NFTs and Sports. What of it?
Unbelievable news headlines such as: “Beeple sold an NFT for $69 million”[1] and “Iconic ‘Doge’ meme NFT breaks record, selling for $4 million”[2] have recently put NFTs on the mainstream map; and whilst artworks and memes seem to be stealing the limelight, the sports industry refuses to be left behind.
The NFT-fied version of Andy Murray’s 2013 Wimbledon win and Tyson’ Fury’s ‘Lineal’ NFT were both recently sold via the NFT Marketplace HoDooi, for a colossal price of nearly $1 million for each piece. Not long before that, a Cristiano Ronaldo NFT sold on the fantasy football game, Sorare, for nearly $300,000.
Team GB also took a slice from the sports NFT pie by collaborating with the company Tokns, to release Tokyo 2020 Olympics-inspired NFT collectibles. The collection ranges from Golden Medal Moments to Ben Sherman-partnered digital pins, which are attached to physical versions of the pins, which can then be sent directly to the person who owns the NFT. Additionally, there is currently an Olympic Pop-Up in Carnaby Street in London, where fans can witness artist Ben Mosley document Team GB’s effort via the creation a mural across the walls of 3 Carnaby Street. Once the mural is completed, the final version will be transformed into an NFT, which will then be put up for auction and sold.
Perhaps we might think about the NFT-mania in sports as being all about digital collectibles; but there are other exciting use cases for NFTs in the industry which will revolutionise its future trajectory. For instance, NFT sports tickets provide an innovative solution to ensuring that tickets can be authenticated appropriately when sold on the secondary market — by turning sports tickets into NFTs, this helps to ensure that fans are not purchasing counterfeit tickets, as they would be able to verify their authenticity via the blockchain.
In addition to proof of authenticity, NFTs can also entitle holders to additional perks. For example, a season-ticket holder may be given access to benefits such as VIP seats, discounted rates for merchandise and personally meeting players. The Canadian basketball team, Toronto Raptors recently released an NFT collection, which allows its owners to unlock exclusive perks such as first look access and signed game-worn memorabilia. Nike has also developed a novel way to make use of the technology behind NFTs. The sportswear giant recently created CryptoKicks — a patented method of using NFTs to verify authentic Nike trainers.
Although NFTs have only really made it into mainstream consciousness earlier this year, they’ve been around for some time. CryptoKitties, an Ethereum-based game developed by Dapper Labs, where you can buy, collect, breed and sell digital cats, was released nearly 4 years ago and has amassed a great deal of interest since its inception, with some of these digital cats being sold for millions of dollars. Dapper Labs has further proven its status as an NFT heavyweight by creating yet another widely successful project — NBA Top Shots.
The idea behind NBA Top Shots is the same as CryptoKitties. Fans can purchase, sell and trade NBA official-licensed video highlights of specific sporting moments. The concept is groundbreaking, but it raises an all-important legal question: what does the NFT-holder actually own?
There are several different types of NFTs, and each type transfers rights differently to the other:
1. Original works can be uploaded directly onto the blockchain. In this scenario, the NFT being sold is an actual version of the work.
2. Ownership rights to the work is encoded into the smart contract which governs the NFT ie., proof of ownership is stored on the blockchain, the most prominent example being CryptoPunks by Larva Labs.
3. The NFT itself is not the original work, nor does it have proof of ownership stored on the blockchain. The NFT is metadata which points to the location of the piece of work itself. This is the most common type of NFT, and is the method currently used by Dapper Labs for the NBA Top Shots.
Under UK copyright law, the default position is that an author is generally the owner of the copyright over a piece of work they create. In view of this, there are three main issues when it comes to metadata NFTs. Firstly, the person who sells an NFT may not be the copyright owner of a piece of work which has been minted into an NFT. Secondly, purchasing an NFT gives the purchaser an ownership interest in metadata which points to the copyright-protected content; it does not give the purchaser ownership interest in the content itself. Thirdly, these types of NFT tend to provide a link to content stored elsewhere, and does not remove the risk that the link provided may be invalid or inaccessible.
On top of intellectual property considerations, there are also financial and anti-money laundering regulations to take into account when it comes to NFTs. Notwithstanding the non-fungible aspects of NFTs, the usual regulatory questions still arise, such as: can the NFTs be considered a “security” and what type of activities are the NFT company involved in ie., issuing, selling or marketing tokens, as this will dictate whether that company will be regulated by the Financial Conduct Authority (‘FCA’) in the same way as traditional financial institutions. Additionally, the answer to these questions will determine whether or not a business is subject to Money Laundering Regulations, and therefore required to register with the FCA.
Earlier this year, some of us at CMS wrote a note on what NFTs are, and a brief overview of the legal implications of these tokens — we even went so far as to turn that note into an NFT! If you’d like to get some further insight into how NFTs work both from a technical and legal perspective, you can find our note here: The guide to NFTs — sold as an NFT — CMS UK
[1] Beeple sold an NFT for $69 million — The Verge
[2] Iconic ‘Doge’ meme NFT breaks record, selling for $4 million (nbcnews.com)
