LET'S TALK SPORTS LAW

[Authors: Ria Mishra, Associate at DSK Legal & Co-founder at SLRI; Nishtha Parmar, Student of Law at Symbiosis Law School, Noida]

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Abstract

Have you ever wanted to own a piece of your favourite team or a memorable esports event? Blockchain is enabling it to happen! This ground-breaking technology is transforming the sports and esports industry by providing a transparent and safe means for fans to engage with their passions. Blockchain promises to revolutionise the fan experience with array of use cases, such as its ability to verify digital assets and simplify ticketing processes. This blog post will explore how blockchain technology is set to redefine the future of traditional sports and the rapidly growing world of esports by enabling new ownership options, engagement opportunities, and revenue sources.

Blockchain Technology in Traditional Sports

Blockchain technology is quickly becoming popular in the sports industry as a safe way to share and store data. This approach has several significant benefits. First, the security and immutability of sensitive information, such as athlete contracts, performance measurements, and ticket sales, are ensured by blockchain’s decentralised ledgers, to start. This removes the possibility of deception and manipulation by making data accessible and verifiable by all the parties involved. Using blockchain technology in sports data management, entities may enhance stakeholder confidence and protect the confidentiality of information exchanged within the sector. Second, blockchain facilitates sports memorabilia authentication, which promotes transparency and confidence among collectors and enthusiasts. These intriguing uses serve as a reminder of the growing enthusiasm around blockchain’s potential to revolutionise the sports industry by increasing efficiency and accountability in various areas. Nonetheless, more research and development is necessary to completely implement blockchain technologies and maximise their influence on the sports industry.

Blockchain Technology in Esports

Esports is on the verge of a data and transaction revolution fuelled by blockchain technology, for instance by enabling verifiable ownership of in-game assets, which would pave the way for new forms of digital economies and collectibles within esports ecosystem. This approach boasts two key advantages:

• Enhanced Security and Increased Accessibility. Smart contracts, being self-executing, have the potential to automate various processes in esports, including player transfers, prize distributions, and sponsorships. These automated transactions guarantee clarity and tamper-proof security. Additionally, blockchain can provide a decentralised platform for verifying player statistics and data, fostering fair play by deterring cheating and fostering trust among stakeholders.

• Enhanced Engagement. Beyond streamlined operations, blockchain empowers fans through tokenization. This allows fans to own and trade virtual assets, such as in-game items, apparel, or even esports team shares. Interestingly, tokens are also being leveraged to enable fans to gain voting rights and participate in decision making! This innovative strategy adopts deeper fan engagement while creating new revenue streams for organizations and players alike.

Use Cases of Blockchain in the Sports Industry

Let’s dive a bit deeper on how exactly is blockchain making waves in the sports industry – and what are the real world benefits that a transition from traditional processes to a blockchain-driven approach guarantees.

1. Athletes’ Data Management

Athletic performance data acts as a critical benchmark, reflecting an athlete’s competitive standing. This data fuels crucial decisions- influencing recruitment, sponsorship opportunities, and government funding. It also plays a vital role in crafting personalized training plans, preventing injuries, and even predicting athletic outcomes. However, the current system of storing this information in centralized databases poses significant challenges. These systems are vulnerable to a single point of failure, data manipulation, and a lack of accountability and auditability.

Blockchain technology, with its core principles of decentralization and immutability, combined with Artificial Intelligence (AI), emerges as a promising alternative for securing athlete performance data and developing personalized training programs. This distributed ledger system offers a tamper-proof and transparent platform, lodging reliability in the data.

Stakeholders who will benefit: Sportspersons and Data Management Companies.

2. Ticketing and Event Management

Blockchain technology is revolutionizing sports ticketing by offering a trifecta of benefits: enhanced security, transparency, and efficiency. The sale of each ticket is recorded as a transaction on the blockchain network, eliminating the possibility of tampering, and guaranteeing authenticity. This also helps eliminate counterfeit tickets, since, given that such tickets don’t have a corresponding transaction to validate them. This system also provides real-time tracking of ticket sales and transfers, which provides complete responsibility and eradicates issues like scalping (which may result in price manipulation) and fraud.

The adoption of smart contracts can automate tasks, enabling instant ticket transfers and validations, and streamlining the experience for fans. Additionally, smart contracts can handle conditional executions, ensuring automated refunds for cancelled events.

For fans, this translates to a more secure and convenient ticketing experience. Event organizers and teams benefit from greater control over ticket distribution and pricing, eliminating black market resale and ensuring fair fan pricing.

Stakeholders who will benefit: Sports Organisations and Fans.

3. Tracing Fan Engagement and Creating Loyalty Programs

Fan tokens have become a game-changer for sports franchises, offering a double win: increased revenue and deeper fan engagement. These digital tokens, purchasable with traditional currencies, unlock a treasure trove of exclusive experiences for fans. Imagine owning a piece of your favourite team and using it to score VIP meet-and-greets, limited-edition merchandise, or even a vote in minor club decisions. Fan tokens bridge the geographical gap, creating a stronger connection between international supporters and their teams or favourite players. Every interaction on the platform, from purchasing merchandise and tickets to engaging with the team on social media and attending community events, is securely recorded on the blockchain. This creates a tamper-proof history of fan activity.

By participating, fans accumulate points stored securely in their digital wallets. These points can be redeemed for a variety of rewards, from exclusive behind-the-scenes content and merchandise discounts to VIP game experiences or even meet-and-greets with players.

Stakeholders who will benefit: Sports Teams/ Clubs and Fans.

4. Collectibles and Memorabilia

The realm of sports collectibles is another area where blockchain shines. Non-Fungible Tokens, or NFTs, have emerged as a ground-breaking tool for creating one-of-a-kind digital assets. These can be anything from player cards to iconic game highlights or even virtual memorabilia. Built on the secure foundation of blockchain, NFTs can be bought, sold, and traded on dedicated platforms. This technology empowers fans to own demonstrably authentic digital collectibles, deepening their connection to the sport and raising a vibrant trading community. Furthermore, NFTs present a lucrative opportunity for sports organizations to tap into new revenue streams by offering exclusive digital content or experiences.

Stakeholders who will benefit: Sportspersons, Sports Teams/ Clubs and Fans.

5. Anti-Doping Measures

Beyond fan engagement, ticketing and all things commercial, blockchain technology can be leveraged for its potential to safeguard the integrity of sports. By leveraging the tamper-proof nature of blockchain, anti-doping efforts can be significantly bolstered – this would translate to drug testing results and other critical data being securely recorded on an immutable ledger, which promotes trust in the competition. At present, World Anti-Doping Agency (WADA) exercises unfettered control over anti-doping governance and decision making. Adopting a decentralised blockchain-driven ecosystem in anti-doping has the potential to eliminate corrupt practices and establish efficient and reliable processes.

Stakeholders who will benefit: Sportspersons and Regulatory Bodies.

Case studies

• Forget traditional memorabilia – make way for NFTs. NBA Top Shot lets fans own a piece of the action. Launched by the NBA and Dapper Labs, this platform utilizes blockchain technology to create and sell unique digital collectibles called “Moments.” These Moments are video clips of iconic NBA plays, secured on the blockchain as Non-Fungible Tokens (NFTs). Each NFT guarantees authenticity and rarity, allowing fans to own a digital piece of NBA history. This innovative approach has opened a new revenue stream for the NBA and has given rise to a passionate community of fans and collectors.

• Fan engagement is no longer a one-way street. Chiliz and Socios.com empower fans through fan tokens. Partnering with prestigious sports organizations like FC Barcelona, Manchester City, and Juventus, Chiliz allows these teams to issue their Fan Tokens on the Chiliz blockchain. Fans can purchase these tokens to participate in exclusive polls that influence team decisions, receive rewards for their engagement, and potentially even score VIP experiences. This fosters a deeper connection between fans and their favourite teams, while simultaneously creating a new revenue stream for sports organizations.

• Where the world of esports meets blockchain technology. Crypto Gaming Guilds are perfect examples of how blockchain technology can transform the e-sports industry, by making it both more lucrative as well as accessible. Gaming Guilds, generally structured as DAOs, are decentralized platforms where different stakeholders share resources to participate in the games. The goal? To eliminate the barrier to entry that is generally associated with play-to-win games. This is made possible through renting/ loaning of in-game assets to new players by the guild, through ‘scholarship programs’. The rented/ loaned in-game assets help new players perform better and earn through the game, and in turn share their earnings. In Yield Guild Games, the new player receives 70%, Yield Guild Games receives 10%, and the scholarship manager receives 20% of the earnings of the new player under the reward-sharing scholarship programs.

Challenges and Barriers

1. Infrastructure And Scalability

Current blockchain implementations struggle to handle high transaction volumes, making processing speed and associated costs major obstacles. Mainstream adoption in an industry like sports, that caters to not only a large community of professionals but an even larger community of amateurs, needs strong and scalable blockchain infrastructure. Fortunately, this is an active field of study, with academics looking at interesting possibilities like layer-2 scaling protocols.

2. Navigating The Legal Landscape

The legal and regulatory landscape for blockchain is continually evolving, with regulators often being wary of crypto-driven industries. This ambiguity, coupled with stringent laws, if any, often dissuade sports organizations from incorporating the technology. Clear and well-defined laws are critical for increasing confidence and encouraging widespread adoption in the sports business. For instance, in India- NFTs are treated as virtual digital assets (VDAs) as per Section 2(47A) the Income Tax Act, 1961 and attract income tax at the rate of thirty percent on income generated through the transfer of such VDAs.

3. Innovation and Sustainability in Balance

Environmental concerns have been highlighted by certain blockchain network’s energy usage, particularly those that rely on proof-of-work processes. It is crucial to recognize the emergence of substitute, more long-lasting procedures, such as proof-of-stake. Energy-efficient blockchain solutions will be essential for long-term adoption in the sports business, which places a high priority on environmental conscience. A leading example of the conscious transition towards sustainable blockchain solutions is The Merge by Ethereum – a shift from proof-of-work to proof-of-stake mechanisms.

Conclusion

With technology already playing a crucial role in sports, it is no doubt that blockchain solutions have a bright future in sports. As laws adapt and technology progresses, more investment in blockchain solutions is due, for stakeholders to capitalize on this game-changing technology. This may open new avenues for the sports and e-sports businesses, pushing the limits of player performance monitoring, training regimens, and fan interaction. There is no doubt that laws follow innovation – while technology is advancing rapidly, laws will have to play catch-up to address the gaps that might otherwise arise. Blockchain has already found its place in various government initiatives regarding land records, blood banks, remote voting, spear-headed by the Centre of Excellence in Blockchain Technology, Ministry of Electronics and Information Technology. While a surge of innovation that will transform the sports sector, and generate new opportunities for players, spectators, and stakeholders alike, is around the corner, it will be interesting to see how regulators rise to the occasion.

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[For feedback, query, or discussion, feel free to reach out to the Authors at rm@sportslawreviewindia.com & nishtha.parmar@symlaw.edu.in]

*NOTE- The opinions and views expressed in this article are that of the Author(s) and not of SLRI- the expressed opinions do not, in any way whatsoever, reflect the views of any third party, including any institution/organisation that the Author(s) is/are currently associated to or was/were associated to in the past. Furthermore, the expressions are solely for informational and educational purposes, and must not be deemed to constitute any kind of advice. The hyperlinks in this blog might take you to webpages operated by third parties- SLRI does not guarantee or endorse the accuracy or reliability of any information, data, opinions, advice, statements, etc. on these webpages.

PREFERRED CITATION: Ria Mishra & Nishtha Parmar, “Blockchain in Sports: Revolutionizing the Game”, SLRI, available at: <https://sportslawreviewindia.blog/2024/07/24/blockchain-in-sports-revolutionizing-the-game/> 24 July 2024.