NFTs, fan tokens and crypto exchanges are all key components in how Web3 is currently taking shape, but in the case of fan tokens their rise in profile also leads to questions around what purpose they actually serve. 

Fan tokens have become an intrinsic and very high profile component of the sporting world over the past few years and are at the forefront of sports clubs’ sponsorship and marketing campaigns. They have also become one of the main tools through which clubs and franchises implement their fan engagement strategies. 

They do this by calling on supporters to vote in online polls about what they would like their teams’ jerseys to look like, which song they would like to hear in the stadiums during half-time, or which snacks and refreshments they might want as part of their spectating experience.  

To acquire fan tokens, consumers must purchase them with crypto-currencies that they can then sell and trade on fan token exchanges. As part of this new online world, providers promise more engagement and entertainment as fans dive into the minutiae and daily lives of their teams, thus guaranteeing the clubs increased levels of involvement from supporters and further sponsorship income and revenue share for themselves. 

Currently the most well-known fan token provider is a company called Socios. It has sponsorship deals with hundreds of sports teams, including more than 20 NBA franchises, as well as with the biggest football (soccer) clubs in the world. To buy the tokens, users must create an account on the Socios-owned exchange Chiliz, which will then issue users with Chiliz cryptocurrency to enable them to buy and sell the tokens. 

Counterfactual promotion

Major crypto exchanges have also joined the fan token fray and recently Binance announced a deal to sponsor the F1 team BWT Alpine (formerly Renault F1), in the process becoming the first fan token supplier to sponsor a Formula 1 team.     

However, of all the new online products that have launched recently, fan tokens have received so much critical coverage from mainstream press outlets that their promotion can nearly seem counterfactual. 

As their promoters laud their merits, to this observer it is difficult to shake off the negative stories that have appeared about them. This is especially the case across Europe, where football supporters’ groups have been outspoken in their criticism. 

Much of the criticism revolves around whether the tokens, which proponents call utility tokens,  are useful in any way. Instead, questions are raised about how, and why, tokens are acquired and sold in the way they are.  

Critical coverage 

The Athletic (paywall) has been one of the most critical media outlets to cover fan tokens, and its findings suggest that far from being used to provide value to fans, they are used as assets with which to speculate. 

To illustrate its point, the Athletic dove into what was the most high profile and stunning transfer of the last few years. It found that when soccer superstar Lionel Messi signed for Paris Saint-Germain from Barcelona on a free transfer last summer, the value of the PSG token surged before the Messi deal was confirmed and then slumped afterwards, once the deal had been widely covered.  

Those familiar with the world of financial trading call this “buy the rumor, sell the news”. A small number of people buy large volumes of an asset and push up its value and sell the stock as the event happens, while the new buyers are left with an asset that has dropped massively in value and have little way of making up for their losses.

Volume driving value 

The Messi-to-PSG transfer also highlights the fact that the value of fan tokens depends on the volume of trading and level of excitement that is generated around them. For Socios to make money, there has to be trading of the tokens, but such is the nature of sports clubs that such a scenario is actually very rare, or if there is, as the Messi transfer shows, it is usually very short-lived.  

A quick look at the price of the PSG or Inter Milan fan tokens, another of the clubs Socios has a deal with, shows how their price has dropped consistently over the past 12 months. In other words, if users bought some of those teams’ tokens in the hope of trading them, they would be hard pressed to recoup their costs.

(Data from Coinbase)

Fan culture  

Beyond what token owners buy them for, there is also the issue that in football (soccer) or the NBA, the concept of buying a small number of Arsenal and West Ham (never mind Tottenham) fan tokens would be anathema to any serious supporter, just like you wouldn’t buy a small number of Detroit Pistons and Chicago Bulls tokens. But if there is no point in owning a few tokens of those teams, the only other reason for buying them in bulk would have to be with a view to gain financially from trading them.  

Socios CEO Alex Dreyfus recently commented that although the tokens could be traded, their primary aim was for entertainment. But if that’s the case, it is worth asking why fans have to buy them and why his company has set up an exchange platform so they can be traded.  

What does all this have to do with online betting and gaming? The direct links are not obvious, but as I wrote back in November, tokens, crypto exchanges and NFTs are all part of a vision where consumers might place a bet online, catch the latest sports news, buy and trade tokens, or book tickets for the next major sporting event. 

Crypto exchanges, token providers (and cryptocurrency gambling websites) are also major businesses that are flush with cash, and, in the case of the first two, the reason for their recent glut of advertising and sponsorship deals is because they want more money flowing into the system to keep the volume and trading levels high.

The danger, as with a lot of these new industries, is that the latecomers will one day be left holding assets that are worth much less than what they paid for them.