Where is the Opportunity of Fan Token as the FIFA World Cup is Approaching?

Abstract

The 22nd World Cup will be held in Qatar on November 21 2022, a ceremonial event for soccer fans every other four years. As the most popular sport event, countless business opportunities and traffic are accompanied. As it approaches, fan token, as part of the cryptocurrency world, has also ushered in a wave of greater attention.

Based on this trending topic, this report summarizes the development history and market status of fan token and introduces strategies on how to pick a fan token with potential during the World Cup. Fan token, as the most universal manifestation for fan economy in Web3, is also an extension of traditional fan economy to Web3. This report examines the role of fan token in the fan economy in Web 3, and analyzes how fan token serves the new type of economy together pillared by fans, clubs/idols, merchants, and exchanges.

Fan token is a product of the fan economy: it is genetically a cryptocurrency, and nothing different from the connection between fans and stars/sports organizations but tokenized. Fan economy per se is an inclusive and complete chain of industries with huge potential that has influences on entertainment, sports, arts and many others; an integration of crypto into fan economy is indeed an avant-garde attempt and an innovative way of introducing traffic from outside the crypto industry to crypto. By holding a fan token, fans could express their admiration for idols and enjoy various perks as membership benefits, including but not limited to direct rewards, the right to participate in organizational governance, the invitation to designated special events and interactions with the idols, etc. Fan token is still at an early stage, and the empowerment by the token is becoming more diversified and interesting with the development and participation of commercial organizations. Now, with the World Cup approaching, the fan economy represented by fan tokens in soccer may usher in a substantial outbreak. In this article, we will comprehensively interpret the fan token market from the development history and status quo of fan tokens, fan economy in Web3 and other aspects.

1 Status quo and history of development

1.1 History of development

In 1997, before blockchain was even a thing, legendary singer, David Bowie, used asset-backed securities, or Bowie Bonds, to receive financial support from his fans to boost his music career. This was the earliest prototype of fan token, in which Bowie promised bondholders a 7.9% annual return on royalties earned from streaming his music over a ten-year period. This method of crowdfunding is actually also very common inside the creator ecosystem of today’s generation. Today, creators are running similar crowdfunding campaigns by launching their personal social tokens on blockchain. For example, Alex Masmej (the famous ALEX token creator) sold $ALEX tokens to his followers by tokenizing himself. This helped him raise the funds he needed to form his own social platform in the US, and token holders are eligible to receive a share of Masmej’s income for the next three years. Blockchain allows anyone, including celebrities, artists, athletes and the general public, to create personal tokens, while tokenized fan token further extends the fan economy into the web3 space.

Currently, most of the major fan tokens are launched by commercial fan token issuing platforms, with Chiliz (CHZ) being the largest fan token issuer to date. Chiliz has entered the sports fan economy after completing a $66 million private placement in 2018, providing and designing exclusive fan tokens for various clubs. Chiliz (CHZ) and Socios.com (its own fan engagement & reward platforms for fans) have now issued more than 59 fan tokens, some of which have been launched on multiple large exchanges and crossed to the BSC chain simultaneously (Figure 1). Unlike the early social tokens, commercial fan token has more functions, projecting the original fan economy onto web3. Through the launch of fan token, the club can retain the fans, i.e. keep the interaction between stars and fans, thus increasing the loyalty of fans and shortening the social distance between stars and fans. Such activities and rewards were difficult to implement before the emergence of fan token. Also, such fan token has been explored in various ways of empowerment, such as representing voting rights that allows fans to choose the slogan on the team captain’s armband, designs of next season’s jerseys, and receiving privileges in the meanwhile, such as watching games in a VIP box, accessing to the backstage of the team’s stadium and meeting players, enjoying special discounts on club souvenirs and many more.

1.2 Status quo

Existing fan tokens can be divided into two major categories: sports fan tokens and idol fan tokens.

1.2.1 Sports fan token

The sports industry is already large and so is the fan economy of sports. Sports fan tokens accounts for the majority of the fan token ecosystem and also the most sought-after. There are also many types of sports fan token, including soccer, as the most popular, followed by car racing, American football, rugby, basketball, boxing, tennis, and hockey. The fan token economy for soccer is the most developed, with as many as 65 teams having partnered with L1 chain, namely Chiliz, Binance, Huobi and OKX to launch designated and specialized fan token (Table 2).

From Table 2, it is evident that the hottest fan token remains soccer, mainly issued by Chiliz and Binance. By the number of holders, the most popular fan token is AC Milan Fan Token, which has about 30,000 holders. This number is only 0.006% compared to the actual number of fans of the club (which is estimated to have 500 million fans worldwide). It is clear that fan token still has plenty of room for promotion at the moment. The only fan token in the top 10 hottest categories other than soccer is $ALPINE (racing). The market value of fan token outside of the sports and soccer category is relatively small, and the number of token holders is even smaller. As more and more fan tokens are listed on major exchanges, I believe we could see more fan tokens with more outstanding data in the future.

1.2.2 Idol fan token

Fank token is not currently issued for idols in the entertainment industry, but companies are rather active in the promotions of NFTs: Dunamu is the entity of operation for Upbit, the largest cryptocurrency exchange in Korea, and Hybe is indeed a K-pop entertainment company, which is also the agent of the famous boy band, BTS. Earlier this year, Dunamu and Hybe formed a joint venture, Levels, in Los Angeles, CA to explore blockchain and business opportunities in Web3. Reported by PANews on October 4, Levels announced the plan on launching MOMENTICA, a K-pop focused NFT platform that captures unique moments of K-pop artists in the form of images and videos, in the same month. Fans of K-pop artists can collect, trade and customize digital collectibles for better interactive experience with idols. K-pop is a segment with large fans base, and the actions of Levels will eventually lead more explorations from other companies in the opportunities of fan token.

2. Fan token and fan economy in Web3

Fan economy is a revenue streaming action based on the relationship between fans and influencers, and it is a business model aims to make profits economically and socially by enhancing user loyalty by word-of-mouth. With the help of a certain platform, merchants are able to pool fans together through a certain point of interest and provide diversified and customized goods and services, which are eventually converted into consumption, and thus profit.

Fan token is currently the most universal form of fan economy expression and an extension of the traditional fan economy on Web3. Fan token is able to provide more liquidity and financing models in the traditional club and fan model, and naturally to be favored by various clubs, especially during the current epidemic.

With the addition of fan token, some changes may occur in a fan economy: a new economic form will be seen, composed by four roles: fans, clubs/idols, merchants, and exchanges (Figure 2). In this economic structure, clubs/idols attract and retain users, merchants provide services to promote consumption, fans elaborate business value of clubs and voluntarily help expand user base, and exchanges coordinate the allocation of resources and enable the mutual transformation between cryptocurrency investors and fans.

The roles of fan token will be manifested in the next part from three aspects: fans, clubs and merchants, and exchanges.

2.1 Fan token and fans

First of all, fan tokens come with a fluctuating price since they have a limited supply: fan token can be an asset as well as an engagement tool between fans and idols. Fan token price fluctuates with market conditions; the financial properties are stronger when the value could be linked to results of games or business performances.

Second, fan token optimizes resource allocation among fans. Fans often differ from each other in all ways: for example, some fans are particularly passionate and will watch every single game of the team; some fans are richer but may not watch all games, they instead will buy VIP tickets for important games. If staking or paying fan token gives fans priority to buy tickets or choose seats, after a trade, hardcore fans could receive a financial subsidy and the willingness of rich fans to buy designated seat could be fully released. (This value will be paid to hardcore fans, not middleman)

Third, fan token will enhance the recognition of identity for fans. Especially for long-time fans, it is an honor being a fan for a long time, and fan token could serve as the credential for the honor.

However, fan token is somewhat weaker than NFT in this regard. If fan token were to be combined with NFT, a greater effect may come out; the effect may be maximized if the scope of NFT can be extended from not only the players but also to the fans. Imagine a scenario where a fan buys a ticket one day, and the system reminds him that this game will be the 100th game with this team. He or she is also asked to provide an image as avatar, and the system mints an NFT customized to this typical fan and record it on blockchain. The minting of this particular NFT takes nothing but some of the holdings of fan tokens, which is the least this fan needs (since the fan was given a lot of subsidies before, assuming not all of them are sold). On the gameday, the fan walks into the stadium, the NFT is displayed on the giant screen, and the announcement is made to the entire crowd: “Please welcome xxx (fan’s name), and special thanks to our loyal supporter for xxx (number of games watched)” These actions cost almost nothing, but it provides this fan with an unparalleled sense of honor and belonging, cementing his loyalty with the team. This event will surely become a valuable asset for conversations that will be remembered lifelong. It is highly likely that this fan will hold Fan token regardless of the fluctuation in price and stick to buying season tickets. The purpose of issuing fan NFT is not to urge fans to buy NFT, but to encourage fans in consistently buying tickets and hold fan token for honor. It also finds a way to consume fan token, empowering the team and the token bilaterally.

Chiliz (CHZ) is the largest and most successful fan token ecosystem, and the most successful one in empowering and exploring fan tokens as an issuing platform for tokens. Chiliz (CHZ) has created the fan engagement & rewards platform, Socios.com, exclusively for fans, aiming to eliminate the distance between fans and merchants, teams and clubs. Fans of teams or idols can buy, trade and interact with clubs on Socios.com, and the platform ensures a great experience and exclusive empowerment on the interaction: token holders could enjoy a range of benefits, including voting rights for final decisions, VIP rewards and experiences, “super fan” recognition, discounts on club and sponsored merchandise, game participation, match prediction and more. But it cannot be denied that fan token is still in the cradle, and most fan tokens do not offer bona fide benefits to fans. However, as other supporting infrastructure matures, fan token will likely become a token with stronger applications, such as fan token for club games/metaverse projects and payments, etc.

2.2 Fan token and clubs & merchants

In a fan economy, clubs and merchants are more closely related and similar in behaviors, and they will be discussed in bundle.

First of all, additional revenue can be received by issuing fan token, for issuing tokens could move future operating cash flow upfront and receive new revenue in a short period. In recent years, many clubs have been operating in poor conditions due to unfavorable exogenous factors, such as the COVID epidemic, local conflicts, and inflation. The income from issuing fan token could be an antidote.

Second, better governance can be achieved with the help of fan token. Fan token allows fans to participate in the governance of the team, as a dimension of user profiling and as a method of motivation.

Fan tokens are being used in voting to determine the design style of, for example, the team bus and captain’s armband. The rights of the holders can be expanded to a larger scope in the future, endowing fans with more rights for deeper engagements in the construction of the team and the stadium. Wealthiness and loyalty could be measured by the amount of fan token holdings so the marketing and promotions can be tailored specifically that revenue could be optimized on targeted group. Fan token could also become a perfect promotional tool, such as fan token giveaways based on the number of ticket purchases: the more tickets were purchased in the past, the more rewards would be in the giveaway. For fans, buying tickets is commensurate with mining, and the tokens obtained can be deemed as a subsidy. Conversely, discounts on tickets, or other privileges could be received by staking fan tokens. Moreover, fan token could be rewarded to a fan as commissions whenever new fans are introduced by this fan. Finally, the redemption and burning of fan token could play a similar role to dividends, strengthening the bond between fans and the club. For example, a certain amount of money can be allocated from ticket revenue or TV broadcast revenue for every goal scored or every game won by a team to buy back and burn certain amount of fan token, thus decreasing the circulation of fan token. For example, Chiliz (CHZ) launched the Head2Head fan token burn mechanism to empower fan tokens. This rule is activated when the club associate with a fan token wins or scores a goal during a match, a certain number of tokens will be burned as a sign of celebration, for example, when Paris Saint-Germain scored a 2–1 victory over Atalanta B.C. in the UEFA Champions League quarterfinals, the Paris Saint-Germain fan token PSG was partially burned, and the price of PSG increased by more than 20% on that day.

Exclusive NFT rewards from club star athletes can also greatly increase the motivation of fan token holders, for example, Juventus gifted 770 JUV fan tokens to Portuguese player Cristiano Ronaldo in a pre-match ceremony against Benevento in Serie A. The fan tokens were minted through the Chiliz blockchain, and subsequently launched exclusive fan NFTs; the price of the fan token, JUV, skyrocketed as a result.

Third, fan token can be used as a means of payment (in the case of Binance Fan Token). Fan token can be paid to purchase tickets and peripherals or as reimbursement for fan events. By cooperating with merchants with high relevance to sports fans, fan token can become an important means of payment if it were eligible to purchase sports goods, razors, cars and other goods. In addition, fan token is also suitable for purchasing virtual goods, such as NFTs of player cards, membership for broadcasts. If sports are then combined with Metaverse, new application scenarios, such as travel in metaverse or games, will become available. For instance, visiting the Santiago Bernabéu stadium and taking photos in the metaverse may potentially light the enthusiasm of soccer fans all over the world.

2.3 Fan token and exchanges

Exchanges are important infrastructures in fan economy, and fan token, on the other hand, is also vital to exchanges.

One of the most significant roles fan tokens play, from the view of exchanges, is as a tool for user acquisition, as sports fans and cryptocurrency enthusiasts are highly convertible: sports fans can be introduced to the crypto world via fan tokens, and eventually have the chance to learn the advantages of blockchain technology and become holders of the other crypto assets. In the meanwhile, a crypto enthusiast can also be converted into a sports fan by learning fan tokens.

In addition, more attention could always be brought to exchanges by fan token, as fan token is often related to entertainment and sports, which never lack breaking news. If the token price could be associated with situation in certain events in the design of economic model, such as the scheme mentioned above, there will always be factors driving the price of fan token. Furthermore, the market cap of fan token is relatively smaller comparing with many other tokens, and a minor change could be reflected as big in price. In this case, more attention may be drawn on the fan token and more transactions might be seen in trade.

The exchanges with relatively more types of fan token include ChilizX (the fan token exchange developed by Chiliz), Binance, OKX and Huobi (Table 3). Huobi has recently expedited the development regarding fan tokens, and will soon launch fan token battle to provide fans with a faster and better channel for fan token listing.

3.How to pick fan token with potential during the World Cup?

The FIFA World Cup is a world-class soccer sporting event every four years. Screening of fan token with potential could be conducted via the following criteria: theme, heat on social media and performance in the match, etc. Some national teams and clubs with stars have already issued fan token, which have seen a significant increase in trading volume and price fluctuations recently. Since the World Cup is a country-based tournament, the country-based types of fan tokens will have greater heat, and fan tokens for clubs may also enjoy some heat synchronously. In the following table 4 introduces a few mainstream fan tokens for national teams.

$POR and $ARG, as fan token for national teams, will be the cherries on top during the World Cup. $POR is the Portuguese national team fan token and $ARG is the fan token representing Argentine Football Federation, which are both issued on Socios.com of Chiliz, a platform with great influence. The Portuguese national soccer team has represented Portugal in international men’s football competitions since 1921. In 2022, Portugal defeated Turkey with 3–1 in the play-off semifinals and North Macedonia with 2–0 in the play-off final five days later and reserved the spot in the 2022 FIFA World Cup. Argentina, on the other hand, is a strong traditional soccer from South America that has entered five World Cup finals. For 2022 World Cup qualification, Argentina earned its place as second in South America. In addition, Argentina is the team that has won the most Copa America titles by 15 times. Superstar of soccer, Cristiano and Messi, will play in the Qatar World Cup in the team of Portugal and Argentina, respectively, which is the main reason the two fan tokens are especially favored. On top of that, teams associated with $PSG are full of stars, such as Mbappe in France, Messi in Argentina and Neymar Jr. in Brazil. It is not just for $PSG: Pogba is with $JUV and Team France, and Griezmann is related to $ATM and Team France. Because there are star players in these teams, more people are likely to be aware. Prices of these fan tokens will also be closely related to the overall result of each tournament: national teams that perform well will bring extra heat to the associated fan token, and those who lose early are more than likely to bring the price down. Plus, the performance of star players can also have influence, to some extent, on price of fan tokens of their clubs or countries.

Fan token may also lose its heat after the end of the World Cup as less concerned; the volume will decrease, and the room for speculation will also decline. Further investment in fan token needs to stick to the development dynamics of the project and the club per se, such as the launch of new merchandise to reward holders of fan tokens, and the mechanism of token burning, which can all be deemed as positive factors. Currently fan tokens are always so attached to the market hype that only by entering of new players can the price of token be sustained.

In addition to the strategies mentioned above, basic information on club/team/star should also be scrutinized in order to find underestimated fan tokens. Some fan tokens of clubs/teams/stars are issued under an agreement with the platform. The contract will specify expiration date, and if the contract is expired, the corresponding fan token will potentially be risky as it is not bound to the club/team anymore. If the fan token is not backed by the underlying entity, or a new fan token is to be issued by the same underlying entity, the original one may become nothing instantly. The status of the underlying entity should also be considered. If the club/team is to be dissolved, in bankruptcy, or in spread of bad news, etc., which will have a significant negative impact on the club/team, the price would also be affected. The reputation of the underlying entity of a fan token should be evaluated along with reasonable anticipations for future development and major events for one to determine the value of the fan token.

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