NFTs—What Are They and How Are Sports Involved?

NFTs—What Are They and How Are Sports Involved?

Digital trading cards have burst onto the scene as part of the cryptocurrency craze of the past year, but how can brands take advantage of the virtual phenomenon? Our team explains.

WHAT IS AN NFT?

You may have heard in the news recently about a LeBron James video highlight selling for $200,000 or the New York Times selling one of their columns for $560,000 and the abbreviated term “NFT” attached to the end of the headline. No, this is not a typo. Each of those digital assets did sell for that amount and the term NFT is continuing to become more a part of the mainstream lexicon.

You may have heard in the news recently about a LeBron James video highlight selling for $200,000 or the New York Times selling one of their columns for $560,000 and the abbreviated term “NFT” attached to the end of the headline. No, this is not a typo. Each of those digital assets did sell for that amount and the term NFT is continuing to become more a part of the mainstream lexicon.

NFTs or “non-fungible tokens” as they’re officially known, are unique digital assets that exist on the blockchain (aka crypto currencies like bitcoin). Originally designed to help verify digital art, everything from trading cards to real estate to individual tweets are being sold now using the same platform.

The popularity of NFTs has skyrocketed in recent months, in line with the continued rise of cryptocurrencies in general. Many experts look to the pandemic as the reason for the fast rise and many artists and collectors see it as an opportunity to make some easy money.

“With NFT sales almost doubling from all of 2020 to the first quarter of 2021, more artists and collectors are seeing this as an opportunity to connect fans with their favorite celebrity or athlete,” says Mike Humlan, Account Manager at TSMGI. “It will be interesting to see how that affects the licensed merchandise industry, as purchase motivations could be interchangeable with either product.”

SPORTS AND NFTS

Sports leagues were some of the first to jump on the NFT train as properties began to find a link between the ever-valuable trading card and the idea of digital collectables. Still in beta mode, NBA Top Shot has been a first mover when it comes to sports and NFTs. A joint venture that began in July of 2019 between the NBA, NBAPA, and Dapper Labs, NBA Top Shot arguably brought NFTs into the mainstream. Now, daily news is breaking of other teams, leagues, brands, and players launching their own NFTs, wanting to get in on the hype.

“The market has expanded rapidly from early February when the LeBron James NFT sale turned heads,” says Matt Dlugie, Account Manager at TSMGI. “Now, the NFL, MLB, NASCAR, and others are trying to get in the on the action.”

While many are still flocking to the market, a buyer beware message should be associated with any transaction.

“NFTs are only as valuable as what someone is willing to pay for it,” says Dlugie. “We’ve already seen the NBA Top Shot market drop 70% since its peak in February-March.

With more people getting involved, the market is saturated and needs time to settle out to determine what’s valuable and what isn’t.”

GETTING INVOLVED IN THE MARKET

Though the industry has quickly gained a following, that shouldn’t deter anyone who has access to Intellectual Property from getting involved. For sports teams, athletes, and sponsors, it’s a perfect opportunity to enter a new and emerging market with little risk.

Just as trading cards were an easy adopter to the digital space, we’re starting to see NASCAR enter the NFT space through their highly collectible hero card program. Prior to the April Talladega race, 23XI Racing driver Bubba Wallace launched a limited amount of NFTs of what was ultimately the digital version of his hero card from that weekend.

“The great thing about the NFT market is that as long as you have something worth collecting, you can theoretically make money,” says Dlugie. “As long as you’re able to produce the content and market it, there’s platforms like Dapper and Fanaply that can help with the transactions.”

Within the NFT market, it’s important to remember that demand ultimately decides how successful your launch is.

“Just like with any marketing campaign, you need to make sure you have a marketing strategy behind an NFT launch,” says Dlugie. “Even if you’re wanting to launch an NFT for free to build brand awareness, the success is ultimately driven by whatever marketing plan is already in place.”

THE FUTURE OF NFTS

The NFT industry will continue to evolve as the industry matures. An early mover in the digital currency space, Dallas Mavericks owner Mark Cuban has discussed using NFTs as a way of ticketing, hoping it will help the team make royalties when the tickets hit the secondary market. According to Dlugie, the sports industry will likely see NFTs used for a variety of means as properties like the Mavericks look for new ways to bring in revenue.

With that being said, it is unlikely NFTs will become a mainstream form of currency in the future. A lot is still unknown about the space, including the longer-term security of the products.

Humlan points out that “security will play a larger role this year and beyond. NFT theft is a real threat, and in order for this marketplace to thrive, consumers will need to feel like their investments can be just as secure as their physical collectibles at home under lock and key.”

The amount of energy that is needed to produce the product is also a major concern. Like Bitcoin, NFTs are counterproductive to the world’s shift toward becoming carbon neutral, which ultimately could be the biggest hurdle for the industry to overcome.

For the foreseeable future though the NFT market is here to stay and TSMGI is working with many clients to find ways to bring a unique twist to the digital collectables.

By Matt Dlugie