Football has to beware of Crypto-mania

WE’VE ALL seen the advertisement on TV; the honest retired worker, sitting on a 40-year pension pot, exploited by a crooked “advisor” who promised huge returns on his savings. “He took the lot,” says the heartbroken pensioner. 

There are many other examples, such as the whizz-kid trader selling FX derivatives to honest working class people and promising unrealistic returns from what turned out to be a “Ponzi fund”. The buyers didn’t have a clue what they were getting into. It’s hard enough for City professionals immersed in the markets to keep up with the developments and mechanics of modern finance, let alone the earnest folk who drive taxis, install boilers or lay bricks.

The football industry has an insatiable obsession with money and get-rich-quick schemes. Just as clubs and leagues are happy to take money from the gambling industry, which has questionable values, the new snake oil in town is crypto currency. 

For years, financial technology (fintech) has been disrupting the status quo, trying to make banking and other services cheaper, more accessible and, ultimately, more nimble. There have been good and bad aspects of this sea change but the initial noise seems to have subsided. Take it a stage further and you have the creation of new forms of currency. Unregulated, virtual currencies that exist in the clouds. Given the value of these currencies can soar and plummet in a short space of time, they cannot possible be classified as “stable”. And in the age of high regulation and compliance demands, the fact that many products seem to be part of “the Wild West of Crypto”, investors should tread with extreme care.

Football clubs have been hit hard by the pandemic with more than £ 1 billion of losses incurred. They are always looking at new revenue streams and hence, they take money from the gambling sector and find owners from the most dubious corners of the globe. And no matter how many clubs become victims of irresponsible owners with shady back stories, the game doesn’t seem to learn very easily. Like the hapless and trusting investor, clubs will often bite the hand off anyone that promises riches with all the precision of Spielberg’s latex shark.

Clubs and players are lining-up to make friends with the travelling salesperson peddling crypto as the latest wonder elixir. The attraction for a crypto company is obvious; football is a global game, followed by hordes of people with little knowledge of blockchain, Crypto or distributive ledgers. They don’t always understand risk or that the genial salesperson, calling his clients “guys” and other examples of fake bonhomie, is not interested in the punter, selling is the game they are playing. How many people on the Clapham omnibus would understand what a “Decentralised finance trading analysis and advisory technology company” actually does?

Many clubs have already dipped their toes into this somewhat murky world. Issuing instruments like non-fungible tokens (NFTs) is a way for them to raise money without tampering with their corporate model through share issues or the creation of special purpose vehicles. Inter Milan, the Italian champions, have been so entranced they ended a 30-year relationship with Pirelli to put Crypto firm Socios on their famous blue and black shirts.

Barcelona, Juventus, Paris Saint-Germain and Manchester City have all taken the plunge, although City have suspended their partnership with 3Key after discovering that the company had no credible digital presence. Similarly, Barca ended their NFT agreement with Ownix less than a month after announcing the tie-up after so-called Crypto mogul Moshe Hagog, was arrested for alleged fraud and sex crimes.

Supporters groups, naturally, are concerned that fans who “invest” in these products will be the people that get will their fingers burned. Leeds United’s Supporters Trust believes fans will be forced to enter a cryptocurrency eco-system, something they have little, if any, knowledge of. Meanwhile, fan representatives of both West Ham and Arsenal have expressed their disapproval and lack of trust in Crypto tokens.

Yet in the first half of 2021, crypto brands have spent over US$ 100 million on sports sponsorship and 17 of the 20 Premier League clubs have already sealed some form of partnership. Since early 2020, Crypto assets have grown to around US$ 2 trillion. 

When will people learn that when something sounds too good to be true, it often is just that? The financial crisis of 2008-2009 demonstrated that, without due diligence and appropriate regulation, the system can cause ordinary people huge problems. This new form of finance may seem exciting, may be cutting edge, but it largely comes without the assurance of strong policing. The International Monetary Fund has warned of the possibility of financial instability caused by Crypto and there’s a good reasons why compliance professionals are among the most sought-after individuals in financial services these days. Never has the term, caveat emptor been more appropriate. 

Blockchain and football, the next frontier

DURING the 2018 World Cup, TV advertisements started appearing talking about a financial services company using “Blockchain”. Most people scratched their head in bemusement, for the concept of Blockchain has yet to reach the broader general public.

This was a classic case of advertisers of a little-known product taking advantage of TV’s huge captive audience watching the world’s biggest broadcasting event in order to spread a message. It wasn’t exactly effective, for the majority of viewers were probably still no wiser about Blockchain.

Blockchain – the great disruptor

Yet Blockchain has been around for a while and was, initially, seen as a systemic threat to the financial industry. Banks, for example, have been confronted by the rise of financial technology for some years and are only now coming to terms with the way their industry will change, thanks to dynamic and nimble young fintech companies that offer an alternative to traditional banking methods. Blockchain and Distributed Ledger Technology are at the forefront of change, and they’re not confined to financial services – they can also influence the future of football and other spectator sports.

In a nutshell, Blockchain is a growing and highly scalable list of records, called blocks, which are linked using cryptography. These blockchains are widely used by another new technology that promises to transform global commerce, cryptocurrencies. Blockchain is considered to be secure by design, and in an age when cybercrime and corporate security are becoming very real and increasing concerns, this is often seen as a big selling point for the technology. Given the sport’s broad appeal, it is only a matter of time before Blockchain and football become linked.

Furthermore, as big data and directives like the recent Global Data Protection Regulation (GDPR) become firmly embedded in the global economy – including football – Blockchain is very much representative of the new, fast-moving post-financial crisis world. GDPR compels companies within the European Union to better manage records and maintain greater levels of transparency. It also allows consumers the chance to make preferences around their personal data. Anything which produces records and customer information, such as football clubs, can use Blockchain as a method of storage.

Blockchain, a new game

Football, in recent years, has become more and more technical and football data has become a sub-industry of its own. VAR, as used in the World Cup, is a good example of how technology can improve decision-making. Naturally, and as we saw in Russia, fine-tuning needs to be carried out, but VAR is here to stay and in a sport that generates so much money and worldwide spectator interest, surely this is the logical way ahead? Not everyone would agree with that sentiment, but fans will undoubtedly wish for an easier and more seamless user experience at stadiums. Cash, to some extent, can be a hindrance for people.

Industry experts believe the marriage of Blockchain and football can manifest itself in a number of ways, not least in the form of stadium ticketing processes. The use of Blockchain can enable big clubs like Real Madrid and Bayern Munich to keep track of records related to ticket purchases, enabling clubs to better market and target their offerings. At the same time, it will enable consumers to control their data, as promoted by GDPR.

The time when all football stadiums become cashless is probably not so far away. In Austria, FK Austria Wien, who have recently refurbished their home, eradicated the use of hard currency, from ticketing to vending within the stadium. The question is, will new forms of money also become commonplace as part of the game?

Blockchain is the technology that underpins cryptocurrencies and football clubs and big-name players have more than dipped their toes into this emerging asset class. Indeed, the crypto sector appears to have targeted footballers to win their endorsements.

Blockchain, clubs and players

In January 2018, Arsenal signed a sponsorship deal with CashBet, a US cryptocurrency firm. Arsenal were promoting the company’s Initial Coin Offering. Similarly, the London Football Exchange has launched its own cryptocurrency, aimed at building a “fan-driven football community” that permits members to take part in various club and fan experiences.

Top players have identified the opportunity in these new instruments. Lionel Messi signed an endorsement deal to represent SIRIN LABS, a company creating Blockchain-based hardware for the crypto currency. Colombia’s James Rodriguez has also launched his own version, JR10, that can be used to buy James souvenirs.

And as the World Cup was drawing to a close, former Brazilian international Ronaldinho announced he was launching his own crypto-coin, the RSC, built on a Blockchain platform. These examples arguably represent an alternative investment scenario for clubs and players with plenty of liquidity, rather than a passion for new technology, but they do underline that the tech world is eyeing football as a mass market with great potential.

It has, tentatively, now extended to the transfer market. Earlier this year, a small Turkish club, Harunustaspor, became the first to sign a player using Bitcoin. The fee itself wasn’t paid in the cryptocurrency, but a portion of the player’s signing-on fee was delivered in Bitcoin.

Away from cryptocurrency, Blockchain has a significant appeal to the football betting industry. Market watchers see the technology providing a more secure, tamper-proof, betting system that also provides evidence of bet legitimacy. It can also remove monopolies, create peer-to-peer networks, retain anonymity and move free of government involvement. It’s not all simple, however, for the latter does raise issues over regulation and there have been many concerns over, for instance, cryptocurrency’s lack of regulatory control.

Regulatory questions

Currently, regulators are not totally comfortable with either Blockchain or cryptocurrencies. Hackers have exposed some shortcomings – an illegal crypto gambling ring was uncovered during the World Cup – and governments and regulatory organisations are still uncertain of the best path to follow. A recent G20 meeting failed to reach consensus but later this year, there should be more guidance on the subject. The football industry and the companies that sit on the periphery will be well advised to keep a close eye on developments.

Nevertheless, Blockchain and cryptocurrency are here to stay and will continue to reshape the way business is conducted, the way personal data is managed and how the customer experience evolves. Football, as they say, is nothing without the fans, and it is the game’s future clientbase that will be most affected by new technologies. The key will be to avoid becoming over-fascinated by the technology and to ensure it is harnessed appropriately for the good of football and its customers.

Photo: PA