Sport: Knowing your NFTs in a sporting metaverse

Non-fungible tokens (“NFTs”) are unique digital certificates registered in a blockchain to record ownership of an asset such as imagery, an artwork or a collectible. Their use, in sport, is growing in interest. With commercial opportunity, legal attention has increased, to help secure, protect and exploit rights. Unlike cryptocurrencies such as Bitcoin, which are “fungible” (meaning one Bitcoin is the same as any other Bitcoin), NFTs are unique. Each NFT and associated transactions are indelibly associated with the prior blockchain and transaction data. NFTs are constituted by rights that one owns, with ownership held on a decentralised register (rather than a central authority such as an intellectual property office or land registry). 

NFTs don’t all represent the same rights and – unless stated otherwise – the purchase of an NFT does not include any underlying asset or intellectual property rights. You get solely what you see, which may even be only a copy of a picture. However, when prices are able to reach $69.3 million for NFTs of digital artworks such as “Everydays: The First 5000 Days” by Mike Winkelmann, it is understandable that the term NFT is often incorrectly used to reference the asset itself, rather than the “right to show a photograph of the asset in the metaverse”. Without care, there can often be confusion over is actually acquired. As with “Everydays”, it is often not a transfer of copyright, but the sale/purchase of a token and not the art itself. 

The typical lack of IP rights conveyance was illustrated when Twitter’s co-founder, Jack Dorsey, sold his first-ever tweet as an NFT for $2.9 million on the Valuable platform. Copyright was not transferred. The buyer was not even granted the right to use the tweet itself without permission. Dorsey’s terms of sale allow him to delete tweet or to make additional NFTs from it, regardless of the sale. With hype peaking in 2021, a dropoff has resulted in downward price pressure, but significant interest remains in NFTs as a technically simple way to create a market in the purchase and sale of rights, whatever those rights may be. 

Role in the real world

Current thinking suggests that future NFT success will be dependent on the ability to deliver a real product such as gaming, entertainment tickets, and content and merchandise, making NFTs ripe for the sports and entertainment sector. A successful NFT marketing strategy recently resulted in Nike generating $180 million revenue through NFTs. The metaverse consists essentially of three-dimensional immersive virtual environments. It is predicted that it will be a place where NFTs will be commonly bought and sold in industries such as fashion, property, gaming and sport. Nike’s virtual world, Nikeland, is free to visit but sells products and associated NFTs, allowing the use of clothing and footwear for avatars within the virtual world. Minecraft, the game, illustrates not only how virtual worlds can work (to entertain and to drive digital commerce), but also the value that can be developed (when it was sold for $2.5 billion to Microsoft in 2014). 

NFTs can also be linked to a “real” product outside the metaverse. Ticketing for in-person events, whether on a “single game” or “season” basis, can include data collection, be linked to proof of attendance and enable deeper sports-to-fan interaction. Rights associated with an NFT can be expanded in a smart contract, embedded in the NFT, allowing the execution of certain actions automatically: the onward sale of access passes could be prohibited or made the subject of automatic royalty payments, ensuring any onward sale is not only tracked but monetised. Ticket “touting” could, potentially, face significantly more difficulty in future, allowing sports event organisers greater control, and enhancing fan protections. 

Creative approaches

Failure to observe IP rights can prove problematic. In a recent matter, Italian footballing giants Juventus discovered that the platform Blockeras had minted and advertised NFTs containing Juventus’ trade marks as well as an image of a former player. Injunctive relief was obtained to inhibit infringing activities, despite Blockeras arguing that Juventus’ trade mark rights were limited to a different class of goods than the digital goods Blockeras made and sold. As Juventus engaged in business both online and physically, it was found that there was a likelihood of confusion as to the NFT’s commercial origin due to the fame of the team. The injunction was granted despite Blockeras obtaining authorisation to use the player’s image, thus highlighting the importance of proper due diligence into ownership of each element of an NFT and obtaining appropriate permissions. Sports bodies should look to enforce their IP rights by monitoring NFT marketplaces and enforcing their rights where there has been infringement.

Exploiting commercial IP through NFTs can be through careful licensing and royalties, while using NFTs as a method of business expansion. There is room for creativity. Nike has secured a patent for Cryptokicks, a system that pairs NFTs to a physical shoe that will track authenticity and ownership. The premise of attachment to a physical product is exciting and will provide a new method to enhance the consumer experience, aid anti-counterfeiting (sports merchandising’s foe) and be very useful in the rapidly growing sports memorabilia market. Sports rights holders should therefore look to ensure that trade marks classes are sufficient broad to provide protection and allow movement into further areas for commercial exploitation, in a similar way that fashion houses Gucci and Hermes have moved to include digital platforms for online, digital goods.