Tokenization Use Cases: Fan Tokens and Music Rights

Blockchain technology holds the promise of transforming a variety of sectors and industries as the concept of combining native currencies and assets with the internet is the foundation of the emerging Web3 world. 

Along with giving individuals greater control over their finances, blockchain and Web3 are positioned to start cutting out the middlemen and fee-takers that exist across popular multiple subsets of the economy, including finance, social media, and engaging with your favorite sports team or musician. 

One subset of the crypto ecosystem that has already started to transform the legacy system into the future of sports is Fan tokens, which are digital assets created by sports teams, clubs, or brands to increase fan engagement and create new revenue streams.

Here’s a closer look at Fan tokens and how they are set to disrupt the multi-billion dollar sporting and music industries and give fans a way to get involved with the day-to-day operations of their favorite brands, teams, players, and artists.  

As mentioned in the intro, Fan tokens are digital assets hosted on blockchain networks that are created by sports teams, clubs, brands, athletes, or artists to increase fan engagement and create new revenue streams. 

Once purchased and held in a personal digital wallet, ownership of fan tokens offers certain privileges, including access to exclusive content or merchandise, voting rights, and potential rewards. 

Some of their other capabilities include providing holders with a way to engage with their favorite teams or artists, buy priority tickets, and even vote on club decisions, such as choosing a new slogan, or jersey design.

As opposed to non-fungible tokens (NFTs) which represent one specific, unique item, fan tokens are fungible, meaning that each fan token is equal in every way to another token of the same type, just as one BTC is equal to another BTC. 

Fan tokens are rapidly being recognized as a new way to connect fans with their favorite teams and as such, are becoming increasingly popular in the sports industry.

Up until recently, the ability for fans to interact with sports entities like teams, players, leagues, and clubs was largely passive or required things like camping out overnight in order to have a chance to engage with your favorite team or player. 

The extent of most people’s engagement typically involves buying tickets and merchandise, with the teams and players benefiting financially, creating a one-sided ecosystem.

That is all set to change with the advent of fan tokens, a unique form of cryptocurrency tailored to offer membership advantages to dedicated followers of sports teams, musical bands, and various other communities.

For the first time, fans now have an opportunity to play a role, albeit sometimes minor and non-binding, in shaping the future of their beloved sports team or musician. They also allow holders to engage in speculative ventures within the Web3 market, adding an additional layer of excitement to their investment.

Fan tokens are created using blockchain technology, which guarantees a high level of security, transparency, and authenticity.

On the spectrum of cryptocurrency investments, fan tokens primarily fall into the category of utility tokens, serving as digital assets programmed to provide various benefits for fans.

Once a sports club, music brand, or other entity looking to increase fan engagement decides to issue a fan token, they have to decide if they want the tokens to operate on one or many chains, a decision that requires accounting for a variety of factors, including fan familiarity with chain(s) in question and the cost to transact. 

There are a variety of platforms that specialize in issuing fan tokens and determining ownership is as simple as proving you control the wallet that holds a token. 

By showing that they hold one of these tokens, fans gain the ability to participate in decisions such as selecting team jersey designs or choosing songs for concerts, a new form of empowerment that allows fans to actively contribute to certain aspects of their favorite team or band.

Some fan tokens bequeath exclusive benefits such as VIP access to experiences, unique merchandise, meet-and-greets with celebrities, and a range of other exciting perks – similar to well-known loyalty programs at coffee shops and supermarkets, but with a better payout such as a once-in-a-lifetime chance to hang out with your favorite sports star. 

Fan tokens come with a built-in supply limit and can be freely traded on the market, which adds to their potential value for fans while also eliminating certain barriers to entry, like the need for a bank account. 

As with all financial assets, the value of fan tokens is subject to fluctuations influenced by factors such as demand, team performance, and prevailing market conditions.

One of the most noteworthy benefits offered by fan tokens is their ability to help build a supportive and engaged community, serving as a catalyst for increasing engagement and giving holders reason to feel more personally connected with their team, performer, or brand. 

By linking fans worldwide, fan tokens foster a collective sense of belonging and active involvement in the journey of their beloved team or band.

Fan tokens, functioning as utility assets, are instrumental in helping to monetize the fan ecosystem. Teams can leverage these tokens to introduce innovative revenue streams, potentially providing a significant capital infusion upon their initial sale.

Some of the more recent applications of fan token technology include the tokenization of contracts and revenue streams such as royalties. 

Tokenized sport contracts 

Tokenized sports contracts refer to the digitization of athlete agreements using blockchain technology. This innovative approach involves converting traditional contracts into digital tokens, creating a decentralized and transparent system.

In the ever-evolving landscape of athlete compensation, which includes things fixed salaries and performance-based incentives, tokenized contracts introduce a new dimension that intertwines financial strategies with athlete agreements.

Financial models, once confined to the business side of sports, are now directly impacting athletes’ earnings and financial well-being, and tokenized contracts put some of the control back in the hands of players while also providing them with a unique way to engage with fans. 

Through the tokenization of a sports contract, athletes now have a secure and transparent method of receiving compensation without extended waiting periods, and tokens can represent a share of an athlete’s future earnings, enabling fans and investors to participate in are reap the benefits of a players physical and financial success.

As opposed to traditional contracts, tokenized contracts offer athletes dynamic and customizable structures, allowing them to tailor compensation plans to their unique needs. Beyond fixed salaries, athletes can benefit from increased financial flexibility, revenue-sharing models, fan engagement bonuses, access to a global pool of investors, and the potential for increased earnings as the value of their tokens rises.

It’s important to note that while the adoption of tokenized contracts brings numerous benefits, challenges exist. Some issues that still need careful consideration include security concerns, regulatory complexities, and ethical considerations. 

• Security concerns – The digital nature of tokenized contracts raises concerns about security, including the integrity and safety of an athlete's financial data in a tokenized environment.
• Regulatory complexity - Navigating the regulatory landscape is crucial for the widespread adoption of tokenized sports contracts. An examination of current regulations and potential future developments provides insights into the industry’s trajectory.

• Ethical considerations - As with any disruptive technology, ethical considerations must be addressed. This includes issues such as transparency, fairness, and the impact on athletes’ well-being.

   

Tokenized royalty payments

The music industry has undergone a significant transformation over the years, largely driven by advancements in technology and the rise of digital content consumption. The arrival of the digital age and the ability to copy and send a file anywhere in the world at the push of a button has led to legal battles and a re-evaluation of royalty payments, a critical aspect of ensuring artists and content creators receive fair compensation for their work. 

Traditionally, royalty payments in the music industry have lacked convenience, efficiency, and are prone to errors, but that is now changing thanks to blockchain technology and tokenization. 

Different types of royalty payments include: 

• Mechanical royalties – Royalties paid to songwriters and music publishers when their compositions are reproduced or recorded, typically generated from the sale and distribution of physical copies (CDs, vinyl) or digital downloads of music.
• Performance royalties – Royalties paid to songwriters composers, and music publishers when their music is performed or broadcast publicly. This includes live performances, radio airplay, television broadcasts, and streaming services.
• Synchronization royalties – Royalties paid to the owners of music copyrights when their songs are synchronized with visual media, such as in films, TV shows, commercials, video games, or online videos. This type of usage requires obtaining a synchronization license.
• Streaming royalties –  Royalties paid based on the number of streams a song receives on various platforms, including Spotify, Apple Music, and YouTube.
• Print music royalties – Royalties paid to composers, lyricists, and music publishers when their sheet music is sold or reproduced in printed form, such as in music books or individual sheet music copies.

The list of challenges the legacy royalty system faces includes complex royalty structures, lack of standardization, data accuracy and tracking, music piracy, royalties from live performances, transparency and accountability, and a lack of accounting for and compensating small artists. 

Through the tokenization of royalties, artists can benefit from: 

• Increased transparency and fair compensation
• Disintermediation and peer-to-peer transactions
• Efficient royalty collection and distribution
• Copyright protection and ownership
• Streamlined music licensing
• Integration with streaming platforms

• Enhanced metadata and tracking

   

Blockchain technology has finally moved out of the realm of speculation to offer solutions to the problems facing our world, such as fair compensation for athletes and artists. 

Through tokenization, sports clubs, athletes, and artists have a new way to directly interact with their fan bases, along with a host of additional benefits, including transparency, fair compensation, disintermediation, streamlined licensing, and enhanced copyright protection

By tokenizing things like sporting contracts and music rights, athletes and artists can regain control over their likeness, financial futures, intellectual property, ensure accurate and timely payments, and establish a more equitable ecosystem.

While the adoption of tokenized contracts and royalties is still in its infancy, it's a field ripe with potential and will undoubtedly be a major theme moving forward as the world progresses towards a decentralized, Web3 world.