By Elise Hansen
Updated on September 24, 2018, 10:24 AM

How Blockchain Can Change the Game in the Sports Industry


Blockchain_Sport.jpg


Blockchain is getting sporty. To start, the rookie technology has made a splash with its TV ads during the World Cup and earned some high-profile athlete endorsements. But it’s making moves off the field, too, into innovations that could change the game for athletes, teams and fans alike.


Sports are a well-worn tradition (and practically a religion in some places), and the sports industry is often slow to change, said Benjamin Penkert, founder of the sports tech research group SportsTechX. But it’s facing some fundamental challenges that are forcing it to adapt, he said, and blockchain might be part of the answer.


“The biggest pressure is coming from the new generation of sports fans that have a completely different understanding and expectations toward the sports industry,” he said. This new generation is challenging the industry to present itself and connect with them in new ways.


Technology, he said, is “the tool for the sports industry to adapt to the changing needs of fans.”


Blockchain is perhaps best known for its role as the accountant to cryptocurrencies like Bitcoin, but sports companies are increasingly looking towards it, too. Startups like Globatalent and SportyCo, for example, want to use blockchain technology to facilitate a new kind of fundraising for athletes and sports clubs. While the big stars in the best clubs and teams can often score lucrative contracts, many up-and-coming athletes struggle to make it financially, said Sunil Bhardwaj, Globatalent’s CEO.


“Right now, in the sports industry, if you are a young talent and you don’t have enough connections or support, it doesn’t matter how good you are,” he said. “If somebody doesn’t support you, you will not become a professional athlete.”


Aspiring professional athletes often have considerable expenses for high-quality training or equipment, and many have to travel to tournaments to compete for rankings -- and for the eyes of recruiters and scouts. The average Olympic athlete makes $20,000 a year, according to a 2016 estimate in TIME Magazine, which is not much when their annual sports-related expenses can run up to $25,000 a year.


Enter the business model proffered by blockchain-based startups like Globatalent and SportyCo. Their game plan is for athletes to “tokenize” their talent, that is, to promise a share of future revenues to fans who support them now. Early fans’ investment would be secured through a digital currency that would appreciate in value should the athletes win endorsement deals or a good contract.


“It means that a single athlete becomes investable, a new sort of asset,” said Penkert.


The token sale would raise much-needed funds for athletes while providing investors with the possibility of making a return, SportyCo explains in its whitepaper.


Blockchain is a crucial aspect of this model, said Bhardwaj, in part because it allows companies to tokenize “assets” like sports talent. But some of its other innate features are important as well.


“Blockchain is the perfect tool for the sports industry because of its transparency, democracy and security,” he said. Transactions recorded via blockchain cannot be retroactively changed, and anyone with access to the internet could become part of the investment ecosystem. This represents a massive upset of the current system, Bhardwaj points out.


The global sports industry is a multi-billion dollar industry (with some estimates putting it over USD$1 trillion). But that wealth is concentrated in a few top players, a few financially successful teams, and a sprawling peripheral industry of television companies, merchandising, sports agents, management companies and third-party ticket sellers.


The blockchain-based systems envisioned by Globatalent and SportyCo could allow the general public to tap into a market currently dominated by financial heavyweights by allowing individuals and small investors to enter the ring early on.


“I think everyone would like to have a piece of LeBron James or Messi, or a piece of Manchester United,” said Bhardwaj. “And blockchain is the tool to be able to succeed with this.”


In addition to transparency and security, smart contracts are a key supporting player in this business model. These snippets of code detail parties’ agreements and store them using blockchain technology. As soon as the conditions are met, currency is automatically transferred from one account to another.


This helps secure investor money, and could have implications even within more traditional sport agency models, said Joshua Bernstein in a 2018 article for the DePaul Journal of Sports Law.


Many athletes rely on agents to represent them in negotiations. While the rules governing agent behavior have tightened over the years, the industry is still rife with stories of agents improperly promising perks, or with contract disputes between athletes and third-party endorsement companies, researchers at Villanova University found in a study on sports agent regulations.


“There’s definitely corruption among these sports organizations and endorsements,” Bernstein said, especially for amateur athletes or those with less name recognition. “It’s the lower talent, unfortunately, that gets taken advantage of,” he said.


Because smart contracts automatically execute once the agreed-upon conditions are met - and only once they are met - they could help prevent abusive activity, Bernstein pointed out.

“Once [the information] is on the blockchain, it’s there and secure,” he said. “From a smart contract perspective, you can pull the data from that trusted source and just streamline payments,” he pointed out. “It’s more a sense of security, a sense of trust.”


This model could prove a challenge in complicated contracts, since lawyers may have to work closely with computer scientists until both are mutually satisfied that the programmed terms are absolutely precise and correct, Bernstein’s article notes. But smart contracts could be a more practical choice when  contracts don’t vary much from player to player, and a single template could be reused multiple times..


European blockchain startup PowerAgent is already working on that front. The company is building a library of contract templates for agents and athletes to choose from, limiting the amount of computer science prowess needed to complete the process. Its tools are built on a private blockchain hosted by the Linux Foundation, which ensures that only parties with permission can access the information.


The platform would allow “any professional sporting club/franchise, agent and professional athlete to create and manage smart contracts easily, with no legal, technical or operational complications,” its website promises. The startup is still in its initial marketing phase and doesn’t plan to launch its platform until 2019.


That’s a common caveat in this space. While blockchain-based sports innovations have caught the eye of prestigious consulting firms like Deloitte (and SportyCo got a Twitter shout-out from international soccer legend Ronaldinho), this is still the pre-season for most of these revolutionary hopefuls, Penkert warns.


“I think the whole sports-industry-and-blockchain is still in an experimental stage,” Penkert said. “I don’t see [many sports tech startups] becoming a sustainable part of the management of a club or a sports organization in the near future,” he said.


And it’s not clear yet which parts of the sports industry might benefit most from blockchain. There are a plethora of startups out there trying to use blockchain to do everything from combat ticket fraud to monetize sports fandom. But which projects, if any, will catch on is an open question.


One of the main hurdles? Getting sports pros themselves to buy in on the plan, said Penkert. “The sports industry in particular is a rather old-fashioned and slow one, and they’re rather late adopters than early adopters,” he said. “One of the biggest challenges for startups is to convince whoever’s working in this industry that this makes sense and to test it.”


In other words, blockchain may not be in the big leagues yet, but it’s a player to watch.


Elise Hansen is a New York-based writer.


MORE NEWS