The multi-billion dollar sports industry is undergoing a digital transformation and Web3 elements are likely to play a significant role. This notion was highlighted in Deloitte’s “2022 Sports Industry Outlook” report, which predicts an acceleration in the blending of the real and digital worlds, along with growing markets for non-fungible tokens (NFTs) and immersive technologies.

According to the report, such advancements can lead to a significant increase in fan engagement. This is an important point to consider, given that fan engagement has long served as the backbone for ensuring sponsor revenue, ticket and merchandise sales, along with the overall popularity of a sports league.

However, as technology advances, sports fans have expressed an interest in forming deeper relationships with sports leagues. For example, the “Stats Perform 2021 Fan Engagement” report notes that sports fans are not only focused on watching sports now, but are also looking to “live” experiences through technological advances.

Direct relations with sports leagues

Eyal Donath Zafir, investor and crypto leader at Liberty Global Ventures, told Cointelegraph that Web3 is likely to be a game changer when it comes to creating better fan engagement in sports leagues:

“Web3 is the Internet with true ownership, as it provides an integrated layer that makes it easy to retain and transfer value. For sports leagues and their fans, Web3 can be a game changer in building direct relationships, aligning incentives, and enabling true ownership and influence.”

Zafir added that Web3 projects using decentralized autonomous organization (DAO), NFTs, and cryptocurrency models can demonstrate how sports property owners can use technology to realize revenue shares, open intellectual property licenses, or account for fan votes.

Although these concepts are still nascent, a handful of sports leagues have begun to explore these models. For example, Karate Combat, a full-contact martial arts sports league, recently announced that it will form a DAO to transition its governance to its fans and athletes.

Rob Bryan, founder of Karate Combat, told Cointelegraph that during the summer of 2022, the entire league, including fighter contracts, copyrights, content, intellectual property, and more, was sold to a foundation that serves as the legal wrapper for a DAO.

In turn, Bryan explained that there are no longer any shareholders of Karate Combat, but that the martial arts sports league will be governed and controlled by fans who own the league token.

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“The token holders will have the most control over the direction of the league from here,” he said. Ultimately, Bryan explained, a DAO infrastructure will allow token holders to do things like vote for the DAO providers that operate the league features, set token incentives, and decide, within the restrictions set by the provider. from Fight Operations DAO, who should fight whom.

Adam Kovacs, president of the Karate Combat league, further told Cointelegraph that such a model goes beyond popular Web3 elements like NFTs for sports leagues. He said:

“Web3 needs to meet the fans where they are and only then use incentives. We don’t think fans want to choose the colors of the jerseys. They want to root for their favorite athletes, make predictions about who’s going to win, set up matchups, and maybe get a job in their favorite sports league.”

Echoing Kovacs, “Commodore,” the pseudonymous co-founder of Krause House, a global community of basketball fans that wants to operate the National Basketball Association (NBA) as a DAO, believes that sports fans should be able to vote on certain things to feel involved with a sports league.

As of today, Commodore explained that NBA fans are not engaged at the levels they should be. “One interesting thing to think about is that every NBA team really lacks a direct relationship with their fan base by doing things like banning season ticket holders from an email list. Twitter, YouTube, TikTok, Instagram, Bleacher Report, ESPN and more sit squarely between the fan and the team,” he noted.

To change this, Commodore said that Krause House is offering an NFT-based membership model, which essentially serves as a ticket to its community. A governance token that has no financial value can then be used by community members to make decisions regarding their organization’s events and strategy.

According to Commodore, this process is internal, but noted that Krause House aims to bring this model to the NBA. “We are in discussions with NBA teams from an ownership perspective. This means we’re trying to buy a team and then a team can partner with us on fan engagement.”

Flex Chapman, co-founder of Krause House, added that fans have long been the underlying unit of sports leagues. However, he believes that the elements of Web3 will eventually allow fans more voice and access. “This model allows fans to make low-stakes decisions so they can feel more connected to NBA teams and have a bigger impact. This is an avenue to create new fan experiences in ways we haven’t seen before,” he commented.

While DAO models are beginning to arouse interest from certain sports leagues, gamified experiences in Metaverse environments are also gaining ground. Dirk Lueth, co-founder and co-CEO of Upland, a real-world mapped metaverse, told Cointelegraph that the sports industry is looking for ways to better engage with its younger audience and international fan base. He therefore believes that experimenting with Web3 projects to gamify traditional fan experiences is the first step sports teams and leagues are taking:

“As more and more of our identity is represented virtually, so is our fandom. If much of the way we express ourselves is on online platforms and virtual worlds, it’s only natural that our sports teams would find us there.”

Most recently, Upland partnered with FIFA, the international governing body for association football, to enable fans to participate in gamified experiences on the Metaverse. Although said model doesn’t allow fans to vote on certain decisions, Lueth explained that a Metaverse approach allows sports fans to enhance asset ownership within a realistic visual environment.

“Digitization and gamification of a similar concept is enhancing this experience. Similarly, just as fans proudly wear their team colors, on Web3 platforms like Upland, they can ‘wear’ their hobby as a block explorer (in-game avatar) or decorate and customize their metaverse homes.” said.

In fact, such a concept may be key for sports leagues moving forward. Building on the success of Upland’s partnership with FIFA, Lueth said Upland has partnered with the Argentine Soccer Association to create fan engagement within its metaverse platform.

“Many clubs and leagues have contacted us after the successful collaboration of the Qatar 2022 FIFA World Cup. There are many questions about how to experiment with these models as everything is innovative. What easily resonates is not trying to replace experiences, but finding ones that can be enhanced with real asset ownership and a visual layer like the metaverse,” he said.

Will sports leagues quickly adopt Web3 models?

Although a handful of sports leagues have begun experimenting with Web3 models, a number of challenges may hinder adoption. For example, creating a mainstream-friendly platform is critical for these concepts to catch on.

According to Zafir, mainstream adoption will only take off with real-world utility, along with cryptographic complexities abstracted from end users. “I think two things need to happen for adoption. First, Web3 needs to be really easy to use. Second, we need to create great use cases.” Zafir added that Web3 currently has a limited number of users taking advantage of things like crypto wallets. Given this, a DAO model can be complex for Web2 users, especially those unfamiliar with concepts like storing tokens in digital wallets.

To put this in perspective, Bryan explained that Karate Combat fans will eventually receive airdropped tokens that can be stored in third-party wallets or the Karate Combat wallet integrated within the league’s mobile app. “Fans should be able to cast votes there. The user experience will be very simple within the app,” he said. Bryan further noted that the tokens will presumably be listed on crypto exchanges.

Such a model could also create additional risks beyond accessibility. Margaret Rosenfeld, CEO of Zukunft, a business model consulting firm for Web3 technology, told Cointelegraph that before sports leagues decide to use blockchain tokens as part of a new fan engagement model, they should do some research. exhaustive analysis of securities, games, commodities and payment laws in the different jurisdictions in which it operates.

“Any type of token that is ‘earned’ or used as a ‘reward’ can easily cross the line and gain regulatory scrutiny if not structured properly,” he said.

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Regarding a DAO model, Rosenfeld said that a governance token that allows fans to vote should also be carefully considered. He noted that the Ooki DAO lawsuit filed by the Commodities Future Trading Commission (CFTC) should serve as an example for DAO futures.

“The CFTC argues that the Ooki DAO is an unincorporated association and anyone who has voted as part of the governance model should be held individually responsible for the alleged illegal activities of the DAO.” Given this, Rosenfeld believes that traditional industries like sports may want to move away from DAOs in their Web3 interaction models if the CFTC prevails in its argument against Ooki.