From Crypto to NFTs in sport

What they are, how they are used, what perspectives

The attentive eye of the most curious football Serie A fans will not have missed the new sleeve sponsors of the big Italian teams: Bitget for the Bianconeri, BitMEX for AC Milan, to give two examples. The most obvious changes of main sponsor, however, were Lazio with Binance (after saying goodbye to Marathon Bet) and Internazionale, which at the beginning of 2022 switched from Socios to Digitalbits

Other sports are no strangers to this boom either, and are sometimes even pioneers. For example, the Italian volleyball league signed the first blockchain-based sports sponsorship contract with the ChainOn platform on 1 March 2022, which in turn set up a kind of sponsorship platform that puts investors and clubs in contact.

What exactly are we talking about? All the companies mentioned above have a common denominator: they are cryptocurrency companies or cryptocurrency exchange platforms; international giants that have decided to invest (also) in the sport market with commercial agreements worth tens of millions of euros, “signing” the shirts of the most emblazoned teams or using the image of the most-known athletes.

The crypto boom, from markets to sport

Interestingly, cryptocurrencies have made inroads into the world of football and sports in general in recent years. In short, the days when Bitcoin shocked Wall Street by becoming the first virtual currency, volatile and independent from the international banking system, seem long gone. 

Today, crypto has not only entered the homes of many small-scale savers looking to diversify their investments but it is also representing a real sea change in the global economy, anchoring itself in the most diverse realities. 

For instance, the city of Lugano where Elite Law is based, recently informed that citizens and companies will be soon allowed to pay taxes, goods and services in cryptocurrencies (Bitcoin, Tether and the locally based LVGA) as part of a broader project which has the aim of transforming the city into the Swiss capital for crypto and a European hub for digital innovation.

Going back to sport, to be precise to the first Italian football league, suffice to mention that in the disputed moments of Var or goal line technology reviews, replays are sponsored by Crypto.com, one of today’s leading coin exchanges.

NFTs: the value of uniqueness

The entry of cryptocurrencies into sport has not had much of an impact on the personal lives of athletes, nor has it had much of an impact on the lives of the public, the fans, those who follow the NBA or the UEFA Champions League on a regular basis. What is, however, sanctioning an epochal turning point in a more individual, private, and somehow empathetic direction, is the recent birth and diffusion of NFTs, an acronym that stands for Non-Fungible Tokens,

In concrete terms, the NFT is a digital asset whose ownership is traceable through its associated certificate of authenticity. It may take the form of a digital work of genius, a photograph, a drawing, a graphic, a video or, why not, a song. A NFT is based and regulated by a smart contract, which establishes how the NFT operates and the rules of which are defined by computer code. 

Basically, these rules can limit the number of copies available for sale, authorize a “reissue”, or organize a system of royalties allowing the original author of a work to be paid for each transaction or even with a secondary market royalty.

NFTs are not cryptocurrencies like Bitcoin, but unique digital elements that cannot be replaced by others. The difference is that, whilst a cryptocurrency can be exchanged with another cryptocurrency, the NFT is a unique token and therefore “non-fungible” (non-interchangeable), not replicable, but at most sellable as a unique piece by using cryptocurrencies. To make a comparison with the real world, NFTs would be artworks and cryptocurrencies would be traditional currencies (euros, dollars, etc.).

In sport, NFTs can be, for example, exclusive videos of a goal, digital versions of a club’s jersey, stickers and trading cards of players from Barcelona, PSG or teams from foreign leagues such as Japan or the US. In such regard, Liverpool FC has been a pioneer launching the LFC Heroes Club collection, 24 illustrations of as many legendary Liverpool players, produced in collaboration with Sotheby’s auction house. A deal with a potential value of £8.5 million.

Highlights and digital moments of champions like LeBron James or Steph Curry can be tokenized, but also any winning shot of the 600 matches of the Australian Open, which released 6776 tokens on the metaverse platform Decentraland.

NFTs are built on the blockchain technology. To simplify, the blockchain is a kind of traceable and transparent digital data ledger, structured according to a chain of encrypted blocks concatenated in chronological order. The blockchain is a technology that not only underpins financial transactions, but can also regulate, for example, global supply and distribution of social networks. Using even simpler words, blockchain is a ledger or digital register where any transaction is transcribed and made public

An emotional digital breakthrough: investment or passion?

We are certainly at the dawn of a spread of digital assets that is hard to ignore. The evolution and immersive power of the digital have rapidly brought us into an era in which the concept of the ‘metaverse’ has become a reality: a virtual world that conquers or at least intrigues the entire world. Nikeland, the shop in Nike’s Roblox metaverse that opened, if you can say that, last November, has been visited by almost 7 million people from 224 different countries. In short, today metaverse and cryptocurrencies are not just cyberpunk ideas from William Gibson’s stories: they are a reality within everyone’s reach

The users of the cryptographic art of sports-related NFTs are no less: a survey by Nielsen Global Media, conducted in Italy in the second half of 2021 on a sample of 1,000 people aged between 16 and 69, showed that 10% of sports fans are interested in buying NFTs to support their favourite team, league or players

The emotional aspect of this blockchain resource should therefore not be underestimated: whereas in the past, the true fan would try to get the ball signed by Maradona or the shirt autographed by Federer, today’s serial collector of sports memorabilia might get teary-eyed with joy given the amount (and variety) of exclusive NFTs to choose from.

The uniqueness of these virtual works is able to transform cold and calculated investment operations into passionate races to grab a video or a card to jealously guard and show to friends, without necessarily having the intention of reselling the purchased token.

The dimension of uniqueness and exclusivity of NFT therefore appeals to the individual, but it is undeniable that at the marketing level the scope, on the part of the brands offering these digital assets, is to build or strengthen their own communities, generating a real exchange market: a clear example of this is the OpenSea platform, one of the best known NFT marketplace that obviously includes works related to the world of sport.

NFTs in the future

According to research by Deloitte, sports NFT transactions are expected to generate over $2 billion in 2022 alone, roughly double the 2021 figure. These are predictions of truly remarkable growth, estimating between 4-5 million users involved in the purchase of a sports-related digital asset by the end of the year.

It is therefore not surprising that sports clubs and organisers of international competitions have sniffed the NFT affair and rushed to close sponsorship deals such as those mentioned above. On the other hand, NFTs are preparing to revolutionise the current sports business system by bidding to replace the method of payment for events. We are mainly talking about season tickets which, as revealed in the Sports Industry Outlook report by PricewaterhouseCoopers (PwC), could be managed with blockchain technology within five years, offering NFT-verified subscribers dedicated and exclusive features such as access to VIP areas of the stadium and countless sponsor-related discounts.

In the not-so-distant future, an NFT could involve everyone from the biggest company to the most anonymous stadium ticket holder; but that is not enough: athletes and sports champions themselves are approaching the world of NFT and becoming the main actors in the crypto-community.

American football icon Rob Gronkowski, who currently plays for the Tampa Bay Buccaneers, was among the first to launch his own collection of NFT cards that depict the best moments of his career.

The revenue from the circulation of sports NFTs, whether GIFs, photos or stickers, proves their status as luxury goods. The more famous the star in question is around the world, the more the value of the corresponding NFT increases

Luxury goods that can also be used for charitable purposes: 90% of the proceeds from the sale of Pelé NFTs, released by Eternity Chains for $750,000, were donated to the Pelé Foundation, which works to strengthen the education of children in poorer countries.

Therefore, Crypto and NFTs are the ultimate protagonists of a new economic declination of the world of sport.

NFTs and legal issues

Beyond these general considerations, NFTs raise numerous legal issues such as in the field of intellectual property or tax treatment of this type of digital assets and the operations associated with it (purchase, sale, resale, sell-on, capital gains). This is forcing states to start setting applicable guidelines and regulations. 

This is what the Swiss tax authorities made recently, for example, by drawing up and publishing on 14 December 2021 a working document entitled “Cryptocurrencies and initial coin/token offerings (ICO/ITO) as a subject of wealth, income and profit tax, withholding tax and stamp duty“.

In sport, NFTs specifically raise important issues in terms of image rights as most NFTs consist of the reproduction of the image/name/voice of athletes, as the following:

– Who is the owner of these rights and who is authorised to exploit/assign them?

– If the athlete, has he/she consented the use and exploitation of his or her image, in what framework and with what limitations?

– What type of right is held and what type of right is used when creating an NFT?  

For all these questions, the athlete’s consent is of paramount importance and is a crucial point. 

For instance, article 28 of the Swiss Civil Code establishes the protection of personality rights such as name and image of the person. Likewise, in Italy, article 96 of the Law for the Protection of Copyright foresees that in principle “the portrait of a person may not be displayed, reproduced or commercially distributed without the consent of such person”. Accordingly, it will generally be necessary to obtain the consent of the rights holder to use the name, image or likeness of an athlete into NFTs. Otherwise, the injured person may claim for compensation. 

This consent can be directly obtained via a contract concluded by the athlete with his/her club or a sponsor, or even indirectly via his/her Players’ Union or by means of a collective agreement or via a league/federation by accepting it through the athlete’s registration and acceptance of its regulations. 

To illustrate this approach, we can quote article 280b of the French Professional Football Charter (the collective agreement applicable to professional footballers in France) which requires players to concede the right to use their image when it is collective: “By signing his employment contract and by means of a specific amendment, the player gives his club authorisation to use his image and/or name reproduced collectively and individually for its own benefit, provided that at least five players in the squad are used in a strictly identical manner. Below this limit, the individual use of each player must have obtained a specific agreement for each operation”. 

In view of the foregoing, it is clear that the determination of the owner of the said rights will have to be assessed on a case-by-case basis and will depend on numerous parameters such as: the applicable legislation and regulations, the existence and content of contracts relating to image rights, whether the image rights and therefore the right to create and commercialize NFTs has been assigned by the athlete to a third party.

It is therefore now particularly important to be updated on this new matter and its legal consequences, especially when assisting a party on any contract related to the image of athletes. Elite Law SA and its legal team is at the disposal of any sport actor wishing to obtain additional information or advice on this subject.

The information provided on this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this blog are for general informational purposes only. Information on this blog may thus not constitute the most up-to-date legal or other information. Readers of this website should contact us or their legal counsel to obtain advice with respect to any particular legal matter. No reader, user, or browser of this blog should act or refrain from acting on the basis of information herein presented without first seeking legal advice from a proper counsel. Use of, and access to, this blog or website in general or any of the links or resources contained within it do not create a lawyer-client relationship between the reader, user, or browser and website authors. All liability with respect to actions taken or not taken based on the contents of this site are hereby expressly disclaimed. The content on this posting is provided “as is;” no representations are made that the content is error-free.