The pandemic led to the sports and gaming industry witnessing several (older ones grew by leaps and bounds and newer ones gained popularity) alternate sources of revenue, i.e., online fantasy sports, casual and card gaming and esports (or video games, as casually called). This propagated a version of technological evolution that only a few could have imagined. Combine the two, and the race has now stepped into an altogether preposterous territory of decentralized token-based economics vide the block chain technology or as coined, the Web 3.0 Technology.
What is Web 3.0?
To understand Web 3.0, one needs to first understand both, Web 1.0 and Web 2.0. Web 1.0 refers, roughly, to the period between 1991 and 2004, where most websites consisted of static pages, and a vast majority of users were consumers of the content and not the producers. Thereafter, Web 2.0 began around 2004, which was based upon the idea of ‘the web as platform', i.e., uploading of user content through mobile phones, social media handles and cloud webs. Nevertheless, Web 2.0 came with its' own set of issues – when the number of clicks equal revenue, there is no incentive, per se, to tell the truth. The result was clickbait, misinformation, fake news and ad-blockers. The trust issues that developed overtime led to the introduction of the Web 3.0 technology in 2014 – a vision for the next phase of the internet's development that imagines a decentralized ecosystem based on blockchain technology. It gained immense popularity and interest, in 2021, courtesy the cryptocurrency enthusiasts, large technology companies and venture capital firms. While some are of the opinion that Web 3.0 provides increased data security, scalability and privacy for users, others have often raised concerns about the decentralised web, citing the potential for low moderation and the proliferation of harmful content as reasons.1
This new-age concept envisioning a decentralized internet with advanced functionalities, owned by builders and users, has conveniently, amongst other industries, paved its way into the field of sports and gaming. Previously, the industry was perceived in a conservative context, wherein technological advancements usually received a backlash from the stakeholders, thereby attracting minimal investment or hesitance in introducing new technology. However, in the contemporary world, for the unique characteristics that the industry offers – unmatched loyalty, mass market appeal and a high tendency towards marketability, the economic demography of sports and gaming has changed. A large number of brands, sponsors, technology providers or other similar entities, with massive commercial interests, have come to utilise sport and gaming as a medium to leverage data-driven products, thereby resulting in a shift i.e., diverting sports and gaming to the forefront of new technology and data trends. Simply put, the market is using the Web 3.0 technology as a progressive process to extract the economic value from the industry by creating transformational business offerings, viz. providing value for the most significant consumers – fans – via gamification2 or tokenization.
Some of the applications of Web 3.0 include payment methods, smart contracts, digital coins/currency, NFTs (non-fungible tokens) and even video games. By moving away from traditional ways of merely uploading content online, the application concentrates on turning people into more engaged users, i.e., a form of shareholding, by earning tokens on the blockchain system and thus, gaining influence on how things are operated.3 However, this is still egalitarian, as it is only the venture capitalists and the likes, financing such innovation with altruistically emphasizing on sustainability but nonetheless, covered by the capitalist notion of ‘where there is money, there is greed'.
For instance, a16z, a venture capital (VC) fund and one of the biggest champions of the Web 3.0 concept, has over $3B in assets under management in crypto-related portfolio companies.1
What is in it for the stakeholders, other than the likes of VCs.
- Athlete Branding – Athletes increasingly drive commercial and marketing appeal, leveraging their sporting performance and personalities as a bridge to capitalize on their personal brands and expand their own content and product offerings2. Michael Jordan, for instance, recently announced Heir, a blockchain-based social platform where members gain exclusive access to athlete-generated content and merchandise.3
- Digital Collectibles and Fan Engagement – It has been traditional fan behaviour to keep photos, posters and trading cards; now everything is kept online. Fan engagement vide Web 3.0 services is significant for sports rights holders, creating a differentiation aspect, helping gather proprietary data on fans, delivering new products, services, and experiences and hence boosting revenue generation options for the entities4.
- Gamifying Museums – Museums have started gamifying their exhibits bringing together multiple technologies. Sporting entities are currently working with museums to create immersive role-playing game experiences where visitors select characters on an app, before arriving, and are challenged to collect digital memories along their route through the exhibition, which are later rendered into digital collectibles.”5 For instance, Infosys has announced that it is working with the French Tennis Federation to welcome the new era of tech-driven sports viewing and fan engagement – the organizations are beginning their fifth year of partnership in the fields of 3D, AR, VR and AI to power experiences.6 Not only this, mega international level tournaments are being conducted on the metaverse esports museums7.
- Virtual Stadiums – Entities such as football clubs ( Manchester City and Sony) are partnering with digital platforms to build virtual stadiums using the hawk-eye, image analysis and skeletal-tracking technologies. Alternatively, players can manage their clubs and generate income, by earning cryptocurrencies, while playing at virtual stadiums in metaverse.8
Is the world ready for the legal issues brought to the fore thanks to the advent of the Web 3.0 technology?
Although it may be too early to estimate the long-term impact of Web 3.0 on the business of sports and gaming, the current form of it draws attention to several legal concerns:
Licenses – While the users own the token, they only have a license to the digital asset associated with the token and it is the copyright owner who retains the copyright. Hence, while licensing the intellectual property, it is important to understand what can be or not be licensed. Entities selling physical products must revisit their licensing strategies to ensure protection of the digital objects rooting from the physical ones.
- Avataar Issues – Gamifications and museums use avatar based characters, which are highly likely to invite law suits, including those pertaining to image rights and other intellectual property related issues, with brand and third party rights used in avatars through which services are performed in the metaverse.
- Governance, Marketplace and Regulations – Digital marketplaces require customized terms of service depending on the type of marketplace and consideration of and compliance with regulatory issues, especially when there is absence of one in a jurisdiction like India.
- Gambling – It has been observed, in jurisdictions outside India, that several gaming entities have been sued for allegedly engaging in gambling activities due to virtual goods that can be won (with some element of chance) and traded on unauthorized secondary markets. Most have failed because winning items that can only be used in-game (and not convertible to money or other value) typically are not deemed a prize of value. Many of these cases were dismissed, largely because the game companies' terms of service prohibited the sale, transfer, or exchange of the virtual goods (including via secondary markets) and the game companies did not partake in or facilitate secondary markets.1 When these tokens are won, the result may be different since they can be sold on exchanges for a value. With the debate around games of skill and chance in India, coupled with the absence of strict laws around cryptocurrency, the entities must entirely be aware of the grey area they are entering into.
- Virtual advertising – One major source of revenue on the metaverse is through advertising. The entities in the virtual space own or lease the virtual land using the tokens and branded virtual items to promote and market their products and services. Avatar based influencers are employed to further glorify the event, participate in sponsored events and engage in other metaverse activities. Constant checks on the regulatory mechanisms pertaining to advertisements are necessary, especially to the extent of gaming laws in India wherein stakes are involved.
- Privacy and Data Protection – Identity verification and identity theft becomes the primary focal point of entities engaging in businesses in the metaverse, since it offers several anonymity and other security features. The vulnerability in the present version of the technology is such that there will be a constant need for stricter and more transparent privacy standards vis-à-vis the prevailing ones in the pipeline in India, as the cybercriminals will continue to exploit the existing loopholes in the metaverse in the absence of stricter and adequate regulation.
- Technical and Functional Issues – With game controllers, VR gadgets and 1-to-1 motion controls, the sports and gaming industry in the Web 3.0 bay offer a vast array of options to users. However, due to lack of access and literature, it is difficult for the users to keep up with the pace and understand the magic of the technology – leading to gradual loss of interest and financial drop. With such drop, the partnership between the tech-developers and the sellers goes for a toss and thereby, result in several legal and financial challenges restriction in fulfilling guaranteed obligations, payment issues, IP issues, to name a few.
Being at a nascent stage, coming to a conclusion, already, on the legal implications of the Web3 industry is too preliminary and would be based on half-baked information, nevertheless it raises significant questions pertaining to the suitability and application of certain technologies in the realm of sport and gaming, either as sustainable, valuable, and/or ethically sound infrastructure or market offerings. There exists a constant struggle between what some of these technologies really are and what benefits they offer on one hand, and the perceptions and expectations of fans, consumers and IP owners on the other.
With the constant due diligence and misrepresentation-related challenges that Web 3.0 posses, not all commercial deals have found so much early fortune. For instance, both Manchester City and FC Barcelona recently terminated their partnerships with Web 3.0 companies. The industry constantly serves as a reminder of the potential risks of brand association for sports rights holders, as well as the fact that partnerships may require at least some level of authenticity in shared values, understanding, acceptance and participation from fans in order to be successful. Similarly, IQONIQ, a fan engagement platform that had also partnered with multiple sport properties worldwide, recently went into liquidation, leaving IQONIQ's partners stranded and reducing the value of users owning fan tokens to virtually zero.1 Recently, it was also reposted that Nike has filed a lawsuit against online reselling platform StockX in a federal court in New York over unauthorised NFTs. It is alleged by Nike that StockX sells virtual products using Nike's trademarks, without consent, and more than 500 Nike-branded vault NFTs said to have been sold so far.2 Entitling digital assets as passive, Warrant Buffet, stuck to his sceptical stance on cryptocurrency at the Berkshire Hathaway annual shareholder's meeting and stated that these are not productive assets as they do not produce anything tangible. Another investor, Mr. Charlie Munger, went on to state that “in my life, I try and avoid things that are stupid and evil and make me look bad in comparison to somebody else – and bitcoin does all three”.3
While it is indeed a risky move, as a forward step, Web 3.0 enables several openings not only for fan-watching, but also for fan-experiencing – which alone attracts positivity, motivation and a large share of revenue for all the stakeholders involved – a probable win-win for all.
1 Harbinja, Edina; Karagiannopoulos, Vasileios (March 11, 2019). “Web 3.0: the decentralised web promises to make the internet free again”. The Conversation. Retrieved November 9, 2021.
2 principle of applying game elements to non-game-related activities
1 Available at: https://a16z.com/crypto/#vertical-landing-investment-thesis
2 Available at: https://kennethcortsen.com/nba-lebron-james-global-branding-basketball/
3 Available at: https://www.sportspromedia.com/news/michael-jordan-jeffrey-heir-blockchain-technology/
4 Available at: https://www.sportbusiness.com/2021/08/cutting-through-the-noise-why-sports-need-to-own-the-fan-engagement-journey/
5 Available at: https://www.beyondgames.biz/22142/museums-move-to-the-metaverse/
6 Available at: https://www.businessworld.in/article/Infosys-and-Roland-Garros-Push-For-Innovation-In-Technology-Driven-Sports-Viewing-And-Fan-Engagement/01-06-2022-430882/
7 Available at: https://www.superpixel.com/article/81722/rng-hosted-their-msi-competition-metaverse-e-sports-museum-lantern-dao
8 Available at: https://www.outlookindia.com/business/manchester-city-barcelona-among-four-football-clubs-enter-metaverse-to-engage-fans-news-188120
1 Available at: https://www.natlawreview.com/article/are-you-ready-web30-and-legal-issues-it-will-bring
1 Available at: Iqoniq liquidation fuels calls for regulation on crypto sports sponsorships – SportsPro (sportspromedia.com)
2 Available at: https://www.retail-insight-network.com/news/nike-stockx-lawsuit/
3 Available at: https://www.cnbc.com/2022/04/30/warren-buffett-gives-his-most-expansive-explanation-for-why-he-doesnt-believe-in-bitcoin.html
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