Development of blockchain’s potential provides “accountability, transparency and transactions” and great future opportunities

The six-figure price tags on coveted NBA Top Shot Moments sold in early 2021 awakened the world to digital collectibles. Dapper Labs didn’t publicize the technology behind these drops — calling them “moments” instead of non-fungible tokens (NFTs), which enabled purchases with a credit card instead of cryptocurrency, and deliberately avoiding the word “blockchain” in promotional messages — but for many sports fans, this was their introduction to Web3.

Blockchain has since become a buzzword in the sports industry and a key to a number of new experiences and revenue streams, such as fantasy sports (popularized by Sorare), ownership-level benefits (best implemented by BIG3 with their Forever Experience Action Tokens, FEATs) and ticket sales (slowly gaining ).

What blockchain technology is and how it works is helpful in understanding its value, though hardly necessary, as Dapper Labs demonstrated. As for a definition, Apollo Global Management partner Christine Moy, who heads the firm’s digital assets division, explained it well from the stage of a 2021 Sports Business Journal event, describing blockchain technology as a “shared digital ledger and network so that people can trade in a peer-to-peer way without needing financial intermediaries.”

In other words, it is decentralized, yet secure, removing the need for a gatekeeper like a bank. All secondary and tertiary market transactions are traceable, allowing the original IP creator – such as a sports team or league – to continue to earn royalties from the sale of items such as tickets that later sell for many multiples of their original face value.

While Web1 users were able to read information, Web2’s proliferation of social media emphasized reading and writing. Now blockchain is a critical component of the next generation iteration. “Web3 is reading, writing and owning – the ability to own a part of the internet and be able to commercialize your part of it,” Moy said then.

Although the NFT and cryptocurrency markets have weakened considerably, many sports insiders remain bullish on blockchain’s potential. Monumental Sports & Entertainment Chairman and CEO Ted Leonsis was asked that very question at this fall’s SBJ Dealmakers Conference and replied, “Yes, yes, yes. Accountability, transparency and transactions – thumbs up.”

On an earlier occasion, Leonsis said: “This is the birth of something very, very big. And today is the worst day blockchain will ever be. Every day going forward there will be more investments; there will be more innovation; more products are coming; there will be more people who understand and open up and develop on it.”

Building blocks

The first conceptualization of what would become blockchain can be traced to writings in the 1980s, with an important leap forward in 1991 by cryptographers Stuart Haber and Scott Stornetta, who attempted to digitally time-stamp sensitive documents for authenticity. The data will be held in blocks sequentially added to form a chain.

Blockchain use became more widespread with the advent of Bitcoin in 2009. The establishment of Ethereum in 2015 advanced the field by introducing smart contracts – automated execution of agreements. Dapper Labs created its own infrastructure, known as the Flow blockchain. Tokens are created by a process called minting, where the digital file is permanently fixed as a crypto asset.

Doing so requires energy-intensive computing power, as many competitors scramble to solve increasingly complex cryptographic puzzles. This effort is called mining; Bitcoin production alone accounts for more energy consumption than some developed countries. Some newer blockchains, such as Algorand, take a different approach and appear carbon neutral.

Endstate NIL athlete Cayla Barnes is part of the “Endstate U: New Heights” compilation release. She is a star hockey player at Boston College and now Ohio State, and an Olympian and member of the US Women’s National Hockey Team.courtesy of endstate

Other areas of use for the sports industry

The other relevant sports product created by blockchain is the Decentralized Autonomous Organization, or DAO. They are a democratized and transparent way of doing business, with decisions driven by members’ votes.

Some DAOs have been formed in hopes of pooling investment for ownership of a sports franchise. A successful purchase was of Killer 3s in BIG3; The DAO purchased all 25 Four Tier FEATs to claim majority control of the team. Unlike tokens which are only a collectible, these offer additional benefits. “This concept of utility is just hugely important and it’s definitely the way forward,” said Drive by DraftKing CEO Meredith McPherron.

courtesy of endstate

Other examples include NFTs created by The Players’ Lounge, a college-focused membership organization, which gives token holders exclusive access to events such as meet-and-greets for athletes. Endstate does something similar with limited edition sneakers, where buyers will own actual footwear as well as NFT versions; Philadelphia Eagles receiver DeVonta Smith designed a pair and later hosted fans who bought his kicks.

“Very important in the whole conversation around blockchain and NFTs is linking physical to digital,” said Altius Sports Partners CEO Casey Schwab, who previously worked at the NFLPA where part of his charge was to guard against counterfeit products. Blockchain use can help ensure authenticity.