The three-year, $20m sponsorship deal fan token provider Socios has signed with football superstar Lionel Messi is the latest in an already long list of high profile marketing agreements Socios has signed in recent years.
It has done so with the biggest soccer clubs in the world, think PSG, Juventus or Barcelona; and in the US it has deals with major NBA franchises like the Boston Celtics, Chicago Bulls or LA Lakers.
The premise of Socios fan tokens is simple: supporters and fans buy the tokens with the Ethereum-backed Chiliz cryptocurrency and can trade them on the Chiliz exchange.
By owning the tokens supporters are also able to vote on club matters such as the color of their favorite teams’ jerseys, what song plays out in the stadium at half-time or what snacks they can have on the team coach (that last example has not been confirmed, Ed).
Fan tokens are not directly related to gambling, but they are included in a wider narrative about online destinations in which tokens, NFTs, crypto exchanges and even sports merchandise or ticketing are part of the online visions of the future that digital companies are keen to promote.
The model Socios has created is interesting in that it owns the marketplace, the currency and the assets that are being traded in it. And of course it makes money off the volume and trading that happens on the exchange.
Token criticism
But the product has received a ton of criticism: in the mainstream press The Athletic has been very vocal in questioning the company’s model and what the tokens are actually for, while many English football supporters’ groups have forced their clubs to u-turn on sponsorship deals they’d signed with Socios.
For the critics, the tokens are used as investment vehicles and, as with any new investment products, a small portion of their users are making money buying and trading them.
The rest of the users however enter the market without any thoughts about making money, but find that they are left with assets that are nowhere near the value of what they paid for them.
Socios for its part says fan tokens are “utility tokens”, in that they provide some kind of utility, such as being able to vote on what colours your team’s kit might be. To which critics respond by asking: what kind of utility is that and why do you need to buy tokens to vote on such issues?
Financial gains
One of the most important criticisms about fan tokens is that they are used as financial investments and that their biggest users own and trade them solely for financial gain.
This is a notion Socios is keen to dispel and its CEO Alex Dreyfus has repeatedly said they are there only for entertainment purposes.
The reason he says that is because if the tokens were considered to be financial assets, they would be subject to a whole raft of financial regulations, which would imply new costs and oversight and compliance requirements.
But on its website Socios also says: “Once you acquire fan tokens they are yours to keep. But, just like any asset, they can be bought or sold.”
And that, effectively, is what happened when the Lionel Messi transfer to PSG was announced last Summer. As the news approached and rumors flew around the internet, the value of the PSG fan token shot up and was traded frantically. In the following weeks it sank like a stone and is nowhere near those levels now.
As a result, critics ask if that’s not using the tokens as investment vehicles to make financial gains from them, it’s hard to know what else it could be called.
Flush with cash
The other important point is that Socios makes money from the tokens being traded on its exchange and so needs volume and activity. But the nature of sports clubs means there just isn’t enough news or transfer activity to warrant the levels of trading that would create a regular, sustainable marketplace.
And critics point out that if fan tokens are not there to make financial gains, why have an exchange where they can be traded?
Socios and crypto exchanges like Binance, FTX or Crypto.com are flush with cash to sponsor teams, venues or celebrities. The reason they carry out all that marketing is because to make money they need the constant inflow of customers buying and trading cryptocurrencies, tokens or NFTs.
As ever, the worry is that a few early adopters will make lots of money with these new technologies and products, while the rest are left with worthless assets of little utility.
