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Messari: Why will 2022 be the year of SPORTS NFT?

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Sports NFT, an intersection of sports cards and fantasy sports, will be a huge gateway for onlookers into the cryptocurrency ecosystem.

The Next Great Crypto Onboarding Event: Sports NFTs

Tom Dunleavy, Messari

Captain Hiro, the Way of DeFi

Main points:

1. Sports NFT is the intersection of sports cards and fantasy sports.

2. There is a $30 billion market opportunity for existing fantasy/sports card players.

3. Sports NFT offers an exciting value proposition for fans and teams compared to traditional systems.

4. Compared to traditional cryptocurrencies, existing platforms offer users much easier access and open up possibilities for hundreds of millions of users.

5. Top Shot and Sorare are early movers, but NFL All Day and FanCraze (cricket) are joining the game and will further accelerate the growth of the industry.

6. Deloitte estimates that $2 billion in revenue will come from sports NFT this year alone.

Anyone who has entered the cryptocurrency space knows that operating in its current form can be a messy experience, with users often having to jump through hoops for hours to actually complete a set of operations.

You have to buy your cryptocurrency on a trading platform, download and set up a wallet, send the cryptocurrency to that wallet, find a market or trading platform to trade on, complete a transaction, and track it on a local block explorer. Oh, and now you want to join another currency ecosystem? Good. You'll have to do it all over again.

For these complex reasons, only 300 million people (or < 4% of the world's population) uses cryptocurrencies. If the industry wants more people to adopt it, it must: 1) offer a compelling value proposition; 2) Make cryptocurrencies easier to understand, or abstract out of the back end, so that users can use them easily and easily.

Sports NFT does both of these things well.

The team has a large number of passionate fans who are willing to spend time and money for their team. Sports NFT provides a profitable avenue for fan interest in a player or team. The emerging sports NFT platform focuses on making the hands-on experience as simple as a few clicks. So how big is this opportunity for the cryptocurrency space, and what impact will it have?

01. Market opportunity

For decades, fans have used trade cards to further their involvement with their favorite teams and invest in their on-court idols. When fans buy rookie cards, it means they have a vested interest in the player's performance over the next decade. Trading cards give fans some financial benefit in the game.

Sports card collecting was popular for most of the 20th century, but interest stalled as the supply of cards increased, card producers dispersed and interest moved more online. However, starting in the third quarter of 2020, sports Cards staged a dramatic comeback, underscoring fans' interest in re-engaging.

Source: PWCC, Top 100 Card Index

Individual cards of players like Tom Brady and Michael Jordan have sold for $2 million or more. Today, sports cards are an estimated $14 billion industry growing at more than 20 percent a year.

With the rise of the Internet, fans have found more ways to fuel their enthusiasm for participation. Fantasy sports were born when programs were designed to allow fans to recruit players to form their own teams, which would compete against their friends based on their players' on-court performance.

Today, fantasy sports is a $22 billion market, growing 9.5 percent a year. There are more than 60 million players in the United States and Canada alone, and they are concentrated in baseball and football. Outside the United States, more than 100 million people play fantasy cricket and 8 million play fantasy football.

The advent of daily fantasy sports has further increased user adoption and intensity. DraftKings alone has 2 million monthly active users (up about 25 percent from a year ago) who each spend nearly $100 a month. That's $2.4 billion a year.

Sports NFT is the intersection of trade cards and fantasy sports. This new market for traceable addresses has brought hundreds of millions of participating users, who spend tens of billions of dollars a year.

02. How do blockchain and NFT combine

Sports NFT is a tradable collectible on the blockchain. Because they are on the blockchain, their scarcity is demonstrable. The most popular model allows users to obtain player cards either through the market or by purchasing "packs," in which each pack is randomly assigned three to five cards.

These cards can then be held, betting on future appreciation, or used in games or challenges to win rewards. Cards have different rarity values depending on how many exist. The rarer it is, the more valuable it is, or the more useful it is in the game. NBA Top Shot (basketball) and Sorare (football) are by far the most popular platforms.

These sports NFT platforms look and feel more like eBay than Uniswap. Yes, you operate these platforms on a blockchain, but it's very simple and silky to operate. "Over time, we can teach you, we can get you into the cryptocurrency space," said The head of platform products at NBA Top Shot.

But if I put the rigmarole of crypto in front of you from the start, we're going to lose it." Users don't have to worry about wallets or mnemonics, they can forget about gas, and the only thing they have to worry about is their credit card charges. Moreover, hackers don't exist on these platforms. Sports NFT greatly simplifies the user's hands-on experience, and users only need to worry about sports.

By far the most popular platform for users and sales is NBA Top Shot. NBA Top Shot was created by Dapper Labs, creator of the famous NFT project CryptoKitties, and launched in the summer of 2020. Dapper has built their own blockchain, called Flow, which supports not only Top Shot but a growing number of other gaming networks including NFL All Day, La Liga, UFC Strike and Cricket's FanCraze.

While Sorare typically provides a card for each player, Dapper's product has "Moments" from a team or player's specific game. These are short video highlights of the players. For example, there can be multiple Tom Brady highlights per season. This introduces an interesting supply and demand dynamic. Should there be a moment for every game? Once a week? Once a season? Dapper is still studying supply and demand dynamics and has even introduced a destruction mechanism to help eliminate some supply.

Source: Top Shot, Sorare

Sports The fantasy sports side of NFT is still in its early stages. Sorare has weekly games where players can use their cards to form teams and earn points based on how well their players perform on the court. Real prizes are awarded to the winners of these competitions. NBA Top Shot promises a similar fantasy gaming experience, but has yet to deliver. Third-party websites and even DAOs have sprung up to try to fill the void.

Until now, Top Shot Moments have only been useful for nightly "challenges". In order to complete these challenges, the dream player must have moments in which the relevant player achieved a specific goal that night. As a result of completing these challenges, more "moments" are rewarded.

For example, if you have the moment of the top five players with the most rebounds of the night, you get a reward. Cricket, NFL, UFC and La Liga products are just coming out, but there are indications that the fantasy sports side will be the most important.

03. Fan value proposition

More participatory

Sports NFT offers fans a new way to experience the game. They can be actively involved in their success in buying players. Traditionally, fans only care about their home team. Sports betting, sports cards and fantasy sports push the focus from hometown teams to any team or player you're interested in. Fans now have more reasons to actively support teams or players on the other side of the country or the world.

Fans can also connect directly with their favorite players, who are also playing virtual games with them. Many players are also avid collectors. They even talk about it on the court. Rudy Gobert recently dunked on Josh Hart and was heard on the microphone saying, "This is going to be a good Top Shot moment." There is no word on whether Hart, an avid Top Shot collector, agrees with the idea.

Profit opportunity

Entry prices for cards start at a few dollars and go up to six figures. Players have the opportunity to get rare cards through the packaging system, which levels the playing field for everyone. Players can purchase unknown rookie cards that they think have potential. Or, if they think Cristiano Ronaldo is having a good game this week, they can go out and buy his cards, let him join their Solari team and hope to win some cash. Sports NFT is like a player stock market. The value of different cards changes from day to day, based on a player's performance and opportunities on the field.

Real utility

Sports NFT can have great crossover value in the real world. Have all the Toronto Raptors' NFT on Top Shot? Maybe you were airdropped some tickets for an upcoming game. Go into the Chiefs stadium and watch a game while you get Patrick Mahomes all day? Maybe you'll get a free greeting gift after the game. This is the next evolution of fandom: verifiable fandom.

Eight of the SUNS 'most recent Top Shot moments have been invited to the NBA Finals, and eight more have been invited to the 2021 NBA draft. Thanks to their Top Shot collection, fans are able to interact directly with the players. You probably didn't bring your lebron James rookie card to the game, but you did use your phone to show the moment you had him.

Source: NBA Top Shot Twitter

Source: Top Shot, Sorare

There is no offseason

Star quarterback Russell Wilson was recently traded to the Denver Broncos. Speculators liked the foothold and immediately started buying his NFL All Day moment, sending its price up 25%. The price of player cards on his new team has also doubled. Even when players are not on the court, there is no off-season.

More secure than a physical card

We've all heard the stories of people who owned a Mickey Mentor rookie card or a rare Pokemon card, but their parents got rid of it along with other "toys." Sports NFT has avoided similar accidents. All major sports NFT platforms require phone and email addresses to ensure you're never locked out of your account. While this sacrifices decentralization, most users are currently more interested in the sporting aspects of NFT than in the economic principles of cryptocurrencies.

Supply is observable

There is a huge problem with printed sports cards, which are in oversupply. In the 1990s, multiple vendors had the right to print cards for each union and saturated the market. Suppliers scramble for cash by printing as many cards as they can. On the other hand, sports NFTS themselves are scarce, as they are licensed to the official suppliers of each league. Dapper controls those licenses in the NBA, NFL, UFC, La Liga and other leagues.

Even the single-supplier model has supply issues; The NBA Top Shot faces a backlash in 2021 as the number of "mints" for its new moments increases from 1,000 to 60,000 per highlight moment. Since they had complete control over this variable, Dapper was able to quickly adjust and implement "destruction" and trading mechanisms that reduced supply.

04. Market turning point

Sorare and Top Shot only existed for a few years. Their spread is measured, with limited marketing to date. So far the adoption of Sorare and Top Shot has been organic, so the overall adoption has been fairly slow and steady. Top Shot's initial popularity was largely due to speculation, but overall, the two oldest platforms have appreciated at a gradual rate. Top Shot is still officially in beta.

What gives us confidence that adoption is accelerating now? In short: NFL All Day and FanCraze.

NFL All Day

In North America, the demand for football is limitless. Of the aforementioned 60 million North American fantasy players, 40 million play fantasy football. Fantasy football is four times as popular as fantasy basketball. So if Top Shot has over 1 million users, based on these trends, NFL All Day should have over 4 million users.

Most of these fans earn far more than the average American wage. This group spends more than the average consumer on everything from meals to clothing. This group is willing to spend their disposable income on their passions. As it turns out, NFL All Day has been no different in its short history.

The NFL All Day Marketplace launched in late February. Despite being in a limited closed beta, it sold as many copies in a month as Sorare did in its 22nd month and Top Shot did in its seventh month. About half of NFL All Day users currently registered on the platform have made a purchase in the marketplace in the past month.

That's five times more active than the NBA's Top Shot users. Monthly Unique buyers are already close to the best month SoRare has had in its three-year history. For those unfamiliar with the NFL, it's the off-season for football, which makes these numbers all the more impressive.

Given the engagement in closed beta, and the overall popularity of fantasy football, NFL All Day seems like a good bet as we approach the 2022 season with tens of thousands of users joining the platform.

FanCraze

While the STORY of NFL All Day is nearly complete, thanks to football fan fervor, the story of FanCraze is still in the making; But its user base remains solid.

FanCraze is the largest cricket governing body in the world - it is also an official NFT partner of the International Cricket Board. The FanCraze market was launched in January and has seen some seemingly strong trading volumes. While there is currently no public aggregation of statistics, blockchain data shows us that about one transaction takes place every minute: that's the maximum on the network today. Multiple NFT moments have been sold for five figures.

FanCraze recently raised $100 million in their Series A funding round, which should spur further investment. The Series A round follows A $17.4 million seed round led by Tiger Global Management in 2021. The opportunity to extend existing dream platforms to NFT is also attracting capital. Popular platform Dream 11 is investing in cricket NFT platform Rario. FTX is in talks with the MOBILE Premier League (MPL) to launch the platform.

If only a fraction of the 100 million fantasy cricket players decide to explore FanCraze and these other platforms, we could see a lot of new users joining the cryptocurrency space.

05. Investment opportunities

Token investment

Sorare runs on Ethereum. So unless you're a venture capitalist, you don't have direct access to the platform. Dapper's products run on the Flow blockchain, which gives users access to all the products in its ecosystem. Flow Token had an impressive rally in 2021 as Top Shot warmed up, but its Token price also dropped sharply as the ecosystem stabilized.

Source: Messari. IO

Flow's supply plan certainly didn't help the price, as about 300 million tokens, or about 30% of the fully diluted supply, were unlocked in the second half of the year. With another 250 million + tokens unlocked, 2022 looks like another tough year.

Source: Messari. IO

Still, the activity on Flow is impressive. At some points, the platform had more users than the Ethereum network.

IO Cryptoslam. IO, Volume on March 22, 2022

Moment/card investing

The single biggest way to profit from traditional sports cards, fantasy sports, or sports NFT is to find and own the best players before everyone else catches up. A simple way to invest in sports NFT is to buy starting cards/moments (similar to "rookie" cards for sports cards) of high-potential players each year and hold them.

If the market follows the trend of Top Shot, we can also see the opportunity to rise in individual moments. Top Shot has released different "series" of moments. For example, the first moment is series 1, the later moments are series 2, series 3, and so on. The cheapest Series 1 Top Shot Regular (least rare) moment is currently $22, and the cheapest Series 1 NFL All Day moment is $4.

NFL All Day has about twice as many moments in series 1 as Top Shot. If you control for supply variables, an All Day moment seems like a pretty good cheap option. On FanCraze, the cheapest moment is around $6, suggesting that the supply will be similar to NBA Top Shot series 1. A simple buy-and-hold strategy for these early moments can yield some simple dividends.

More advanced strategies include buying and selling around major performances, trades, or other inflection points in a player's career. If collectors want to move further into more speculative sports careers, they can now even invest in college players through NFTU.

Player sponsored NFT

Players are excited about the new attention and revenue opportunities they're getting through sports NFT, but they're not just apathetic about letting these actions take place through the league. Stars are rolling out their own proprietary NFT. NBA greats like lebron James and Zion Williamson have sold NFT for six-figure sums each. NFL stars Patrick Mahomes and Rob Gronkowski have sold millions of suits. Tiger Woods is also in on the action. Tom Brady has set up a company called Autograph to enable players to easily launch their own NFT. Autograph raised $170 million in a Series B round.

Source: Front Office Sports

Site support

A vast army of websites has emerged that analyse each ecosystem. They also provide insights into underrated or overrated cards and strategies around fantasy aspects. OwnTheMoment, MomentRanks, and TheFirstMint All cover Top Shot and All Day, while SorareHub and SorareScout are popular places for Sorare fans. By investing in one of these sites, or even building your own, there may be an opportunity to generate revenue. Users with less money can write articles or do analysis for these sites for less money.

6. Summary

Sports NFT will be a huge gateway for onlookers into the cryptocurrency ecosystem. The beta version of Top Shot alone has attracted millions of users and generated nearly $1 billion in sales. As marketing increases, these products will become more mature and more users will come in from the sidelines. NBA Top Shot is where Dapper first tested their ability to introduce many innovations into newer products, and many of the early problems in the system seem to have been ironed out.

Football and cricket have larger and more fervent fan bases and should incite further adoption of Top Shot and Sorare. UFC, MLB, La Liga and other major sports leagues that are entering the ecosystem should drive more marginal growth. Deloitte estimates we'll see $2 billion in revenue from sports NFT this year alone.

Trading cards make sense to the average person, fantasy sports make sense to the average person. Sports NFT is the next logical extension.

There was 1CO in 2017, DeFi in 2020, but 2022 will be the year of sports NFT.