By James Sangalli is the co-founder of AlphaWallet. He has been a developer in the blockchain space since late 2013, and worked at the largest bank in Australia specializing in delivering blockchain solutions to real problems. At AlphaWallet, he hopes to onboard the masses into crypto by creating a wallet that supports an array of real use cases.
Blockchain tokenization is the process of issuing blockchain-based tokens that represent a right, which can be the owner of real-world or intangible assets. These tokens may represent partial or complete ownership of the asset that can often be easily transferred from one person to another and used on different services.
These tokens can represent practically any right, including the ownership of previously indivisible assets like real estate, patents, works of art, contracts, and more, the process of tokenization unlocks previously illiquid assets and converts them into tokens that can be bought, traded, sold or used by anybody without intermediaries, which highly reduces the market friction and allows limitless integration through tokens.
As you might imagine, this has the potential to disrupt a huge number of industries, since the technique can be used to add liquidity and utility to assets , making them more accessible to everyday investors and 3rd party services, providing exposure to a range of new asset classes.
Of the industries soon to be enhanced through tokenization technology, the college sports industry stands out as one particularly ripe for adoption, due to recent developments surrounding the rights of college athletes.
Athletes Can Tokenize Their Likeness
On October 29, 2019, the National Collegiate Athletic Association (NCAA) board of governors came to a unanimous agreement that college athletes will be able to benefit from the use of their name, image and likeness helping them better position themselves in an increasingly competitive industry.
Now student-athletes will be able to hire agents, sign endorsements and promotional deals, and more.
By allowing young athletes to tokenize their likeness, these high potential individuals can unlock an additional revenue stream for themselves, allowing them to further their career by accessing cost-prohibitive opportunities that help them grow as an athlete. At the same time, this gives avid fans, and both casual and professional investors the opportunity to help drive their success further through advertising and media campaigns, increasing their odds of being picked up by a professional sports team and landing a lucrative contract.
But the disruptive potential of tokenization also extends much further afield and can impact the development of promising athletes even earlier in their career.
Currently, the professional athletics and sports industries are fraught with hurdles for promising athletes from impoverished backgrounds and less economically developed countries.
For one, many young athletes rely on a scholarship to attend a prestigious university where they can further develop their talents and participate in prominent college sports teams. However, obtaining these scholarships is an incredibly difficult task for those from poor backgrounds, as participating in local athletics events, competitions, as well as other resume building functions, can be cost-prohibitive.
However, if investors had a way to benefit from the future success of these athletes by helping them on their path towards a professional career or participation in a prominent sporting event, then the barrier to entry for promising athletes could be lowered. Tokenization is a way to accomplish exactly this.
Opportunities for Tokenization
In 2019, American professional basketball player Spencer Dinwiddie announced he would be tokenizing part of his contract with the Brooklyn Nets. As part of the arrangement, investors would be given the opportunity to buy shares of Dinwiddie’s contract with the Nets and would earn an annual yield of around 2.5 percent. On the flip side, Dinwiddie would receive a lump sum payment rather than needing to wait months or years for his contract to payout.
Though Dinwiddie’s venture didn’t go exactly according to plan, due in part to a lengthy dispute with the NBA and several delays caused by the U.S. Securities and Exchange Commission, the basketball star manage to sell $1.35 million worth of tokenized contract shares—despite pricing each one at $150,000 a pop.
Although the potential of tokenization has already been demonstrated by professional athletes, the technology can be applied practically anywhere on the sports career ladder, allowing junior and college athletes, as well as rising sports stars, to attract investment. While Dinwiddie may have priced-out many potential investors with a high minimum investment amount, potentially lucrative investment tokens derived from young athletes and junior teams could be priced much lower, and be far more accessible.
The form and function of these tokens could vary considerably, ranging from simple investment tokens that represent the right of a fraction of a sports team or player contract—and the revenue they generate. To tokenized scholarship offerings, advertising rights, and branding. As you might imagine, the revenue generated from these investments early on in an athlete’s career could significantly impact their odds of achieving future success.
As such, tokens linked to up-and-coming sports stars, athletes and teams could become a lucrative investment modality in the future.
This is perhaps best demonstrated when examining rags to riches stories in sports. A wide variety of sports stars with multi-million dollar contracts started off in a difficult situation or came from less economically developed regions, but eventually landed a lucky break or two and got picked up by a high-paying sporting organization.
Take Dagestan for example. Although UFC superstar Khabib Nurmagomedov is perhaps the best-known athlete from the Dagestan region of Russia, the republic of Dagestan is renowned for its combat sports prowess, as a large proportion of Dagestani children and young adults are trained in a variety combat sports—with a particular focus on wrestling and mixed martial arts.
However, though the tiny region has developed some of the world’s top combat sports stars, including Nurmagomedov and unified lightweight boxing champion Artur Beterbiev, there are almost certainly potential superstars that didn’t get the lucky break that most athletes need to set them on the path to success.
This is where tokenized investments come in. By funding high potential athletes in the earliest days of their career, savvy investors with a good eye for talent could stand to turn a significant return on their investment. Think funding the next Tom Brady before he joined the Patriots, or finding and investing in the next pre-Lakers Lebron James!
Those speculating on tokenized player rights, contracts or other sports investments would then simply hold their assets in a blockchain wallet like AlphaWallet or MetaMask, where they can appreciate in value or be transferred from one person to another—without needing to rely on a broker like most traditional equities. This turns a previously illiquid asset class into something that fans and investors can own and trade.
Potential Size of the Market
According to the latest research, the global sports market reached over $488 billion in 2018 and is currently projected to grow at a compound annual growth rate (CAGR) of 5.3% to reach close to $614.1 billion by 2020. The United States constitutes around a third of this number, whereas China, Japan, and Germany are the next three largest players.
As one of the largest sports markets in the world, there is a good chance that the first college athletes to tokenize their likeness and revenue potential will be from the United States. However, the practice could soon spread to other countries with a significant young sporting population, including Portugal, Greece and Thailand.
If even 1% of the global sporting industry switches to a tokenization model, then the overall tokenized sports industry could be worth a staggering $6 billion. To put this into perspective, that’s around six times larger than the rapidly expanding $1 billion esports industry and around a third the size of the fantasy sports market.
Moreover, tokenization could dramatically increase the annual growth rate of collegiate sports, increasing it from the $1 billion industry it is today to a multi-billion dollar industry by making it more accessible, more liquid, and more diverse. This, in turn, will help grow the global sports industry by ensuring the next generation of sports superstars is better funded than ever before.
All-in-all, the college sports, and global sports industries are poised to be disrupted by an influx of capital resulting from the tokenization of practically every facet of the industry. For investors, this represents an opportunity to invest in players with significant upside earnings potential and influence, gaining exposure to an industry set to develop at a rapid pace.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.