How sport can address strategic flaws in the NFT space to maximize engagement potential

Even amid the unprecedented non-fungible tokens (NFT) boom of late 2021, proponents of the concept, such as Capital Sports Media CEO Tim Mangnall, insisted that the growth of such digital assets in sports was unlikely to be linear.

So far, 2022 has shown that to be the case. While there have been particularly successful NFT projects in sports, several underwhelming release “drops” have flopped, leaving rights holders pillaged by a skeptical press.

Furthermore, a cryptocurrency crash, which has wiped out two-thirds of the value of the top 500 cryptoassets since November 2021, has had a significant impact on NFTs. In addition, broader volatility in financial markets, including rising inflation, has not helped.

In the final months of 2021, Mangnall was keen to stress how it would take at least two or three years – possibly longer – for the full scale of the possibilities in NFTs to be realized in sport. He urged franchisees to adopt a sustainable long-term vision in collaboration with carefully selected partners, and avoid chasing short-term revenue from the outset.

Lessons

Unfortunately, many did not heed the warning. Still, almost a year later, he believes there is no reason to change his optimistic long-term outlook.

“Clubs still have a lot to learn about NFTs and there are still a lot of misconceptions in the industry,” says Mangnall. “Basically, the clubs don’t understand the possibilities around NFTs. The majority of NFT ‘drops’, especially in football, have been focused on a moment in history or a piece of art, but after they are released, everyone quickly moves on and forgets about them.”

The challenges in this market can best be summed up by Liverpool FC’s controversial attack on NFTs in early April. Critics of the release cited an apparent lack of utility and interaction with buyers, with the artworks themselves also dividing opinion.

Less than a week after launch, it emerged that Liverpool had raised around £1.125 million through the first drop, with almost 10,000 tokens sold. However, it accounted for only 5.7% of the available NFTs, raising questions about whether the balance between short-term gains versus sustainable growth had been achieved.

Strategic mistakes

Capital Block, a division of Capital Sports Media that advises sports clubs and other entities worldwide on their NFT strategies, is ideally placed to evaluate the success or failure of NFT strategies so far in a turbulent year for the sector. At this point, Mangnall is frustrated to see projects fail to maximize their potential due to basic strategic mistakes at the outset.

“We’ve seen far too many falls that appear to be isolated. If that’s the case, the strategy is wrong,” Mangnall adds.

“Especially in football, we haven’t seen much longevity in NFT strategies. Clubs can generate revenue from the first drop, but fans are unlikely to come back, whereas they should be creating an ecosystem for their digital assets and encouraging people to come back again and again .

“We have also seen some NFT platforms try to push their own agenda too much through partnerships with clubs and rights holders. Above all, it is important to focus on engagement through a narrative and utility if you want it to be something that resonates with the audience.”

Useful meaning

Mangnall points out that the utility of NFTs – essentially the concrete benefits bundled into the buyer’s package – can and should be updated regularly. A number of the more savvy licensees in the area have worked with partners to provide unique benefits and experiences as part of an NFT purchase.

For the 2022 Australian Open tennis grand slam, for example, fans were offered NFTs that automatically updated with ball and match metadata in real time. The NBA All-Star VIP Pass NFT Auction, supported by Dapper Labs, included VIP passes and various other unique benefits, including shooting hoops at future All-Star game courts and exclusive merchandise.

“I still take my hat off to the brands that are doing NFTs and exploring this space. As an industry there is still so much to learn in this space and we are at a very early stage,” says Mangnall.

“A sports NFT project should not be all about revenue, as that will immediately alienate the fan base. I cannot stress this more: If the NFT project is just sell, sell, sell, then it will become unsustainable.”

Rebrand

Focusing on short-term revenue can also cause reputational damage, not only for the club but also for the wider NFT space, adds Mangnall.

“What concerns me is how negative experiences can damage a fan’s perspective on NFTs,” he says.

With that in mind, Mangnall believes that “NFTs” need a rebrand.

“Fans don’t like the word ‘NFT’ as they think it’s money or a scam,” he explained. “When we talk about NFTs, they really represent the technology behind the digital product, so we should really treat them as products.

“I guarantee that the organic interest will be tenfold for a ‘digital ticket’ compared to a ‘NFT ticket’ at the same event. Ultimately, people are going to start buying digital products and collectibles and they don’t actually need to know they’re NFTs. At Capital Block, we work hard to educate partners and change the narrative.”

Despite growing pains in a sector that was barely recognized just over a year ago, Mangnall remains confident that the embryonic development of such digital assets will eventually lead to the creation of one of the most effective fan engagement tools in sports.

What sports entities do in the meantime remains to be seen. However, Mangnall believes that sooner or later they will meet a crossroads.

“There are going to be two types of sports organizations,” he concludes. “There will be those who accept that digital assets are here to stay, but they will believe they have other priorities, and then there will be others who will work with agencies like Capital Block to develop a stronger connection with their fans. However, one thing is certain: digital products are not going anywhere.”