>"Digitally native ecosystems will experience the most immediate synergies with cryptonetworks. In the sports industry, this means crypto will first intersect with the esports world and – the physically adjacent – fantasy sports industry. While the peak culmination of esports and cryptonetworks waits for improvements in emerging technology and 5G connectivity, blockchain-based fantasy sports are poised for consumer adoption. Macro Outlook: Crypto and Fantasy Sports At a macro level, the climate for fantasy sports is primed for aggressive growth. The drastic reduction of viewership revenues due to COVID-19 has catalyzed the digital acceleration of sports as large organizations are now rapidly searching for new and additional revenue streams. According to PWC’s 2020 sports survey, of existing revenue streams, betting and fantasy sports display the greatest potential for growth with an expected growth rate of 7.2% over the next 3-5 years. Licensing and merchandising come in second with a 3.4% expected growth rate over the same time period. U.S betting markets have grown immensely since the lift of the federal ban in 2018, with the biggest beneficiaries being DraftKings and FanDuel (acquired by Flutter Entertainment). The expansion of sports betting will likely also grow the market for fantasy sports since 75% of sports bettors also played fantasy sports in 2018. With expectations that large indoor in-person audiences won’t be possible until at least 2022 (potentially later) organizations will be forced to consider new ways to increase revenues from fans amidst flat ticket sales. When it comes to new revenue streams, PWC’s survey ranked enhanced fan experience and the creation and monetization of digital assets as the top two potential areas for growth, respectively. Fan Engagement Blockchain-based games and applications present unique opportunities for increasing engagement by enabling more robust experiences and incentivized participation. The holy grail of improving fan engagement in sports lies in the creation of fan profiles (blockchain identities) that can track engagement across touchpoints. Non-fungible tokens also possess the potential to be distributed for various occasions. Finally, Chiliz Fan tokens already provide a glimpse into what the future of fan engagement holds. Chiliz partners with sports franchises like the UFC and FC Barcelona to offer exclusive events as well as enables fans to vote on franchise-specific proposals such as which players will start in an exhibition match. Digital Ownership and Monetization Digital ownership is the foundational component for the future of digital value creation. A key premise of digital ownership is trust. Generally, speaking blockchains like Ethereum offer a high level of trust (users own their assets) in exchange for a poor user experience (if you lose your assets, they’re gone). However, user trust in blockchain-based fantasy sports can also be instilled from brand partnerships, which establish a level of credibility with fans who are not crypto native. All of the top fantasy games listed have semi-exclusive or exclusive partnerships with sports organizations and leagues. The Big Three Crypto Fantasy Sports Blockchain-based fantasy games operate by selling NFTs – akin to digital trading cards – that accrue in-game value based on how real professionals perform. The entities running fantasy games typically have semi-exclusive partnerships with sports teams that enable NFTs based on individual players. Of the top three blockchain fantasy sports games by sales total volume, NBA Top Shot leads the pack followed by Sorare and MLB Champions. The latter two games– Sorare and MLB Champions – are built on Ethereum while NBA Top Shot is built on the Flow blockchain. Although NBA Top Shots has not launched its fantasy feature, the NBA-licensed collectibles game has achieved $4.4m in non-fungible token sales. When examining peer-to-peer sales – excludes platform to person sales – Sorare leads its fantasy sports competitors demonstrating its robust secondary market. Although, it’s worth noting that NBA Top Shot recently launched in Oct and it’s secondary sales total ~$1.4m in only a few months. Sorare: Fantasy Football (Soccer) Football is by and large the most popular sport in the world with an estimated four billion fans. Sorare manages a global fantasy football (soccer) league where anyone can build a team and compete in one of three fantasy leagues: Global League – a worldwide fantasy football (soccer) competition Regional Leagues – competitions split up between the Americas, Europe, Asia, etc. Under 23 League – global competition with professional players under the age of 21 Users are able to collect and build their own fantasy teams that earn fantasy points based on respective players in real league matches. Top fantasy teams in each competitive league are eligible for prizes in ether or new Sorare cards. Sorare currently maintains licensing deals with four leagues and over 100 individual football clubs, some of which are exclusive partnerships. For context on the total addressable market, EA Sports – the game studio behind FIFA – holds licensing deals with 30 official leagues, 700 teams, 90 stadiums, and over 17,000 players. On-chain NFT analytics platform Nonfungible reports total Sorare platform sales of over $4 million. According to Sorare, the platform has 45,000 registered users, of which over 2200 are paying users meaning they have purchased Sorare cards. Note, the graph only displays users since Sorare's migration onto Ethereum Mainnet in May 2020. More granularly, according to SorareData 605 individuals own over 25 cards while 380 users hold over 50 Sorare cards. Moreover, Sorare has made some notable user experience improvements since it’s beta launch in December of 2019. Sorare acts as a semi-custodial platform where users can purchase cards – via a Stripe integration – without creating a wallet. The only on-chain transactions occur when individual NFTs are transfered to different users. Additionally, Sorare subsidizes user gas fees - a move that has been very expensive over the past few months. Originally built on Loom, Sorare migrated off the dead sidechain back onto Ethereum in May. While the Sorare team continues to monitor existing layer 2 protocols, they aren’t set on migrating off of Ethereum until a robust solution is found. The costs associated with migrating off of Ethereum to a layer 2 – and back onto Ethereum if the sidechain fails is – an opportunity cost that many development teams will reckon with over the coming months. MLB Champions: Fantasy Baseball MLB Champions offers digital trading cards representing individual Major League Baseball players that can be used to participate in fantasy competitions to earn prizes. Each MLB Champions game is tied to a live professional MLB game. Players – represented by NFTS – accrue stats in real-time like traditional fantasy games. The fantasy team that performs the best, wins the competition. MLB Champions has two in-game currencies, Caps which are earned by playing and Diamonds that can be purchased. Like traditional fantasy sports, each MLB Champions season starts with a draft and issuance of new NFTs for each player. Just as in Sorare, if a player retires, the NFT based baseball cards become collector’s items without in-game value. To date, MLB Champions cumulative sales exceed $1.5 million, with over 60,000 cards sold for an average price of $16. Fantasy games might end up requiring a balance between free and pay to play games. Since multiple cards are required to create a team across fantasy sports competitions, the base costs to create a team lies within a few hundred dollars, potentially more than $1,000 to be competitive. The sports industry undoubtedly has thousands of fans that will happily spend money on NFTs, especially if prizes like tickets, player meetups, or other experiences are offered for the winners. Fantasy sports are truly a global enterprise and continue to expand. MLB Champions developer Lucid Sight recently partnered with Animoca Brands to license MLB Champions in the Asian markets, on which Japan, Korea, and Taiwan have growing baseball industries. NBA Top Shot: Fantasy Basketball NBA Top Shot, a basketball fantasy game developed by Dapper Labs and built on top of the Flow blockchain currently holds the title for most sales of a crypto fantasy sports game. NBA Top Shot has experienced a surge of trading with peer-to-peer sales of $736,766 in the past 30 days, up 82% from the previous 30 days. NBA Top Shot packs of NFTs that represent various “moments” – short videos and individual plays – from basketball games, including the 2020 Western Conference Finals. Moments holders are currently collectors items, however, NBA Top Shot is developing “Hardcourt”, a competition where collectors will be able to use their moment non-fungible tokens in competitions against other collectors. Various NBA players have also invested in Flow, in part because of the relationship with NBA Top Shot. It’s possible that the strong connections with prominent players will catalyze growth of the basketball game compared to other similar fantasy sports that don’t share such strong connections with existing players. Trading Cards Historical Investment Performance The crypto fantasy sports NFT (e.g. trading card) market is relatively new and without much historical data, so instead let’s consider the potential ROI in the context of the legacy trading card market. The PWCC 100 index, comprised of the top 100 trading cards by highest average market value outperformed the S&P 500 since 2008. However, that’s only comparing the top performing sports trading cards most of which have accrued significant collectors value over the years. The PWCC 2500 index – representing the 2,500 cards with the highest average market value – tells a much different story. Over the same time period, the PWCC 2500 index underperformed the S&P 500 by 3%. As an asset class, trading cards appear uncorrelated with the stock market and avoided significant drawdowns or upswings with the market. Investors that follow modern portfolio theory optimize for diversification and risk of losses by adding uncorrelated assets to their portfolios. To this end, adding NFTs to one’s portfolio presents an opportunity to optimize the expected return against a certain level of risk. The PWCC index is predominantly comprised of American dominant-sports like baseball, basketball, American football, and hockey. Still, as a comparison to global football (soccer) the PWCC still has some merit, but is certainly most useful as a comparison for NBA Top Shot and MLB Champions. But, traditional trading cards and crypto fantasy sports NFTs have one notable difference – utility. NBA Top Shot, Sorare, and other fantasy sports games maintain fantasy utility value until a player retires, at which point the cards become purely a collectible and akin to the cards in the PWCC index. So trading cards with in-game value should outperform the pure collector’s items over a comparable time period. As an asset class, crypto fantasy sports NFTs may also offer some level of diversification from the volatility of the stock market. Like most NFTs, the asymmetric returns will be found in the highest valued (utility value + collectors value) NFTs which start at higher price points. Fortunately, unlike art, sports enthusiasts can more easily predict which fantasy sports NFTs possess the potential to amass significant value since they’re essentially representative of the underlying professional athlete. Fantasy sports is poised to be an area of growth in the foreseeable future. As a whole, the industry presents one of the most promising applications that can bring millions of non-crypto native users into the crypto ecosystem. Finally, sports organizations are increasingly open to expanding the use of their brands for innovative experiments that will bring in revenue. The trend of leveraging brands for licensing deals is growing amongst not just the long tail of sports clubs, but the largest organizations in the world."