A number of esports organisations have revealed NFT collections and partnerships lately, piquing the curiosity of investors and fans worldwide. Investing in such an oft-confusing trend can be risky. So, why are so many organisations turning to NFTs as a source of income and community engagement?
A non-fungible token, or NFT, is a cryptographic token that has only one “original” copy that can not be replicated. They are coded to have unique IDs and underlying metadata so that they can be identified, verified, and transferred as the creator and owners see fit. NFTs are managed on a blockchain, which maintains an official transfer ledger.
Headlines are filled with sensational cases of minting and selling NFTs — such as a 12-year-old who made six figures — but the general public is still painfully unaware of how these digital assets work or why they should care. According to Ipsos, just 13% of American adults are “extremely familiar” or “very familiar” with NFTs. Those who were confident in their familiarity were more than happy to invest, however, and 48% bought sports NFTs.
Dapper Labs, creator of the NFT marketplace NBA Top Shot, mints short video highlights from NBA games. The popularity of these NFTs propelled the company to a reported $7.5bn valuation.
An NFT can be a purely digital item, like a piece of art, song, or clip from a major esports tournament. They can also serve as placeholders for a signed item, fan experience, event ticket, etc.
These digital assets can be minted, traded, and sold. Each time a token is sold, the original minter receives a share of the profits — creating a source of residual income for an esports team or organisation. All the while, an NFT’s value can fluctuate with public interest and demand. This gives token holders a stake in how well an esports organisation performs or presents itself to the public.
How esports organisations use NFTs
In May, Russian esports organisation Virtus.pro became the first esports organisation to launch collectable NFT cards featuring images of its players.
Sergey Glamazda, Virtus.pro CEO commented: “The tradition of collecting player cards goes back a hundred years. The idea behind it was simple — to release a card with an image of a baseball player on it. Years later, it became popular and spread across a lot of different sports: people started collecting, trading and bequeathing the cards of their idols, which led to a fully grown ecosystem. With the help of blockchain technologies, this ecosystem has now been incorporated into the digital world.”
A week later, team-owned CS:GO league Flashpoint partnered with open cryptocurrency creator platform Rally.io to launch collectable NFT cards of its own alongside physical holo cards that featured images of players participating in the league’s ongoing season. Limited to 997 cards, half of the proceeds would support the tournament, while the other half will be handed to Flashpoint’s partnered teams.
Since then, a number of organisations have announced similar plans to use NFTs as a form of audience engagement and fundraising. Among them were T1’s DOTA2 team, EVOS Esports, Misfits, Dignitas, G2 Esports, WePlay Esports, Tim Singularity, LDN UTD, and NRG Esports, among others.
“I see an opportunity for us to reward our members with access to unique events and items, such as NFTs as a thank you for their recurring commitment to our gaming centres,” said Roman Franklin, President of Simplicity Esports.
The cryptocurrency market is still under scrutiny by many countries and private organisations. There are four major hurdles to overcome or consider before utilizing NFTs for your esports organisation:
- Laws and inter-organisational policies
- IP rights, including a player’s likeness
- A lack of understanding around NFTs and crypto
- Environmental concerns related to cryptocurrency
Riot Games has a strict rule against individual franchise spots selling sponsorship to cryptocurrency marketplaces. The publisher forbade TSM FTX from using its new FTX branding but formed a partnership of its own shortly thereafter.
The reason Riot can partner with a crypto marketplace is that it controls the broadcast of its League of Legends and Valorant tournaments. Some countries forbid the promotion of crypto, so broadcasts can be modified to include or exclude on-screen branding as needed. It’s far more difficult, however, to edit out a crypto partner’s logo from individual team jerseys.
Another issue to consider with NFTs is whether or not you have IP rights.
Lympo, a subsidiary of Animoca Brands, is a sports NFTs ecosystem that includes NFTs with IP rights of well-known athletes and organisations.
James Gatto, a partner in the Intellectual Property Practice Group in the Washington, D.C. office of law firm Sheppard Mullin, wrote: “Given the increasing number of NFTs that are not properly licensed, it is important for IP owners to consider rethinking their IP protection strategy. For example, teams, event organisers, leagues, sponsors, and game companies should consider extending their trademark registrations to cover trademark uses and classifications that include NFTs. They may also choose to associate certain designs or trade dress with their brand.”
Of course, no one is going to buy your NFT if they don’t understand what the heck it is. Make sure you explain why it’s important to your organisation, your goals, benefits, etc. so your audience can get on board.
Lastly, consumers are more likely to weigh the carbon footprint of their purchases than in previous years. One estimate suggests that one NFT transaction is likely to have a carbon footprint more than 14 times that of mailing an art print.
When G2 Esports announced its NFT project, the organisation said that digital assets will be created by using the proof of stake mechanism, which potentially offers a more energy-efficient alternative to Ethereum’s proof of work system.
“I’m also fully aware of the massive amounts of energy required for the mining and selling of NFTs,” said Carlos Rodriguez, Founder and CEO of G2 Esports, “so we’ve been careful to make sure our NFTs will have as little environmental impact as possible.”