NFTs are making their way into sport but are they a risk?
Non-fungible tokens are fast becoming the latest way of engaging sports fans with promotions. Top Shot, the NFT enabled digital makeover of NBA sports collectibles saw $219 million in February 2021. Sorare, another NFT platform allows users to trade cards of individual footballers used in fantasy sports set-up. But promoters need to be aware that there are risks associated with this latest Crypto-trend.
The Copa America 2021 was celebrated by a collection being created of 75 editions of the Argentinian and Brazilian teams’ digital collectibles. Both editions are selling for $234 and there are still 19 copies available of the Argentian edition and 34 copies of the Brazilian one. There were also 10 editions of an NFT of the Argentinian team raising the cup which sold for $937 each. The collection also has two single edition NFTs. One is the Goleador Award, award to Messi which sold for $4,750. The second is the NFT of the Copa America 2021 Trophy, its auction price is currently $2,150.
In the UK a ruling was recently upheld against Arsenal FC who posted on their Facebook page “Ben White, Calum Chambers and Kieran Tierney have had their say … But what song do you want to hear when we win? Download the Socios app to get your token and vote”. The post also directed followers to download the Socios app ‘to get you token and vote’. Their website also included a page explaining what the Arsenal Fan Token was and the benefits that it offered. At the bottom of the page it stated “In order to buy $AFC fan tokens you need to purchase the cryptocurrency Chiliz”.
The ASA itself challenged the advertisement on the two grounds listed above and an additional ground that the token didn’t make clear the token was a cryptoasset and therefore that Capital Gains Tax (CGT) may need to be paid on profits.
The ASA held that the promotion of the free Fan Tokens “encouraged consumers to engage in such a high-risk investment without consideration and trivialised what was a serious and potentially costly financial decision” and considered that whilst the cryptoasset product was not regulated by the FCA and therefore not subject to the FCA’s financial promotions rules, consumers would be less likely to be familiar with this kind of cryptocurrency. Also, potential tax implications should have been made sufficiently clear to consumers and they were not.
Because one of the ads did not include any risk warning to make consumers aware that cryptoassets were unregulated in the UK and cryptoassets could go down as well as up, and in the other ad the risk warning was not prominent and didn’t cover both points, the ads were found to be misleading.
As NFTs continue to be more prevalent it is important that brands follow the CAP Code and the recent guidance released by the ASA in order to protect consumers from misleading claims in advertising and marketing for NFTs and other cryptoassets.