Attorney Justin M. Jacobson has spent the last decade negotiating contracts for people in the entertainment and sports industry, and now working with Ford Models’ Esports & Gaming Talent division as its manager, knowing the newest trends is important to properly represent his clients’ rights. One of the things Jacobson is paying very close attention to is NFTs, or “non-fungible tokens.” Jacobson has done extensive research on the topic, as indicated in this opinion piece published on The Esports Observer, but we wanted to go deeper into the topic to explain how this emerging technology will impact not only esports, but entertainment, art, and even sports.
What is an NFT?
Before we can dive into how NFTs will impact various industries, we have to define exactly what they are. Jacobson explains in laymen’s terms what an NFT is:
“An NFT or a non-fungible token, is a crypto token. There’s only one original and it can’t be replicated or divisible, which means it’s only one item that can’t be broken up in half and is uniquely coded with meta-data. So it can’t be reproduced elsewhere. It is easily transferrable on what’s called a blockchain, which is essentially like an official transfer ledger that lists the full transaction history. So, it lists the original owner, and then it lists anyone else that it was transferred to. So you can always look at the blockchain to see who the current owner, who owned it before, and who minted it, which is who originated it or ‘who put it on the block,’ as they say.”
An NFT is like an item you might buy in a free-to-play game such as a costume or a weapon skin, although generally those things can’t be traded safely outside a game’s ecosystem for real-world money with 100-percent certainty because both parties who don’t know each other have to have a certain level of blind trust.
“It is essentially like one of those types of items in games, for example, a weapon skin could be mint[ed] as an NFT. So essentially it’s just that the original developer didn’t originate it as an NFT.”
Jacobson notes that some game developers are already implementing this technology into their items so that they can be easily traded on the blockchain outside of a game’s ecosystem. “Hypothetically speaking, say you’re playing League of Legends and you get a special skin. The skin could be fashioned as an NFT itself, which you can then transfer it to another account or to another player. The purchase can actually have this true documented ownership.”
This eliminates the uncertainty of transactions related to selling game items or even entire game accounts, Jacobson said, using the mobile game Marvel Contest of Champions as an example of how having an NFT element might make things better:
“I played this Marvel Contest of Champions mobile game, as an example, and people sell their accounts on Reddit all the time. You buy them so you don’t have to start from zero, but sometimes people aren’t as forthright and try to recapture the account or provide incorrect information. But with the blockchain, if I was to sell my account, I know it was verified, and ownership is a verified transaction because you have this digital paper trail on the blockchain associated with account. So you know that this is a real account and it’s not just someone making a fake account that doesn’t exist or who could easily cancel the transaction and keep the money and the account.”
Ultimately, making an item or an entire game account an NFT or available on the blockchain provides verifiable ownership, the transfer of that ownership safer, and can in turn provide real value based on the popularity or demand of the item in question.
He also points out that there is a real value for the person or company that originally minted or created the NFT over time, because, if it is properly coded, the creator could potentially continues to get a percentage of a transaction every time it is resold as part of a so-called “second sale right.” So, for example, if Riot Games made a special limited edition digital item, and the person who originally purchased it sells it to another, Riot could potentially get a percentage of this second sale to another user.
“What is great is as a content creator you usually get a percentage of the second sale, and so on. With the blockchain, the original minter, if they program it into the NFT can really make money on it because they can continue to get a percentage of each subsequent sale of the item.”
How Sports, Entertainment, and Esports are Using NFTs
The reason that there is so much buzz surrounding “NFTs” right now is because of splashy headlines about people who are already making staggering amounts of money off the sales of limited-edition digital offerings.
Jacobson pointed some examples what sports leagues, trading card companies, and even sports stars are doing to cash in on the NFT craze right now.
“There’s this one company called Sorare and they actually have these digital player soccer cards, and one of them sold for around $65K. You also have NFL player Rob Gronkowski, who minted these digital one-of-one highlights that he digital signed. And then recently Tom Brady launched an NFT company called Autograph to make these NFTs for celebs and athletes. So, he actually launched a platform to launch other celebs NFTs.
“Panini America, Topps with its baseball stuff, WWE’s special WrestleMania NFTs are some other recent examples,” Jacobson said. “I would say that the sports world is just kind of getting started. I think Top Shop showed all of them what it could be. That’s been a pretty buzzing thing right now. I think every other league sees what it could be and, there’s just so many iconic sports highlights that could be used. I think there’s just a really big market for that stuff.
Jacobson points out that, along with limited edition runs, NFT minters would be wise to pair their digital offerings with limited real-world experiences or items. That could be a limited run t-shirt or jersey, some quality time with your favorite esports star or artist, or even special access like the golden ticket concept that the Kings of Leon used for one of its NFTs.
“Having a fan experience or signed items and pairing it with digital items is what makes NFTs really valuable. That’s what Kings of Leon did, which was really successful. Each NFT had access to music and videos and all the digital assets, but they also came with what they called golden tickets, which were for front row seats to any show and you could redeem it whenever you wanted. So now you think about it the same way that tickets are sold on Stub Hub. You can sell tickets, but you don’t really know if they’re real. This gives you that validation. It’s like, ‘OK, Justin received the tickets from Kings of Leon or Warner or whoever minted these four tickets, so I can use them or I could sell them to another party.”
Esports, which is also in the early stages of offerings NFTs to its fans, has also barely scratched the surface of possibility, Jacobson notes.
“Most recently we saw 100 Thieves launch something (digital merchandise) and Simplicity Esports about a month before them. Previously, OG Esports created a 2018 Dota championship ring NFT that fans were able to purchase, and NAVI launched a fan appreciation program featuring NFTs; Team Heretics actually offered a similar digital token to their fans, as well and Sentinels, who just did one for their Valorant Masters Crown. Recently, TFue created his own NFT collection that had three limited-edition signed bobbleheads. I think we’re just scratching the surface of how NFTs could be used in esports.”
Not all NFTs have been well-received or successful; Jacobson points out Snoopdog’s NFT effort, which fell kind of flat.
“I think the NFT Snoopdog released is a prime example of how to not do it. You have to think of these as limited editions in quantity. The value really lies in the scarcity and that’s what intensifies the interest and increases the price. I think people that want to put out too many so that more people can get it. I think that is almost the opposite of what you might want to do. I think what makes it cool is that NFTs done right provide a real unique value in being released as ‘1 of 1,’ 3 of 3, or some other limited-edition where only a few people in the entire world have it.”
Jacobson adds that the floodgates are about to open when it comes to esports and NFTs, and rightsholders like Riot and Activision Blizzard are in a good position to capitalize because they generally own the rights to a massive back catalog of media assets related to their respective leagues.
“I think when you see someone like 100 Thieves involved, which is obviously one of these top tier organizations, it means everyone else is taking notice. I think that if you are Riot or Activision Blizzard, you’re looking at what you can do, you’re figuring out how these rights play out; Activision Blizzard has rights to Overwatch League and Call of Duty League Season One, so all the footage from the San Francisco Shock’s winning title run, could be used make a montage video that is tied to a limited-edition skin and maybe a t-shirt, for example. I think that all of these companies are looking at it and it just going to be about who executes it best.”
At the end of the day, Jacobson believes that industries or individuals have to balance quality and quantity. The way Top Shot is handling its collectible card offerings may be a good model for companies to consider; NFT card collections are comprised of different categories of cards such as common, uncommon, rare, etc. By providing common offerings, and uniquely rare releases, Top Shot is providing the public with a lot of options so more individuals can participate and be part of it. Those lucky enough to get the rarer offerings can in turn resell them for a higher price and Top Shot might also get a percentage of any secondary sales.
One of the trickier parts of NFTs related to esports is who owns the rights to what. Because this is a new trend that will have to be figured out by IP owners such as Riot or Activision Blizzard who own the games, the leagues and associated rights granted to competitions and broadcasts, and franchised team owners who have also likely secured likeness rights from players when they signed their contracts.
“As someone who’s done a lot of these player agreements, teams probably already have these rights to their player’s likeness. Most players probably didn’t realize what they were signing when they signed their deal, but many of these agreements provide the team likeness rights that are in perpetuity or without any other limitation on them. This is the big distinction as the team can generally still use a player likeness after they are gone, even for non-commercial purposes. However, some players may have negotiated for a restriction so their team might not have the same power to use their likeness in perpetuity.”
There are so many potential applications for NFTs across all kinds of business sectors, particularly those that involve fan service, but it’s still a brave new frontier for those individuals and companies that are jumping in with both feet as early pioneers. There will be a lot of successful early offerings for fans, and a lot of terrible ideas, but at the end of the day Jacobson sees NFTS as a game changer for everyone:
“NFTs could save entire industries.”