Are NFTs likely to become the All Blacks' most significant revenue stream in the next decade? Photo / Photosport
It was only two years ago that sports teams, leagues and international superstars were being told that they could get rich quick if they were early adopters of non-fungible tokens.
There were predictions that sport was going to be at the forefront of a digital revolution that would be akin to a modern-day gold rush, as the revenue opportunities linked to NFTs were, supposedly, almost unimaginable.
For the uninitiated, NFTs are non-interchangeable digital assets that are stored on a blockchain, giving them unique proof of ownership that can be verified and authenticated on whichever platform they are hosted.
The excitement about sport, was that it would be able to produce collectable, digital art – video and audio clips, and images of iconic moments, players and events – that could be traded among fans.
And for a period, the market boomed. The NBA was one of the first major bodies to embrace NFTs and its Top Shot collection – licensed video clips of great moments – made US$700m in sales less than a year after being launched in late 2020.
New Zealand Cricket was another to cash in early when last year it sold its NFT rights for $25m to Dream Sports, while the success of Wimbledon’s Centenary Edition and the NFL’s Arena Club led to major accountancy firm Deloitte to forecast that NFTs would net the US sports market around $2 billion of revenue in 2022.
But for all the optimistic growth projections that were being made at the end of 2021, values collapsed in the second half of 2022.
Some individual items were selling at $200,000 in 2021, but a year later it was estimated that most NBA Top Shots were trading at about 10 per cent of what they were initially bought for and in February 2021, sales hit their peak of US$224 million, but by February this year, they sat at $2.8m.
Confidence in the digital asset industry has been further damaged by the collapse of the cryptocurrency exchange, FTX and Silicon Valley Bank which provided finance for many involved in new technologies, and with the value of NFTs 97 per cent lower than they were a year ago, predictions about what collectable digital art may be worth to the sports industry appear to have been grossly overestimated.
Certainly, the pendulum has swung in the last 18 months to suggest that an increasing number of fans and investment experts believe NFTs are a sham dressed up as an opportunity.
New Zealand Rugby also appeared to be an early sceptic, as NFTs were a notable omission when it identified potential new business streams in 2021 that it would look to develop in partnership with US fund manager Silver Lake.
The national body listed executive coaching ($33.5m), All Blacks clinics ($14.1m), esports ($6.3m), virtual signage ($10.8m), merchandise ($3.4m), e-commerce/social selling ($26.9) and an OTT broadcast platform ($20.4m) as the seven ways it could make $115m of revenue in the next five years.
The fact that NZR has steered clear – other than a $30,000 investment it made in buying 33 NFTs from an online community called World of Women during last year’s World Cup to support the Black Ferns – suggests that it doesn’t believe they will prove to be a viable, long-term source of income.
But it would be more accurate to say that NZR is specifically a collectable, digital art sceptic.
The wider concept of NFTs has significant appeal to the national body and its investment partner Silver Lake.
Both parties can see value in the blockchain technology and the opportunity that proof of ownership and perpetual royalties present, and while collectable art may prove to be a scam in the long run, NFTs linked to loyalty programmes, unique experience and unprecedented access to the athletes might become the single most valuable revenue stream in NZR’s future commercial portfolio.
Of all the new potential areas of business that end up being explored in partnership with Silver Lake, it is possible that NFTs will become the one revenue stream that justifies NZR’s decision to sell an equity stake to the US firm.
Richard Thomas, who is the interim chief executive of New Zealand Rugby Commercial, the entity set up to manage NZR’s commercial growth, agrees that NFTs will become a significant part of the national body’s financial future, but he won’t know how big until they have worked out a sustainable business plan.
“NFTs have a role in our future, but we are not fully developed on it yet,” says Thomas.
“We have been looking at it for a while. We primarily want to approach NFTs from a fan-first perspective, so we think there is a risk that some stuff that has been going on in this overall area has been a money grab and has perhaps put fans a long way down the list of priorities.
“We are keen that whatever we do tries to put fans at the centre. We don’t want to be a flash in the pan. We want to do it properly and we don’t want to create a situation where our fans are on the receiving end of a negative experience. We need to be properly prepared.”
Web2 us vs Web3 us @worldofwomenNFT
— Black Ferns (@BlackFerns) October 7, 2022
Proud to take our first step into a new era & join the World of Women community. In a world first for Women’s sport, we’ll set out to defend the Rugby World Cup with not only NZ behind us, but the entire Galaxy of Women.
Let’s go #BlackF3rns pic.twitter.com/IG8ivb11e4
What also deterred NZR from jumping on the collectable content NFT bandwagon is the complications around ownership of intellectual property.
The NBA is the sole and undisputed owner of its archival, broadcast footage and is therefore able to monetise sales of historic moments relatively easily.
The situation in New Zealand is more complex when it comes to rugby’s archival broadcast footage as it’s not clear who precisely owns it.
Without clarity, it has proven too difficult to agree how revenue should be split between NZR, Sky TV and the athletes, and so, even if there is a rebound in the values of collectable, digital art, this is not an avenue NZR is likely to exploit.
“The first question is why are you doing it and what is the fan getting,” says Thomas.
“The second question is IP. If we are honest it continues to be a challenge to work through. We are trying to understand whose IP is what? How do we protect our IP and given that there might be multiple IP owners in any situation, how do the commercials of that work.
“You might see situations where people try to create new ideas that don’t have some of the IP linkages of the past.”
When NZR does commit to an NFT strategy it will likely be aimed at building fan engagement and rewarding loyalty to the brand, with initiatives sold at a variety of price points to suit all budgets.
Sam Jenkins, who is head of sport at Glorious – the New Zealand-based NFT studio and marketplace that was co-founded by Daniel Carter and won a commission to produce the collectible, digital series for Wimbledon – says: “I could go to NZR tomorrow and say, ‘I could make you $4m with this new product called the starting XV.
“This is a top-tier lifetime NFT membership to the All Blacks. That gets you the best seats in the house for every All Blacks test in perpetuity, you get access to training sessions, to some players, if you want to get your local school a signed jersey, someone at NZR makes that happen.
“You could sell one to 15 for $250,000 each to high net-worth individuals who are massive All Blacks fans or corporates.”
Jenkins says these sorts of exclusive packages could be tailored to fit all budgets, with say 10,000 to 100,000 memberships available at $100 each, which grant the owner discounts to merchandise, better access to test tickets, exclusive video content from players and automatic entry into prize draws.
Jenkins says other ideas that are likely to be developed will be the creation of metaverse properties and proof of attendance protocols.
“If you look at our lives over the last 20 years, we have been moving to a digital life naturally.
“Work has gone from factories to laptops and zooms and friends have gone from your neighbours to your followers and kids play Fortnite instead of actual sports and it is almost as if that has just happened over 20 years.
“I feel like the metaverse is the point in time where your online identity is more important than your real-life identity. The black jersey is one of the most iconic in sport, owning an NFT of that black jersey could be more important than owning it in real life. Each year NZR could release 100 NFT jerseys and you can keep that, wear it in the metaverse, trade it or maybe you burn it and Adidas send you the limited-edition jersey.
“If I am an All Blacks fan and I go to the World Cup final, imagine taking a photo and a few hours later you get a proof of attendance protocol with your photo saying I was here and you had that as a digital memory.”
It’s easy to understand why there are and will continue to be NFT sceptics, given the boom-bust nature of the first wave of collectables.
There’s also a generational divide and the virtual world is a happy and natural place for younger, digital natives and anathema to those who didn’t grow up with a smart phone.
But for early adopters such as Jenkins, there is no doubt that NFTs have the ability to generate NZR a viable and possibly enormous income stream.
“The All Blacks brand is powerful and they will get a call back within an hour from the top platforms in the USA and Europe because everyone knows who the All Blacks are,” says Jenkins.
“NZR don’t need to reinvent the technology they just need to partner with the best platforms and tech teams and work out commercially how they grow the pie and everyone wins.
“There will be a tipping point where it becomes mainstream and I think a little bit of what’s around is now is probably a fad but long to mid-term, I am confident that Web3 is going to be the next internet really.
“By the end of the decade they should be doing more in Web3 revenue than they are doing in sponsorship and broadcast. I just hope they don’t blow it because they could the set game up for the next 30 to 50 years if they get this right.”
ANALYSIS: Revenue rose 7% to $285m, but expenses increased 10% to $304m.