When the value of cryptocurrencies cratered last year, it also put the squeeze on many companies reliant on the blockchain and non-fungible tokens. Dapper Labs, which operates NFT marketplaces NBA Top Shot and NFL All Day, laid off 22% of its workforce in November, just over a year after a $250 million funding round valued the company at $7.6 billion. In January, Candy Digital founding shareholder Fanatics divested its 60% stake in the digital collectible platform.
Yet while the market downturn has brought down sky-high valuations, those still operating and investing in the space are generally bullish on the long-term outlook, though not without taking away some key learnings from the last year. One of the biggest lessons is the importance of NFT businesses offering value beyond mere hype or a hope that a digital collectible will one day surge in price.
“The challenging market these past several months has shown that IP on its own isn’t enough for the consumer. The successful projects are the ones that create a unique experience in one way or another,” said Michael Meltzer, head of business development for NFT fantasy sports platform Sorare. He added that future success in the space is “going to be based on the ability to leverage blockchain and the benefits of it, which are scarcity, affordability and authenticity, and then layer on top of that a meaningful experience or value proposition that is beyond just price speculation.”
Even Fanatics CEO Michael Rubin suggested as much, at least as it relates to sports memorabilia, in an internal memo following his company’s Candy Digital divestment: “NFTs are unlikely to be sustainable or profitable as a standalone business. … We believe digital products will have more value and utility when connected to physical collectibles to create the best experience for collectors.”
Another important discovery was the need to better differentiate NFT businesses from the volatility and risks of cryptocurrencies.
“Because so many of the folks who were active in the NFT space were also active in the crypto space, there’s a clear alignment there in terms of sentiment,” said CAA executive Adam Friedman, who leads the agency’s Web3 strategy. “However, if you actually look at the underlying technology here and if you look at what an NFT is versus Bitcoin, ETH or any other form of crypto, they’re clearly different.”
Friedman, who is also an investor with CAA and NEA’s Connect Ventures, highlighted Ticketmaster piloting NFT-gated concert ticket sales and Warner Bros. Discovery Sports debuting a “watch to earn” game for viewers of its “Inside the NBA” programming as NFT innovations with no ties to cryptocurrencies. “Blockchain is the technology, and cryptocurrency leverages that blockchain technology,” said Friedman. “But that technology can be used in many, many ways that have nothing to do with currency or finance.” Connect Ventures has stakes in Web3 companies such as Candy Digital, NFT marketplace OpenSea, commerce platform Mojito and music royalty platform Royal, among others.
The sports industry’s interest in NFTs certainly doesn’t appear to have waned alongside the crypto crash. Sorare landed a four-year deal with the Premier League in January that followed other recent partnerships with MLB, the NBA and both leagues’ players unions. “In my conversations with leagues, they’re all still encouraged by the long-term potential of blockchain to connect with fans,” said Meltzer, who noted that Sorare now has some 3.5 million users across more than 150 countries. Candy Digital CEO Scott Lawin told Sports Business Journal in January that his company has also seen growing interest from IP owners. Candy has done deals with MLB, WWE and NASCAR’s Race Team Alliance.
If anything, for those bullish on the future of NFTs in sports, the market downturn has only lowered the price of entry and offered breathing room to prepare for an anticipated next wave of interest.
“We were flying the plane as we were building it when we really jumped into this space in early 2021,” said Friedman. “[The market slowdown] not only provides time for entrepreneurs, founders and their teams in this Web3 space to build; selfishly, it allows us to really be in a position where, when the market does come back, we’ll be ready and we won’t be playing catch-up. And our mindset hasn’t changed. This is the technology industry right now where there are long-term implications across our entire business.”
