The National Football League (NFL) is apparently exploring how it can capitalise on the latest trend in town - non-fungible tokens (NFTs).
A memo has been circulated from the NFL's chief media and business officer and reportedly states that teams should not enter commercial agreements in the digital collectables space on their own without first checking with the league. The league is also apparently exploring the use of blockchain technology in ticketing.
Now most of us are familiar with blockchain, or at least, we've seen the term thrown about for the past couple of years - but we might be less familiar with NFTs.
What are NFTs?
Unfortunately, the question “what are NFTs?” does not naturally lend itself to a pithy summary, but I'll have a go. Broadly, an NFT is a digital token that belongs to the person that purchased it. It allows the holder to demonstrate that it owns the digital certificate of authenticity of an item’s scarcity. Whilst the token is often accompanied by ownership of an original item in which to prove the scarcity, NFTs can be held without ownership of the item itself.
So, to borrow an analogy, you visit the Louvre and take a picture of the Mona Lisa. You now have a new digital image of that artwork, but that image holds no notable value. The gallery didn't create the artwork and doesn't hold the IP in the piece. So why do people come? Because they know they are looking at an authentic piece of one-off original art, and the Louvre can prove that.
In the digital artwork world, the NFT places the holder in the same position as the Louvre. The holder didn't create the digital artwork, they don't hold its IP. But they hold an authenticated unique digital certificate showing their digital artwork is the original (if they acquired it with the NFT). Which means that yes, you can screenshot the image but that is merely the visual representation of the NFT. That screenshot holds no more value than our Paris tourist's scrapbook.
So NFTs don't stop replication, but the owner is validated as holding an authentic token – which is scarce/unique and - through that scarcity - potentially valuable to those that are collectors. That value is ensured through the blockchain NFTs exist on, which enables ownership to always be traced back to the original creator.
If all this has left you scratching your head then I'd direct you to the summary of my colleague Cliff Fluet, who recently opined on NFTs for Music Business Worldwide - “a non-fungible item is something that has unique or irreplaceable value based upon the buyer’s sentiment and/or market dynamics”. So, NFTs might seem unusual, but they are simply the digital evolution of the value we ascribe to scarcity and the manner in which we monetise unique items.
NFL v NFTs
Back to the story.
NFT's have shown their value to digital artists, allowing them to monetise their works for record breaking reward. But they also allow the collecting phenomena that saw Pokémon cards sell for six figure sums to be translated into the digital sphere.
The NBA has been quick to capitalise on this through its "Top Shots" line of digital collectables - which lets fans purchase the NFTs of highlight clips that operate like trading cards. Top Shots has already generated over US$400 million in trading with one moment alone selling for $208,000. Players are also cashing in, with NFL legend Rob Gronkowski selling his own NFT collection for $1.6m.
The NFL is unlikely to be alone in moving into this space, as NFTs provide a new avenue for leveraging and monetising a sport’s profile across a limitless network - a prospect leagues and stakeholders will find hard to resist. But there is an element of protecting interests in the NFL’s approach. The warning to teams not to enter commercial agreements in the NFT space without checking reflects the concerns shared by other rights holders (such as DC Comics).
Those concerns result from the relationship between NFTs and IP. IP does not pass with the purchase of an NFT token – just in the same way you don’t own the IP in Charizard if you were lucky enough to find the shiny in your Pokémon card pack. But the buzz surrounding NFTs means leagues will be concerned that their inaction might be seen as an opportunity by third parties to step in and, in place of the league, capitalise on fans demanding new collectable content. There is then, a fear amongst rightsholders that their IP might feature on tradeable NFTs without their permission. Which, in the fast moving digital world, could cause a considerable commercial and legal headache.
Proactive management is, therefore, key. Leagues need to remain in control to ensure they protect their IP and their slice of the NFT profits pie. It pays to get in front of these things, as the NBA has shown. Pro-activity also helps avoid the inevitable damage control resulting from managing stakeholders and third parties who didn’t patiently wait for guidance.
The “measured and deliberate approach” referred to in the NFL’s memo reflects the complexity of the issues and the importance placed on finding the right strategy. It could also be a nod to reservations that might be playing on leagues' minds. NFTs are still met with scepticism by some, with critics raising concerns of a bubble market.
Nonetheless, whilst stakeholders may ponder NFT's lasting legacy it appears that there is, in the short term at least, value in the opportunity - and some fun to be had.
‘We believe there is considerable opportunity in the space that can benefit all clubs through both direct and indirect economics by leveraging our platform at the national level.’