Web3 technologies have demonstrated the potential to be used as a tool for expanding and improving fan engagement. With the use of open-source, public blockchain-based protocols, fans can easily access and interact with their favorite sports leagues, esports companies, and other organizations in ways that were not previously possible. From interacting with 3D avatars to participating in immersive AR/VR events, the possibilities for fan engagement are endless.
This technology can also allow direct voting on decisions made by organizations, as well as providing access to added value such as limited edition digital collectibles and exclusive rewards. By using smart contracts, transparency is increased, and trust is built between the entity and its fans. Additionally, Web3 technologies also provide a secure platform for transferring digital assets quickly and securely without fear of fraud or misuse.
Lately, sports leagues, esports companies, community fan organizations, influencers, musicians, and other creative artists have shown interest in DAOs, NFTs, metaverse, and other Web3 technologies as a means to connect and engage with their fans. For example, Krause House, an NBA fan club and community of basketball lovers of NBA recently structured itself as a DAO so that NBA fans and its members could be involved with NBA at a much higher level. There are other forms of fan engagement models evolving as well. This article examines a few fan engagement models based on Web 3.0. It also analyzes some general legal issues related to fan engagement and Web 3.0.
Emerging Business Models
The Krause House example offers but one use of Web3 platforms for boosting the fan/celebrity relationship. Here are some other use cases:
Increasingly popular as an avenue for inviting enthusiastic engagement, fan tokens act as proprietary cryptocurrencies and grant owners exclusive access to merchandise and experiences. The Caribbean Premier League, FC Barcelona, Everton FC, the Ultimate Fighting Championship (UFC), and the Aston Martin Cognizant Formula One Team all have launched tokens in the last couple of years. In this scheme, the tokens may include the right to vote on decisions made by the organization, rewards such as NFT trading cards, and meet-and-greets with league officials and players. One major player in this burgeoning market is Socios, an entity that facilitates fan token issuance for sports organizations. When considering working with a partner to issue fan tokens, organizers need to answer questions such as how much revenue they are comfortable sharing with fans and facilitators; can the feature be structured so it does not run counter to other agreements with existing commercial partners; and what terms such as exclusivity, time frame, rights, and responsibilities are appropriate.
Fan Voting Platforms
Sports leagues and esports companies have been engaging with their fans using NFTs and DAOs for some time. Some have even experimented with letting fans “call the shots” by incorporating polls into the game or concert experience; viewers can express their opinions: run or pass? Bunt or steal? The technology can empower music lovers to create performers’ set lists and wardrobe changes. This approach, however, comes with legal strings attached. Adopting this model requires organizations to manage considerations involving corporate structure and governance. The Commodity Futures Trading Commission’s (CFTC) lawsuit against Ooki DAO serves as an example of the risks associated with operating in this space and raises questions about unregistered crypto futures trading and compliance with anti-money-laundering/know-your-customer (AML/KYC) regulations. The court decided that the DAO operates as a “person” and the CFTC’s action can therefore move forward. The verdict of this case will be pivotal, further stressing the need for thorough consultation with legal professionals when setting up a fan engagement model.
Web3 and metaverse technologies also let brands create virtual experiences that directly engage with customers in more profound ways than ever before. For instance, fashion designers or cosmetics companies could create a customized shopping experience within a virtual store, where users can try on outfits or test beauty products without actually being physically present at the store location. Furthermore, customers would be able to purchase items directly from the store using blockchain-based digital currencies instead of traditional payment methods. Fitness companies could create virtual gyms where users participate in spinning, yoga, and aerobics classes in the metaverse. They could even engage with personal trainers and personalize their workouts. Similarly, restaurants and food delivery services could harness Web3 to allow customers to see available meals, customize their orders, and schedule delivery and pickup times.
Businesses adopting Web3 will do well to engage a lawyer experienced in the space to protect their interests and ensure compliance with relevant legal requirements. A Web3 lawyer can review business plans and identify potential risks and provide valuable insight into how to navigate the complexities of virtual reality regulations, intellectual property laws, and other aspects of running a successful business. Additionally, having a lawyer on board ensures that any agreements or contracts you enter into are legally binding and properly tailored to your needs.
Sports leagues, influencers, musicians, and performers often engage with their fans through merchandise such as T-shirts, coffee mugs, key chains, and others. This type of fan engagement using merchandising is likely to pose legal hurdles in the world of Web 3.0. For example, should sports leagues and esports companies be allowed to license their merchandise over the metaverse? If yes, what sort of legal documents are required? Will a traditional licensing model work in Web 3.0 and the metaverse? Traditional licensing models allow for a lump sum payment to be paid to the sports leagues upon the sale of merchandise. Due consideration must be given as to whether this model will work for the metaverse and Web3.0.
In addition to merchandising rights, various other IP issues must be considered while using Web 3.0 technologies for fan engagement. Some of the most important ones are copyright in the avatars, image rights, use of trademarks and logos, music rights (which is a very specialized area of law), and others. In addition, careful attention needs to be paid to IP ownership issues, especially when sports leagues and artists give out freebies as a means to engage with their fans.
For influencers looking to engage with their fans or followers through social media marketing, it is important that they adhere to Federal Trade Commission’s (FTC) regulation on social media marketing. Section 5 (a) of the FTC Act prohibits “unfair or deceptive acts or practices in or affecting commerce.” This essentially means that when influencers endorse a product through social media, they must make it clear when they have a “material connection” with a brand.
Although a few sports leagues, esports teams, influencers, and other similar entities have begun experimenting with Web 3.0 models for fan engagement, it is an onerous task to come up with a legit fan engagement model. Without expert legal advice, a new fan engagement model might come at a hefty cost or, worse still, defeat the purpose of engaging with fans, as any non-compliance with laws and regulations might lead to loss of reputation. Hence, the legal issues and potential consequences of any fan engagement model should be carefully considered, as the laws in this area are both fragmented and still evolving.
Gamma Law is a San Francisco-based Web3 firm supporting select clients in complex and cutting-edge business sectors. We provide our clients with the legal counsel and representation they need to succeed in dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.