Web3, the metaverse and the business of sport

Last week I attended the SportNxt conference in Melbourne, Australia, where many of the world leaders in sport business convened to debate what the short- and long-term future of sport business might hold. Although Web3 and the metaverse were frequently thrown around as concepts, to many the conceptions remain elusive at best. This is why I decided to dig a bit deeper and attempt to come up with a reasonably clear explanation (of Web3 in particular) of what might be the impact on the business of sport.

Web3 and the metaverse are related but not the same. Web3 is a term used to describe the next generation of the internet, which is being built on blockchain technology. It aims to create a decentralised internet where users have more control over their data and can interact with each other without the need for intermediaries.

The metaverse, on the other hand, is a term used to describe a virtual world that is similar to the real world, but entirely digital. It is a concept that has been popularised by science fiction (the Matrix!) and video games, but it is now becoming a reality with the development of virtual reality (VR) and augmented reality (AR) technologies. The metaverse is a place where people can (increasingly) interact with each other in a virtual space, with their own avatars and digital assets. There are many digital environments (for example in gaming or in regard to online meetings) where embryonic versions of the metaverse are being operated. Last year, for example, I attended a metaverse reunion of my Harvard class of 2017.

While Web3 technologies could be used to power the infrastructure of the metaverse, the two concepts are not the same thing. Web3 is focused on creating a decentralised internet, while the metaverse is focused on creating a virtual world. However, both are part of a broader trend towards digitalisation and decentralisation, and eventually will intersect.

The emergence of Web3 technology has the potential to revolutionise many industries, including the world of sport business. It is blockchain technology that drives the development of Web3. Blockchain technology is a decentralised and distributed digital ledger that records transactions or data in a secure, transparent, and tamper-proof way. The blockchain consists of a network of computers, or nodes, that collectively maintain a shared database of transactions or data. Each block in the blockchain contains a timestamp and a unique code, called a hash, that is based on the data stored in the block and the hash of the previous block in the chain. This creates an unalterable chain of blocks, or a "digital ledger," that can be used to record any type of information, such as financial transactions, medical records, or even voting records.

So how will Web3 change the world of sport business? In regard to fan engagement and monetisation, Web3 will enable fans to interact with their favourite sports teams and athletes in new and exciting ways. Blockchain-based fan tokens and digital collectibles can be used to incentivise fan engagement and loyalty. Fans can use these tokens to participate in polls, contests, and even influence team decisions. This will provide a new revenue stream for sport organisations and a more personalised experience for fans.

Similar principles underpin ticketing and merchandising where Web3 technology can make ticketing and merchandising more secure and efficient. Blockchain-based ticketing systems can prevent fraud and scalping, while also enabling the resale of tickets in a transparent and decentralised manner. Similarly, blockchain-based merchandising systems can ensure the authenticity of products and enable seamless transactions between buyers and sellers.

Now that we see the rise of the super athlete, both in high performance but also in marketing potential through digital and AI infused knowledge systems, Web3 will enable athletes to have more control over their careers and monetise their personal brands. Smart contracts can be used to facilitate contracts between athletes and teams, as well as sponsorships and endorsements. Smart contracts in sports are self-executing digital contracts that enable two or more parties to exchange assets or information in a transparent and secure way without the need for intermediaries. These contracts are also built using blockchain technology, which enables the creation of tamper-proof and immutable records of transactions. For athletes the creation of decentralised marketplaces can also enable them to sell their own merchandise and connect with fans directly.

Data of course, in the digital age, is the new oil. However, data without analytics is just that – data. But Web3 can provide a more transparent and decentralised system for collecting and analysing sports data. Blockchain-based data storage and analysis can prevent data tampering and enable fairer compensation for athletes based on their performance. This can also enable new forms of sports betting and prediction markets.

Then finally, in regard to ownership of elite sport properties, team, media rights and other sport assets, we also need to consider the impact on the governance of sport. This is where Web3 technology can enable a more democratic and decentralised system of ownership and governance in the sports industry. Decentralised autonomous organisations (DAOs) can be used to enable fans and stakeholders to participate in decision-making and profit-sharing. This can lead to a more equitable distribution of power and wealth in the sports industry. DAOs are digital organisations that operate autonomously through smart contracts on a blockchain network. Because DAOs are designed to operate without a central authority or governing body they have the potential to revolutionise the way in which ‘traditional’ federated sport governance models work. Their decision-making process is governed by rules encoded in smart contracts that are executed automatically based on the consensus of their members. In a DAO, the ownership and decision-making power are distributed among its members in the same way that traditional sport organisations work. But in the DAO sport organisation the representatives hold tokens that represent their stake in the organisation. The rules of the DAO are encoded in smart contracts, and these rules dictate how the DAO operates and how decisions are made. Imagine that past IOC or FIFA bid committees for the Olympic Games or FIFA World Cup were operated as a DAO… Where clear bid standards were set in regard to the organisational capability, location and cultural attractiveness and human rights record of potential hosts were set in digital stone… Various countries and cities that now have hosted the Games and the World Cup would not even have come close to become the winning bid organisation.  

This of course, is the utopian version of what a DAO could deliver for sport business. More often than not, the utopian version of the future is firmly offset by the dystopian counterview. And where there are very smart people building the Web3 that will benefit us all, equally smart people are frantically thinking about how Web3 can be used to achieve outcomes that benefit few, but disadvantage many.

Irrespective of the pros and cons, Web3 and the metaverse will change the world in which we live at a scope and pace that has never been witnessed before in human history. And sport business will be at the forefront of it.