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Ideas Ignited | Why DAOs could revolutionise decision making in sport

Decentralised autonomous organisations (DAOs) have the power to fundamentally transform how sports entities operate. Alexandre Kandelaft, head of marketing at LaSource, ponders a future in which ownership and decision making are finally built on true fan engagement.

18 January 2022 Alexandre Kandelaft

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Sports organisations need to be at the forefront of what’s happening today, especially around new technologies and innovations. Over the last few months, the craze around the metaverse, Web 3.0 and decentralised autonomous organisations (DAOs) drove them to analyse these new concepts, showcasing the drastic changes they can bring to our societies and the potential impacts for the sport industry.

The internet is arguably the last major tech revolution in the history of humankind. What is fascinating about it is its ability to evolve at an incredible pace and the human devotion to make it a better place for our societies.

It started with Web 1.0, the first stage of the World Wide Web evolution. Then Web 2.0, also called the participative social web, was introduced. Now it is time for Web 3.0, the third generation of internet services for websites and applications where data will be interconnected in a decentralised way.

As for the promises of Web 1.0 and Web 2.0, Web 3.0 will bring a fairer system to enable individuals to become the real owners of their creations and be properly compensated for their time and data.

While today there is a small group of companies that own the internet, the rise of new technologies such as decentralised ledgers and storage based on blockchain technology opens up a wide range of possibilities for many different industries, including sports.

Indeed, one result of this “new internet” is the creation of DAOs. These new entities have no central leadership and decisions are made by the community, organised around a specific set of rules and smart contracts enforced on a blockchain. DAOs are increasingly being used for many purposes such as investment, charity, fundraising, borrowing, or buying non-fungible tokens (NFTs), all without intermediaries. So far, we haven’t seen any similar applications within the sports industry so let’s do some science fiction and futuristic thinking to see what a DAO could look like in sports.

Sports organisations have traditionally been very centralised, most of the time organised around a board of directors with executives who make the decisions. At first sight it’s not necessarily a bad thing, as in any democratic system with representatives. But what happens when decisions are made against the community’s expectations, when the voices of the fans are no longer heard within ExCo meeting rooms?

Sport is probably one of the most beautiful industries because it has the power to create phenomenal engagement beyond reason, with immense, passionate communities for clubs and major events. But these communities are entirely relying on high-level decision-makers because of a lack of influence in the decision-making process.

The hierarchy has always been strongly established, so much so that it is very complicated to be heard when you are at the bottom of the pyramid. And today this position is held by millions of fans around the world. Think about the European Super League project. Beyond the proposals made and what this new league could have been, part of its failure was also caused by the total lack of communication and discussion involving all stakeholders, including fans who are at the core of the game. Maybe such a project could have been born if it had been brought differently, starting with involving everyone?

Sports is no longer a one-way street and fans want to be heard and active. This is a profound shift which has challenged the media industry and which needs to be tackled at the sports organisation level as well. DAOs could be one of the solutions to reinvent the sports industry, its organisations and the relationship with communities.

What if a collective of people could own or at least invest in an organisation and have a say in every decision? Today many sports teams are owned and managed as publicly traded companies so it might be feasible for a group of fans, organised under a DAO, to acquire shares. Teams would have to make a part of their capital available through tokens, created on their own blockchain protocol. Every person buying them would be financially investing in the organisation and the value of each token would be indexed on the club’s financial health. Part of the generated revenues could be stored in a virtual treasury that would serve to further develop the clubs with the development of new projects. The promise of such an initiative is that these tokens would give fans significant advantages (such as club NFTs, membership plans and exclusive promotions) as well as a level of involvement in the daily activities of the organisation that we’ve never seen before.

But let’s press pause for a second because there is a common misunderstanding that should absolutely not be made here.

We are not talking about monetising fans and charging them for benefits. We are not talking about making them adopt cryptocurrencies and financially speculate on the sports organisation they support. Actually, the rules behind the purchase of a dedicated token and established by smart contracts should be made in such a way that the fans would have very little advantage in selling their token. Moreover, it should be done to avoid a maximum of “fake fans” buying these tokens (by setting up a no-resale clause for the first five years, for example) because normally, you do not stop being a fan of your club.

So what would be the potential uses of this famous token for a fan?

In terms of decision-making power, we could imagine a multitude of scenarios, ranging from simply voting for ticket prices to the more consequential fact of voting for who should be on the pitch. But let’s face it, there are ever-lasting things in sports organisations. Some major roles will always remain and will probably never be replaced by the community.

A coach will always be someone who knows how to train, and a doctor someone who knows how to prevent and handle injuries. The real objective of a DAO would be to support the organisation and bring a new source of knowledge that can sometimes be more efficient than only one brain.

Think about scouting: one team could benefit from an entire community of devoted fans that could screen games, assess players and evaluate the value they can add for their club. DAOs could definitely contribute to the growth of a sports organisation, and not only by letting the community take part in the decision-making process. Indeed, as token holders, fans are representing their organisations and by creating content – be it social posts, 3D animated videos, NFTs, etc. They are actively putting skin in the game for their team, creating value for the organisation itself.

At a time when the creator economy is booming with young digital native fans almost living in the metaverse of their favourite sports organisation, this can be an efficient way to spotlight the entire community of creators and not only the ones directly hired by the organisation.

DAOs represent a brand new way to approach a company’s structure. They could open a new era in the sports industry where all stakeholders are moving forward in the same direction, with common goals and through a more “democratic” approach. Of course, the picture is not all rosy and some limitations like privacy, fraudulent attacks or technical limitations in smart contracts can be pointed out. But DAOs are only a five-year-old concept and will be further developed to make sure they can tick all the boxes and create a more sustainable model.

Another parameter, especially within the sports industry, will be the acceptance of this new model by private equity firms as they are investing more and more into sports for financial returns. They will have to pay particular attention to these new forms of organisations and determine to which extent they can make their current model evolve, creating a more robust and sustainable one that combines fan involvement with economic gains.

This article forms part of a daily series of exclusive insights from some of the foremost organisations and thinkers in sports tech, released in the lead-up to Ignition, SportsPro’s new home for the sports industry’s technological transformation. Find out more at Ignition.sport.

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