, with specialization in Corporate Laws. Rashi completed her Masters in Business and Finance Law, from the University of Glasgow, in 2018.

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