With blockchain technology an ever-growing market and cryptocurrencies gaining trust and acknowledgement by wider society, it should be no surprise that football clubs are extending their marketing and commercial portfolios to include these new technologies.
This article will discuss some of the ways in which football clubs are engaging with companies that are developing cryptocurrencies and blockchain technologies and the potential legal issues that should be considered.
Blockchain technology refers to a digital distributed database that records transactions, in an immutable and incorruptible system, which are authenticated and verified across multiple devices as opposed to a single centralised network. Cryptocurrencies are virtual currencies that utilise blockchain technology to secure and record transactions. The total global market value of cryptocurrencies is worth more than $3 trillion.
Use of Cryptocurrencies and Blockchain Technology in Football
In an effort to bring further legitimacy to a market that has been met with scepticism by some, many cryptocurrency and blockchain enterprises have expanded their marketing strategies into the sports sector. The adaptability of cryptocurrencies and blockchain technology means it can be useful to football clubs, and the size and value of the market means it can be lucrative for clubs to expand the scope of their commercial ventures. As a result, football has seen a vast number of sponsorship and partnership agreements being entered into between clubs and tech-companies.
These sponsorships and partnerships have gone beyond mere advertising, as football clubs are able to make use of the versatility of blockchain technologies, for example:
- Sponsorship Deals – Inter Milan ended their 26-year partnership with Pirelli to instead feature Socios, a cryptocurrency developer and marketplace, as its 2021/22 shirt sponsor. Similarly, Southampton FC entered a shirt-sponsorship agreement with Sportsbet.io, a cryptocurrency betting firm, and Wolverhampton Wanderers have agreed sleeve-sponsorship rights with Bitci, a Turkish cryptocurrency. Watford FC currently have a sleeve-sponsorship agreement with Dogecoin having previously held a similar agreement with Bitcoin. Typically, clubs have limited these shirt and sleeve sponsorship agreements to the upper echelon of cryptocurrency and blockchain developers to mitigate risk of reputational damage.
- Payments – many clubs are using cryptocurrency-developer partners in order to facilitate payments in more secure transactions. Stake, the shirt sponsor of Watford FC, paid their initial £5 million payment to the club using cryptocurrency. There are also reported transfers of football players being paid by cryptocurrency, though the efficacy of this in high-value, prolonged or instalment deals is unclear.
- Ticketing – several English football clubs have partnered with ticket management platforms that use blockchain technology and allow tickets to be purchased using cryptocurrency. West Bromwich Albion FC are in partnership with SecuTix to use blockchain technology to ensure authenticity and remove risk of resales and transfer of tickets – this allows the club to maintain control over secondary markets. This approach was also adopted by UEFA at Euro 2020 and by clubs in other sports like Lancashire County Cricket Club and Saracens Rugby Club.
- Club Coins – many high-profile football clubs have partnered with Socios to sell their own ‘fan tokens’. These tokens are based on the specific club (for example, $Inter or $PSG) and are created using blockchain technology. Fans can buy, sell, and trade coins on Socios’ marketplace, and the value of each token will be dictated by the fortunes of the club. Many tokens come with additional ‘loyalty’ perks, including allowing fans to vote on club matters. Some notable partners include Arsenal, Leeds United, Manchester City, Everton, Aston Villa, Barcelona, PSG, Juventus, and other clubs.
- Non-Fungible Tokens (NFTs) – many clubs are engaging with NFT developers to monetize digital collectibles including player images, sporting moments, and memorabilia. NFTs operate like cryptocurrencies in that they are recorded on blockchains and can be traded, however they are not fungible so are unique and cannot be divided or separated. For more information on NFTs, read our NFT FAQ article.
Given the growing reports that the UK Government is set to ban betting companies from sponsoring football shirts (in line with the wider review on gambling advertisement), many clubs may turn their attention to the increasingly established blockchain market.
Issues to Consider
While cryptocurrencies and blockchain technology can be beneficial to clubs in administrative processes, fan engagement, and commercial ventures, there are some legal and commercial issues that clubs must consider.
Each club must consider whether these new partnerships are in line with the values and ethos of their club, especially the values shared with the fans. Supporters’ trusts at Leeds United, West Ham, and Arsenal, among other clubs, have spoken out against these new arrangements, suggesting that it puts pressure on fans to enter the cryptocurrency market without proper knowledge. Here, due diligence in assessing whether tech-companies are appropriate as partners and consultations with supporters’ trusts is necessary to avoid alienation.
There have been some high-profile cryptocurrency partnerships that have fallen through or been rescinded – this may act as a cautionary tale to clubs about the standard of due diligence required. Barcelona’s partnership with Ownix to create NFTs of famous sporting moments was cancelled after one of Ownix’s consultants was arrested for various fraud and sexual assault related offences. Manchester City also had to suspend their partnership with 3Key Technologies as their ‘official regional partner in decentralised finance trading analysis’ within days of the initial announcement after serious concerns about the legitimacy of the business (information about the company’s registration was curiously missing). Manchester City having to backtrack on their announcement and suspend the partnership so quickly was seemingly the result of a failure to complete adequate due diligence. While the allure of the blockchain market is enticing, clubs should ensure that they have undergone proper assessments of prospective partners – legal advice should be sought if needed.
Clubs should also be careful in communications concerning any cryptocurrencies and blockchain developments or partnerships. Recently, the Advertising Standards Authority (ASA) found that Arsenal’s promotional materials relating to their fan tokens ($AFC), developed by and traded in partnership with Socios, were misleading (as to the risk of investment), irresponsible (in taking advantage of consumer inexperience), and failed to make clear that the token was a crypto-asset. While Arsenal have suggested that they intend to obtain an independent review of this ruling, the ASA’s finding acts as a stark warning for football clubs who expand their commercial activities into the crypto-market, especially as there are reports that making rulings on cryptocurrencies is a primary focus of the ASA for 2022. It is crucial that advertisements and promotional materials do not ‘trivialise investment in crypto-assets’. Independent professional advice should be sought. In addition, when negotiating sponsorship deals which include cryptocurrencies and particularly payments in kind, clubs need to be aware of the tax implication and ensure that the appropriate tax treatment is applied. Specialist tax advice should be sought if needed.
When entering agreements with companies to develop NFTs or cryptocurrencies, clubs should seek legal advice to ensure that the club’s intellectual property rights are properly retained and credited, and that player image rights are dealt with in accordance with agreements with the player or their representative(s). Clubs should also consider whether, and to what extent, they would want to maintain control over a secondary marketplace or further trading.
To discuss how your club can partner with companies focused on cryptocurrencies and blockchain and ensure that the club is properly protected, or to discuss anything else in this article, please contact our Head of Technology Piers Dryden, Catherine Forshaw, Huzaifa Moosa or a member of our Technology Sector Team.
