Sorare, NFTs and Win-Win Models
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As Ben Thompson said in Social Networking 2.0- “The key characteristic of v1 digital products is that they simply copy what already exists offline.”
Here’s Classmates, the first ‘social network’- a combination of alumni directories and high school yearbooks.
Now consider these two pictures:
At one level, both of them are rare sports cards worth hundreds and thousands of dollars. The one on the right with Cristiano Ronaldo just exists digitally as an NFT ( Non-Fungible Token). Like Nicolas Julia, the founder of Sorare said,
“Human Beings have collected physical objects for thousands of years. Now we have the technology to do so digitally”
v1 of NFTs are digital objects that cannot be copied, unlike your standard MP3 and JPEG file. This makes them scarce and potentially valuable, just like rare physical objects. Those spending millions on JPEGs of an ape are betting on their NFT being the next Mona Lisa. But if you think that’s all there is to NFTs, you’re digitizing high school yearbooks and calling it social networking.
For starters, you can’t do much with physical collectibles aside from display- you don’t want to wear them out! But freed from the tyranny of atoms, NFTs can have utility, and that’s why Sorare is a lot more interesting than NBA Top Shot.
Collectibles with Utility
Sorare provides its NFTs with a use-case familiar to all sports fans- fantasy sports. Here’s how it works:
In Sorare, each card is an NFT and represents a football (soccer) player. To use player images, Sorare buys licensing rights from clubs.
Users create a ‘squad’ of player cards, out of which they choose five in their team every week. The performance of each player earns them points.
Sorare gives each new user a few free cards. While it is possible to play free, it seems you need to spend at least $250 to $500 to build a competitive team.
Cards with different levels of scarcity- 1000 Limiteds, 100 Rares, 10 Super Rares, and 1 Unique. The more scarce a card, the more valuable it is, but its value doesn’t affect the points it earns.
Cards can be brought at Sorare auctions whenever they mint a new NFT or directly from other managers.
Users participate in different leagues and tournaments and earns rewards in ETH or free cards. Access to leagues certain leagues are reserved for players only with a certain kind of card.
To be sure, all of this could be made without NFTs. Digital Objects are not new. In the early 2000s, people were paying thousands of dollars to buy property in a popular game called EverQuest. Today, Fornite earns Billions of dollars by selling virtual clothes. Ironically, what makes NFTs different here is a property similar to physical objects- persistence.
A Win-Win Model
The digital objects referenced above can only survive inside the original environments they were created. You can’t wear a Fortnite skin in GTA, and if Fortnite shuts down, you lose your skin and your money. But the physical world is different. You can wear a Manchester United T-shirt outside of Old Trafford, and it won’t disappear if the team closes up tomorrow.
By virtue of living on a blockchain, NFTs can similarly outlive their creators. Here’s why this matters:
Sorare cards can have value outside of fantasy football- simply as a pure collectible. Users are thus reassured that even if Sorare shuts down tomorrow, their investment may survive. (In fact, given the number of players and the amount of money involved- I’m pretty sure that a new version would come up quickly.)
Traditionally, platforms like Sorare would have been a zero-sum game- the house taking a cut, a few users winning but most losing. Alternatively, the game would have been free to play and monetized via advertising. However, NFTs enable an entirely new model. Users pay not to play fantasy football but to own an object of potential value. Since Sorare earns revenue from the sale of NFTs, its incentives are aligned with its users. The football clubs and the players who sell image rights also benefit.
Sure, in some cases, the actual outcomes will be different. Sorare may fail, its NFTs become worthless, and everyone loses. But now, we have a shot at building something different- a Win-Win Model.
There are other practical benefits. Sorare’s use of NFTs helped bootstrap its fantasy football game without relying upon expensive customer acquisition tactics. According to Alexandre Dewez’s fantastic breakdown, it had 500k active users, 50k of which had bought at least one card, and a 70% retention rate in March 2021. The company had €100m in net revenues in 2021 and is already profitable. In the future, the utility of its NFTs will protect it from other soccer NFT makers, like Dapper Labs.
The seeds of ‘interoperability’- or the use of Sorare NFTs in other games or experiences- are already being sown. Remember, NFTs are software, which means you can completely change how they manifest in different experiences. They could be a fantasy card, a player in a game, or an id to a subscription service. They could act as passes or tickets to events where fans interact with their teams and players. Again, everybody wins. Other parties get access to Sorare’s network of NFT holders; NFT holders can get more utility of their asset, increasing their value while also gaining access to the team and players they love.
None of this will be restricted to sports.
The most exciting use-cases are yet to be built
In one of my favorite essays, Matthew Ball wrote about how IP creators have only been able to capture a tiny amount of the value they generated:
Consider, for example, the billions of hours American children spent imagining and acting out the adventures of Luke Skywalker and the Jedi with the 1970s and 1980s with figurines, robes, and lightsabers. However, this expansive imagination was forever trapped in brainwaves, backyards, and basements. It was hard enough to share these imaginary stories and world with close, in-person friends, let alone to faraway and unknown ones. And there was little Lucasfilm could do to access and leverage this imagination, either.
As humanity spends more and more time in the digital realm, our imagination can now be manifested and shared with others. This includes discussions on WhatsApp or forums, playing games (fantasy sports), writing fan fiction on Wattpad, commentaries on Youtube/Tiktok, and even recreating locations (e.g., Kings Landings from GoT was made on Minecraft). Matthew Ball calls these ‘Digital Theme Parks.’ Later in the same essay, he said
Ultimately, every IP owner will need to figure out how to participate in digital theme parks and platforms
Fortnite’s Crossover events with Marvel and Travis Scott concerts are just the start. The most exciting use-cases are yet to be built, and we can no more predict them than we could predict Snapchat or Tiktok in 1991. Rather than asking what will change, it might be more productive to invoke Jeff Bezos and ask what will not change. I’m willing to bet that one of these is our propensity for ownership in physical or virtual realms.
We may potentially be entering a golden age for IP creators, and NFTs will play a huge role in unlocking their value. Soccer is one of the most valuable IPs globally, and as its dominant NFT issuer, Sorare will benefit handsomely.
Learn More: Epicenter Podcast- Marrying Fantasy Sports and NFTs