Utility tokens: A way to establish fan loyalty

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  Quantumrun Foresight
• October 24, 2022

Insight summary

Fan tokens are reshaping fan engagement, offering unique benefits like voting on team matters and access to special events, yet they come with volatility and potential financial risks. Controversies include regulatory actions and fan complaints about monetization, highlighting the delicate balance between innovation and consumer protection. The fan token market's future hinges on how well these challenges are addressed, influencing both the sports and entertainment industries and consumer trust in digital assets.

Fan tokens context

Fan tokens (or utility tokens) are gaining ground as brands and organizations think of new ways to offer perks to fanbases and engage with their patrons. These tokens are purchased to access special membership privileges such as movies, concerts, and sports events. Fan tokens can be bought and sold like other cryptocurrencies.

But unlike non-fungible tokens (NFTs), fan tokens are fungible (can be exchanged). They do, however, provide some of the same perks as NFTs. Fan tokens are also utility-based, including access to special edition NFTs and voting on club matters. The value is determined by the level of team access the holder has rather than the token's price. However, crypto exchange platforms warn users to research the fan tokens they want to purchase, as tokens can be speculative and reduce in value quickly. 

Fan tokens have their share of controversy and critics. The UK's advertising regulator banned fan token promotion from the Arsenal Football Club in December 2021 for potentially misleading investors on the risks associated with crypto assets. Football fans worldwide have also complained about the abundance of these tokens that seem to push the monetization of fans. Analysts have raised concerns about the danger of enticing consumers to trade these cryptographic items. Because so few people want to trade them, most fan tokens are highly volatile. Speculators are aware of this and try to profit from selling the assets for shorter periods.

Disruptive impact

One of the most in-demand fan tokens is those issued by football clubs. When these tokens are purchased, fans can vote on different things like team jersey designs and which player participates in certain games. They also have the opportunity to unlock VIP rewards, including meeting their favorite player or getting VIP seating at games. The more tokens a fan has, the greater their say in running the team. 

For example, the football club Paris Saint Germain (PSG) has fan tokens for its community. There are two key benefits of having a fan token for PSG:  

• First fan token holders can vote on the team captain armband inscription, which has been used to pass inspirational messages or support political views. 
• The second is fan token holders can vote for goal of the year and other in-club awards. Fans can share their input and vote on the most influential moments and team members throughout the season. 

The price of a fan token is influenced by the cryptocurrency market and popularity among club supporters. Many sports clubs sell these tokens through blockchain company Socios, which runs the initial sale and subsequent trading. Socios pays football clubs an initial sum, followed by a percentage of revenue generated from fan token sales on its app. Fan tokens are sold at a specific price and then transferred to the secondary market. If the sale reaches a certain amount, Socios gains commission from the trading fees and an additional 50 percent profit for each token sold, with the remaining balance given to the club. 

Implications of utility/fan tokens

Wider implications of utility or fan tokens may include: 

• Artists, sports teams, and musicians releasing fan tokens for specialty merchandise and exclusive events.
• Some brands and sports clubs being penalized for not warning fans about the volatility of tokens.
• More crypto exchanges create fan token platforms, leading to more volatility and fraud risks.
• Some athletes and artists lobby against fan tokens' popularity as commodifying talent and giving too much control to fans.
• Increased lawsuits against fan token providers by fans who felt they had been misled and falsely advertised regarding fan token perks.
• Governments introducing regulations specific to fan tokens, impacting how these tokens are marketed and sold to the public.
• Businesses in entertainment and sports adapting their revenue models to incorporate fan tokens, altering traditional merchandising and fan engagement strategies.
• Consumers facing challenges in discerning the actual value of fan tokens, leading to financial losses and skepticism towards similar digital assets.

Questions to consider

• What are the other potential challenges in issuing fan tokens?
• If you own a fan token, what benefits can you access?