20.07.2022

Crypto and NFTs in Football Finance

Non-payment insurance continues to play a large role in the facilitation of bank funding to football leagues and clubs across Europe and with Texel’s in-house expertise, we have executed regulatory capital compliant insurance policies covering a number of different structures including player transfer receivables, media rights receivables, and senior term loan and revolving credit facilities.

Over the past three years, crypto and non-fungible tokens (NFTs) have become a prevalent feature in the football finance world, with leagues and clubs capitalising on sponsorship deals, digital investments, and fan engagement in this space. The huge sums of money and opportunity in this sector are factors which the football industry can’t ignore, and crypto/NFT deals seem to be filling an integral €9bn hole in loss revenues during football’s post-Covid economic recovery.

There are increasing examples of lucrative crypto partnerships and NFT initiatives across the world. Crypto-backed tradeable fan token platform, Socios, has raised over $200m for the football economy with 34 club partnerships including Man City, Juventus and Barcelona. Messi’s signing-on fee when joining PSG was partly paid in a cryptocurrency called $PSG. More than $3bn has been traded on the $PSG token since, generating an estimated $30m in commission for the club. Galatasaray, after a successful 2-week marketing campaign, became the first Turkish club to launch a NFT collection focussing on the historical moments of the club. The launch sold out in 59 seconds, earning the club €185,000.

Whilst the opportunity in crypto and NFT builds, it is building in a deregulated, decentralised and highly volatile environment which is prone to its challenges and fraud. Along with the success stories, there are already many examples of failing partnerships in this space. Norwich FC axed a £5m sponsorship deal with BK8, a crypto online casino, after just 3 days following a revolt by fans over the company’s sexualised marketing campaigns. Barcelona cancelled their marketing deal with Ownix, a NFT marketplace, 5 days before they were scheduled to auction their first NFT collection as the platform was linked to Israeli businessman, Moshe Hogeg, who was recently arrested for crypto fraud. Man City’s partnership with 3Key, a crypto trading start-up, lasted one week as the company turned out to have no online presence, contact details, registered office or company number.

So what does the future hold for crypto and NFT deals in football finance?

The demand for crypto/NFT firms to enter the football world will remain so long as regulation and market conditions allow. The crypto/NFT markets contain a lot of value, and stakeholders need to navigate these waters carefully and do proper due diligence on these deals to maximise longevity and profit in this area. If sponsorship deals and NFT issuances are conducted the right way and with the right structure and strategy behind them, they will continue to be a revenue earner and key source of digital engagement for leagues and clubs around the world.

The entire purpose of the crypto market however comes from it being deregulated and decentralised, which in turn will continue to bring uncertainty for investors. James Morrell, Underwriter at HDI Global Specialty, commented that the continued volatility “makes the credit risk of these assets, and the kind of firms who use them as a revenue model, extremely difficult to quantify so the benefit for anyone financing or insuring football transactions are non-existent at present”. He further commented that “there may well be a future in crypto, but until it is rationalised and properly understood then I wouldn’t personally put any underwriting merit next to a fan token or a firm whose business model relies on the continued success of this asset class”. Crypto/NFT controversies and the current crypto crash may end up having a positive effect in the form of tighter regulation, and we are seeing the Treasury, Advertising Standards Authority and Financial Conduct Authority taking on bigger roles in this space in the UK. But until this happens to positive avail and there is wider education and understanding on the topic, this huge technological revolution may never be able to fulfil its full potential.