Globally, fan tokens have amassed a total market capitalisation of almost $360m, according to recent research from cryptocurrency news outlet Bankless Times.
The online journal’s analysis notes that football club Paris-Saint Germain has the highest-valued fan token at $51m, while similar offerings from Manchester City and FC Barcelona are the closest runners-up, at $38.5m and $29m respectively.
Indeed, fan tokens have become such a force in football that John Terry included them as part of his recent consortium-driven bid for Chelsea FC, after the club was shaken loose of its Russian ownership amid the dawn of the war in Ukraine.
In Terry’s vision for the club, fan tokens available to supporters, players and current and former staff would grant them access not only to a set of exclusive experiences and preferential merchandise options, but voting rights in select corporate decisions.
Make no mistake: fan tokens are on the rise. But what exactly are they?
An FAQ from Socios – a blockchain-enabled platform that provides crypto solutions to a host of different sports clubs and teams – defines fan tokens as “a finite digital asset minted in limited numbers with ownership logged in a secure ledger”, with the rewards and perks they offer acting as gateways to “an inner circle of superfans”.
It is here that we arrive at one of the key reasons why fan tokens have caught on: they distil, crystallise and intensify the fan experience, creating a notional upper tier that feels just that little bit closer to the mystique of the locker room, or – in the case of Terry’s proposal – the boardroom. You may wear your team shirt with pride every game day… but is your passion really up there with the inside track of the token-wielding hardcore?
However, all of this begs a couple of questions: given the evident revenue and marketing potential, why should fan tokens remain the exclusive preserve of sports corporations? Couldn’t any type of company get in on the action?
One business that has taken a keen interest in fan tokens is New Delhi-based TMT Law Practice – which, in March, published a detailed overview of the market from a legal perspective.
In TMT’s view, it is important to consider fan tokens within the broader context of ‘utility tokens’: crypto products that are designated with certain specific use cases by the companies that issue them.
Speaking to The Treasurer, TMT says that utility tokens provide – inter alia – the following combination of uses and advantages:
“Contemporarily,” the firm says, “fan tokens are associated primarily with the sports industry. However, other industries – such as media and entertainment – are already exploring opportunities to make use of them.”
For example, it points out: “Mogul – a decentralised film-financing platform – is offering a fan engagement token called STARS that offers users creative influence on its films and insider access to the film industry. STARS tokens are redeemable for bespoke rewards, such as limited-edition or one-of-a-kind movie posters, rare non-fungible tokens (NFTs), and actual props and set-used memorabilia from film productions.”
In TMT’s assessment, other industries that may benefit from exploring opportunities in the fan tokens market include:
Paul Rogash is CEO of BetU – an ecosystem of firms that facilitate crypto-based betting in the world of esports. As someone whose business straddles the most technology-fuelled corner of the sports market and the crypto sector, Rogash has been keeping a watchful eye on the booming trade in fan tokens.
Asked to what extent they could work in industries outside sport, he says: “It all depends on what a business wants to use fan tokens for – and what arrangements it has made to control volatility. For example, it wouldn’t make much business sense for a gym brand to offer a membership token that fluctuates to thousands of dollars in value if its original asking price was just $10. On the other hand, a social club for high-net-worth individuals could attract attention if high-value entry tokens become a means of showing your wealth.”
Overall, though, Rogash notes: “I do see a lot of applications for these offerings in any business that operates within a membership framework. Instead of issuing store cards, a retail chain could provide its most loyal customers with its own version of a fan token.
“And look at the airline industry – ‘fan flier’ tokens could replace traditional frequent-flier miles. Some air-mile packages already enable fliers to convert their miles into goods at particular retail brands. But our hypothetical ‘fan fliers’ could enable passengers to swap them into another cryptocurrency, such as Bitcoin, or into a stablecoin – or even into fiat.”
Company image, however, should be a key factor in any firm’s decision-making around whether or not to issue a fan token. “There’s a business I recently considered investing in that I thought would be a great fit for a token product,” Rogash says. “But because it was a traditional, goodwill-oriented business, it was concerned that as soon as it mentioned crypto to its network, it would change people’s perceptions of the brand and how it operates. So, there are concerns among some brands that an association with crypto could be damaging.”
Rogash cites cryptoassets’ tendency to undergo wild fluctuations as a critical factor behind why some businesses may consider fan tokens an image threat.
With that in mind, he notes: “An issuing brand could pin the value of their token to something else – for example, let’s say a retailer issues a fan token as part of a reward scheme, and it commits to pinning that offering to the value of the dollar. The onus is then on the retailer to ensure it honours that value going forward.”
However, for Rogash, the most significant risk management effort that any issuing company must undertake is around cybersecurity.
“In terms of how firms decide to store their tokens supply,” he says, “that’s number one. Unfortunately, hackers are operating all the time in this space, and they’re making so much money that they’re not going away anytime soon.”
He warns: “Discord and Telegram are extremely popular in crypto – but some cyberthieves are so accomplished that they could launch a copy of, say, a firm’s Discord channel, invite all the members of the official channel in and ask them to put down a deposit.
“So, those users will end up saying, ‘Here’s the brand that’s launched that token I was trying to invest in, and now I’ve been ripped off.’ It’s inevitable that a brand’s reputation would suffer enormously as a result – and any trust and goodwill it had accumulated would be hard to win back.”
In TMT Law Practice's view, any business that is planning to launch a fan token must make a careful assessment of where the offering stands in relation to these points:
Matt Packer is a freelance business, finance and leadership journalist
