European clubs have jumped into crypto with Socios fan tokens. As the fans enjoy and go wild on their favourite team winning, some sing, some drink. Others unlock their phones and blow their hard-earned cash on a faddish cryptocurrency tied to their team’s fortunes.
This has become the new way of fans enjoying and appreciating their favourite teams and players.
Reason for football clubs accepting Socios crypto
Lockdowns struck the football teams catastrophically. The fall in match ticket sales greatly stifled the revenue. European clubs reportedly haemorrhaged €1.1bn in total. As a result, they began to seek out moneyed investors. Over the past few years, clubs have also embraced support from the newly wealthy cryptocurrency industry. This industry has quickly cottoned on to the enormous revenue potential of football’s online fandom.
Socios is among the most prominent of these companies. It has led the way in melding the footballing and crypto industries together, setting off a wave of imitators. The new drive for crypto-sponsorship raises many questions about the potential dangers of sporting organisations. These organizations can be exposed to the patchily regulated crypto markets.
Background on Socios
Socios, which is based in Malta, lets fans purchase blockchain-based tokens tied to specific teams across a broad spectrum. Clubs involved in the programme range from prestige teams like PSG and AS Roma to local unknowns. Owning a token gives fans a say, through a vote, on certain cosmetic aspects of a team. For example how free spaces on the kit are filled, or which songs players sing on winning.
An eerily effective example of this is what fans did during the pandemic. At the pandemic’s height, fans of a Turkish team voted, with their tokens, to install thousands of cardboard cutouts in the home section of its stadium. Each cutout represented a fan who could not make it to the game.
Frenchman Alexandre Dreyfus is a former online gambling tycoon now based in Malta. He founded Socios. Dreyfus says business has boomed over the past year. He gives credit mostly to the pandemic as well as random luck.
We’re not a crypto company that wants to change the world and change the financial industry. We should have failed but we didn’t. We just had the right time to deliver what we had.
Alexandre Dreyfus, founder of Socios
Socios says that since 2019 it has pulled in around €200m in revenue from token sales, which it has shared with around 90 clients. Stadiums across the continent now feature Socios on giant billboards, along with other ascendant crypto-sports companies like DigitalBits. A few months ago, Socios secured a deal with Inter Milan (the token is €INTER), replacing a three-decade-long sponsorship deal with Italian tyre manufacturing behemoth Pirelli.
How does it work?
Socios pays clubs a minimum sum out of pocket as well as a portion of the revenue generated through staggering sales of the Fan Token (converted into euros). Initially, the tokens are sold at a fixed price. After this time period, they go on the market. If the initial sale achieves a bare minimum, Socios reaps profits from the subsequent trading fees and takes a cut from the sales of each token; around 50%. The rest goes to the club (in tokens or cash).
From this point, tokens are released in batches over the course of years until a limit is met, designed to reflect the maximum possible number of fans a given club can have. There are also mechanisms to discourage token hoarding; clubs can choose to limit the number of votes a person has, regardless of the number of tokens they hold.
Why would a team want to do this?
Clubs realised that they needed a new source of digital revenue. For one, it’s a way for a team to raise money without fundamentally altering its corporate structure. By altering corporate structure we mean an equity sale or a SPAC. Dreyfus says the token also gives clubs an international reach and source of revenue. This goes beyond things like merchandise and video content. It is the monetisation of fandom itself.
“There were questions for teams, especially during Covid, which was, ‘How can I engage these fans, what can I offer them, how can I monetise them,” Dreyfus says. “For obvious reasons, match revenue couldn’t really increase, and the space on a jersey limits sponsorship opportunities. Clubs realised that they needed a new source of digital revenue, but people are not always inclined to buy content archives, behind-the-scenes clips. Meanwhile, the nebulous idea of “engagement”, he says, is “scalable globally”, and turns “passive fans into active fans”.
This will pave the way for the new age “participation” in a club. The act of participation is buying a token conferring partial ownership to the club’s victory chant to prove yourself as a genuine fan.
Concerns
Clubs clobbered by coronavirus are in a uniquely vulnerable position. When, in July, Inter Milan agreed to take on Socios as a sponsor, it was recovering from a Covid-inflicted loss of €245.6m, as well as the loss of its longtime sponsor Pirelli. Its Chinese owner, Suning, is caught up in the turmoil around the Chinese property company Evergrande. While Dreyfus stresses that revenue from Socios constitutes a tiny portion of a club’s intake, any new money for these clubs, at the moment, can look like a lifeline. So when they receive an offer from a business in the cash-flush world of cryptocurrency, they might not properly assess or even understand, the risks.
And those risks are not insignificant. Before Socios inked its sponsorship deal, wealthy Inter fans were trying to organise a more substantial version of the collective ownership model that Socios provides an alternative to, hoping to rescue the club from its financial quagmire. One of the organisers, former IMF chief Carlo Cottarelli, raised concerns that the Socios deal would expose fans to the volatility of the crypto markets; the relatively illiquid Fan Token markets are especially prone to wild swings.
For instance, in the space of one year, the Fan Token for PSG increased by 1400%, allowing Lionel Messi to pocket a €5m paycheque.
“If fans are unhappy then they’ll sell their tokens — the market is the market.”
But Dreyfus fears not. Sure, the markets can be volatile, he says, but he believes only seasoned crypto traders would invest heavily. Further, Socios studiously avoids saying that tokens could appreciate in value and is regulated in every jurisdiction it operates in.
It is clear that a considerable amount of money is now flowing from the world of crypto to the world of football, often by means of companies that befuddle the general public. It’s something of a gamble, given that these cash injections come from frequently unregulated and potentially volatile cryptocurrency companies, meaning that clubs and fans effectively take on the risk of the sponsor. And in crypto, that’s a lot of risk.