22 Mar 21

Last week, we provided a summary of what NFTs are and looked at their application in the world of sporting real estate. This week, we dig deeper into the opportunities and challenges facing sports rightsholders who wish to capitalise on this growing trend.

Sporting advantage It’s no surprise that in these straitened times, sports rightsholders around the world are eagerly examining – or in some cases diving headfirst into – the world of NFTs. For commercial/licensing departments, the possibility of tapping into a new revenue stream cannot be ignored. Sports rightsholders also have several advantages over others who wish to make a mint from NFTs:
  • Sport sells – the public interest in sporting artefacts is seemingly insatiable. All major sports – and some minority ones – will have a ready-made market.
  • Unique IP assets – most sports rightsholders will already own or control iconic NFT-able assets which are ripe for further exploitation, such as archive footage, crests, stadia, access to athletes etc.
  • Authenticity – fans will know that their NFTs relate to artefacts produced directly by the sports rightsholder, not by a third-party opportunist with no connection to the underlying “art” – fans will be buying from a trusted seller.
  • Scarcity – the natural bond between fan and sports rightsholder should also extend to trusting the sports rightsholder not to duplicate the NFTs elsewhere or saturate the market. Sports rightsholders are keenly aware of the value of exclusivity and creating “limited editions”.
  • Reinvestment – the proceeds from the sale of the NFTs will likely be reinvested back into the sport or team that the fans love, rather than leaking “outside the game”.
  • Licensing experience – sports rightsholders are already experienced in sensitively and intelligently (in most cases) commercialising their properties.
  • Digital first – although the NFT process has several quirks, it is a natural extension of the work which many sports have been doing to engage with fans in digital spaces.
Taking each game as it comes Of course, this wouldn’t be an article from a law firm without sounding a few notes of caution. The NFT market and commercial opportunity are evolving at a rapid pace, and the legal position on NFTs is fluid. However, there are certain underlying legal issues that sports rightsholders will need to consider:
  • Navigating existing broadcast/commercial deals – does the exclusivity granted to existing broadcasters or other commercial partners cut across potential NFT plans? If so, can a new commercial deal be cut with those existing partners, or are there alternative assets available, such as training ground/practice footage or athlete avatars?
  • Athlete image rights – does the sports rightsholder have the right to commercialise athlete imagery in this way? Is this catered for in the “standard” athlete contract in the relevant sport? Would athletes need to be featured in groups of three for example?
  • Athlete revenue share – linked to the above, are the athletes contractually (or morally) entitled to share in the revenue the sports rightsholder generates from the NFT programme?
  • Intellectual Property Rights – does the sports rightsholder own the IP in the artefact linked to the NFT? What is the nature of the grant of IP from the sports rightsholder to the NFT “purchaser”? Will sports rightsholders follow the NBA Top Shot model where the “purchaser” owns the NFT (or “Moment”) and has a non-exclusive, limited, personal, non-commercial licence to display the underlying artefact (or “Art”)? What about third-party branding that features in the artefact – are additional clearances needed from the brand owner?
  • Enforcement - how easy will it be for the sports rightsholder to monitor “owners'” usage of their NFTs and the underlying artefacts? How will the sports rightsholder enforce licence terms against those owners? Given that anonymity is a typical feature of crypto-transactions and the blockchain more generally, will the sports rightsholder even be able to identify the owner of the NFT as it moves through the secondary market?
  • Third party delivery partner – most if not all sports rightsholders will lack the technical infrastructure and expertise to run an NFT programme “in house” and so will need to partner with a third party with industry experience. Proper due diligence must be done on the delivery partner as an unstable or unreliable platform will have material reputational and commercial consequences for the sports rightsholder.
  • Capitalising on the secondary market – the sports rightsholder will want to ensure that it continues to receive revenue on “sales” of the NFT in the secondary market and that it has the technical capability to monitor this.
  • Data protection – depending on the nature of the artefact that is linked to the NFT, will athlete consent be required to use their personal data (e.g., their image) or will an alternative lawful basis for processing be available?
  • Anti-money laundering – will the sports rightsholder need to consider anti-money laundering regulations in connection with sales to members of the public?
  • “Filling the Gap” – even if a sports rightsholder is not convinced about NFTs, does it need to start a programme as a “defensive” strategy to protect its rights and prevent disgruntled fans from seeking NFTs from “unofficial” sellers with no connection to the sport?
  • Environmental concerns – the process of maintaining a secure record of NFT transactions (also known as “mining”) consumes a lot of energy – how will the sports rightsholder justify and/or offset the environmental impact of their NFT programme?
It’s still early doors Whilst some have dismissed NFTs as a fad, in our view the market is only just getting started, and given the sums of money involved, it is an opportunity that sports rightsholders cannot ignore. However, it is essential that sports rightsholders think very carefully about their market strategy, identify reliable and trustworthy delivery partners and ensure that they navigate their way around the thorny rights-related and other legal issues that could stand in the way of their progress. As always, Onside Law are here to help!
Adam Leadercramer