Pirelli, the Italian tyre company, has just lost its sponsorship of Inter Milan football club’s famous Nerazzurri (black and blue) kit, after 26 years. The new sponsor, Socios, has paid almost twice Pirelli’s offer. What does Socios do? It is a cryptocurrency company.
Inter Milan will launch its own branded digital currency $Inter. Holders of $Inter coins, mainly Inter Milan fans, will be able to use the tokens to purchase exclusive merchandise and digital content, and also to participate in votes conducted by the club. These polls may include, for example, selecting the entry music to walk on to the pitch; which message the captain wears on his armband, and even guiding team selection.
But don’t cryptocurrencies built on blockchains have a damaging carbon footprint? The annual energy consumption to implement bitcoin is now equivalent to that of Sweden (135TWh). A single bitcoin transaction consumes as much energy as a typical US household does over 57 days. The reason for such astronomically high energy consumption is the complexity of the algorithm that establishes trust across an open federation of computers used to “mine” the cryptocurrency, whose owners can be anyone anywhere.
Some blockchain defenders contend that renewable energy production will in due course resolve the issue. Nevertheless, the architects of the popular ethereum cryptocurrency intend to drastically reduce energy consumption, by changing from verification of work done by the “miners”, to verification of the stake of coin holders. This transition, with the resultant reduction in consumed energy, is expected within the next few months. Furthermore branded tokens such as Inter Milan’s $Inter use approaches which reduce the frequency of energy-intensive interactions with the underlying blockchain.
It is not just Inter Milan. Arsenal, Atlético Madrid, Juventus, Manchester City, and Paris Saint-Germain are already launching similar club-branded digital tokens in partnership with Socios. So are Formula 1 teams Aston Martin and Alfa Romeo Racing. In the United States two NBA teams, the Philadelphia 76ers and the Boston Celtics, have signed up along with NHL team the New Jersey Devils.
With the impact of the pandemic on live sports, and closed stadiums and venues, it is perhaps not surprising that top-tier sports brands are seeking to innovate. Digital coinage appears interesting. A club can immediately identify who are its current top fans, and most loyal fans, by the amount and duration of its branded coins held by individuals. Deeper engagement with those fans becomes possible, such as meet-and-greet events, sales of collectibles and online competitions. Branded coins can be given as rewards and prizes.
If the quantity of branded coins minted is capped, then the coins themselves should rise in value (versus the euro or US dollar) over time. As more fans buy in, as more fan engagement events are organised, and as more VIP-only content and merchandise are sold (and paid for in club’s digital currency), the demand for the club’s coins will inevitably rise.
After all, look at bitcoin: while its value dropped recently, the bitcoin-to-euro exchange rate has risen from €8,500 a year ago, to (at the time of writing) almost €32,800 currently. Likewise, the value of an ethereum coin has risen from €266 to €2,000 over the past 12 months.
Cryptocurrency for elite sports brands becomes even more interesting if not only can fans purchase and be rewarded with branded digital tokens, but are also allowed to exchange back into “fiat” currency, such as euro or dollars. They can economically then share in the popularity of a club, beyond just the merchandising and events organised by the club itself. You could earn income as a fan.
But would there necessarily be a buyer, and if so at what price? One significant development of cryptocurrency technology has been automated counterparties. In practice this means that there is always a buyer if you wish to sell, or a seller if you wish to buy. The exchange rate is predetermined (and published) depending on overall demand. In effect the cryptocurrency itself stores value (rather than being held by any human being).
Of course, why limit the approach only to sports brands? Musicians and bands, and in general anyone creating digital content (yes, even journalists and authors) can now create their own branded currency. Grammy-winning band Portugal. The Man, Japanese soccer star Keisuke Honda, rapper Lil Yachty, actor Terry Crews, musician Harrison First, and Instagram personality Laurel Driskill are among several hundred artists, stars and influencers who have now each launched their own branded digital coinage. If you want to talk directly to any of them, or want them to “shout out” to advertise, or to get their advice, then you have to first purchase into their branded tokens.
Social economies, implemented in digital “social tokens” enabling individuals and brands to share value directly with their fans, are an emerging wave across the internet. They threaten to disrupt established advertising and internet monetisation strategies, not least for the current major internet players, because content creators can financially bridge “over the top” directly to their supporters regardless of any underlying digital platform or social network.