A recent report from the UK government's Culture, Media and Sport Committee, with contributions from the University of Liverpool Management School, has raised concerns over the integration and promotion of crypto assets in professional sports, cautioning that it may expose fans to financial risks while possibly tarnishing the reputations of clubs.
The report titled "NFTs and the Blockchain: The Risks to Sport and Culture" highlights the surge in sales in the non-fungible tokens (NFTs) market last year. However, it also raises doubts about the sustained popularity of this emerging technology, casting doubts on legal safeguards for users.
Risk of Financial Detriment Linked to NFTs Unregulated Nature
The report emphasizes that due to the technical, volatile, and largely unregulated nature of NFTs, endorsing such products entails a significant risk of financial detriment to consumers.
Kieran Maguire, a Senior Teacher in Accountancy at the University of Liverpool Management School, who provided supplementary evidence for the report, remarked that in the context of the football industry's interaction with the NFT and digital sector, football clubs accept the monetary gain and then permit platforms like Sorare and Socios to market their products.
Maguire noted that the products themselves were not inherently problematic, but the marketing strategies raised concerns. Hence, education is crucial because many purchasers view these products as investments despite the risk of losing the entirety of their expenditure on these tokens.
NFTs have gained traction as promotional instruments, enabling brands to connect and interact with consumers by offering additional incentives to buyers. In professional sports, NFTs present a fresh revenue stream for athletes, clubs, international teams, and leagues at minimal expense, according to the study.
Nevertheless, while utility tokens grant access to specific privileges like voting in fan polls or gaining entry to ticket ballots, the report underscores the inherent financial risk associated with NFTs due to their price volatility.
Additionally, the Committee received feedback asserting that clubs are falling short on commitments of fan engagement and that NFTs are being marketed as equivalent to genuine club memberships.
'Education Is Essential' on Crypto Assets in Professional Sports
"In the world of sport, clubs are promoting volatile cryptoasset schemes to extract additional money from loyal supporters, often with promises of privileges and perks that fail to materialize. Fan token schemes must not be used as a substitute for meaningful engagement with supporters," Dame Caroline Dinenage MP, Chair of the CMS Committee, said in a press statement.
Maguire added that education "is essential, as too many buyers of these products see them as investments, but there is a real danger people could lose all money they spend on the tokens."
The report suggests a clear recommendation: to categorically exclude fan tokens from any assessment of fan engagement in sports, a directive that extends to the anticipated regulations in football. The findings of the report can be found here.
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