Please note that I am not a financial advisor. The following article is for the sole purpose of providing educational information on the topic discussed.
Sport is one of the most influential as well as profitable industries. The majority of people around the world are supporters of some kind of sports team. Due to this, sooner or later, crypto entrepreneurs were going to attempt to revolutionize the way that fans interact with the sports establishments that they are involved with.
It is estimated that hundreds of millions of dollars have been spent on fan tokens in the past few months. So this begs the question, are fan tokens a good investment?
The quick answer to this is, no. As a financial investment, fan tokens are a volatile and extremely risky asset. In the majority of cases, you are unlikely to receive a return on the money that you have put in. While at the same time, in certain circumstances, it may simply be a good way to spend your disposable income.
Let’s take a closer look at why fan tokens may not necessarily be a good investment.
What are fan tokens?
Fan tokens are a new technological phenomenon and because of this, there is a lot of hype surrounding them. A large proportion of fan token investors are getting involved in the hope of getting rich quickly. This currently makes fan tokens an incredibly risky investment.
The value of every different fan token is decided by the fans. Essentially, a fan token can be considered digital merchandise. There will be sports clubs that will manage their tokens well by offering a lot of sought-after and valued benefits by investing with them.
At the same time, there will certainly also be teams that just use this as an opportunistic money grab without providing any long-term value. This will in turn lead to that particular fan token to nosedive in price.
Another issue that will concern many crypto purists is the fact that fan tokens are highly centralized. The platforms that have helped create these official fan tokens have done so under licensed by the clubs. These clubs could always decide to increase the volume of their fan tokens that are in the market.
Moreover, any other decisions that they make will have a great impact due to the amount of control that the club’s board members and owners have.
You also must consider who fan tokens are made for. There are fans and then you have fans. It is one thing checking in to see how your sports team performed after a game. Then it’s another thing altogether to buy new team kits every season and attend every single game the team plays.
The individuals that have only bought fan tokens for financial gain are most likely not going to be long-term holders. Only truly dedicated fans will maintain large holdings for an extended period of time, and as we know, all markets correct themselves, therefore, following a period of speculation and sell-offs, prices will drop and eventually stabilize.
Next, we must consider what kind of asset are fan tokens. Many clubs have promised limited voting rights for decisions such as transfers as well as designs of the stadiums and kits. However, it is important to note that when you buy such a club token, you are not actually owning any part of the club.
Instead, you are just a fan with a bit more say in the team. This is important, as there are no actual real assets supporting the value of the tokens. If you owned a share in a football team, such as you can with Borussia Dortmund, you will own a very small percentage of everything that this club owns such as the stadium, the team bus, and also all of the trophies that they have won.
With a fan token, this is not the case. The only thing deciding the value is the feelings and emotions of the fans; making this a volatile investment.
Finally, let’s discuss what is generally considered a good investment. There are two categories that financial advisors will describe as a good investment. First, you have growth assets; assets that you predict will reliably provide healthy increases in value in the long term. Then you have dividend or cash-flow assets, these are assets that payout while you own them, like stocks or real estate.
Fan tokens do not fit into any of these specifications and therefore are not a good investment from a financial viewpoint.
Are fan tokens NFTs?
First of all, we should examine what tokens actually are. Even though they are officially classified as cryptocurrencies, fan tokens are not designed to be used as cryptocurrencies. The main reason for this is that although tokens have their own value, their main use is not as a store of value or a way to buy anything that is available for sale outside of the team the fan token has been issued for.
Instead, tokens should be considered as a type of pass, or VIP permit, or as a currency that can only be used for the team it has been issued for.
To expand further, an NFT stands for ‘Non-Fungible Tokens’. The point of an NFT is to act like an ownership certificate. Anyone can copy and paste your NFT art but in reality, this does not mean they own it. The idea of an NFT is that each one is unique and due to this cannot be traded or exchanged with others without some type of assessment.
Again, the reason why they can’t be traded without some type of assessment is because they are not fungible. One NFT may be worth $1 million while another may be worth $10. On the other hand, with cryptocurrencies such as Bitcoin, one Bitcoin will always be worth the same as another Bitcoin.
Fan tokens work in the same way, the same type of fan token will always have the same price. Along with this, fan tokens have also been described as ‘utility cryptos’. This is because a fan token is essentially a type of currency for specific sports establishments.
For example, you could use Arsenal fan tokens to purchase Arsenal merchandise and other goods. With an NFT you will not be able to do this directly. You will have to sell the NFT to someone. Or take out a loan backed by the value of your NFT which is only possible in the first place if it has a high value. Only then you could use those proceeds to buy something.
The most popular fan tokens
As of this writing, the football world is dominating the fan token market. This is because the sport was a pioneer in the use of these utility cryptos. Out of the top 25 most valued fan tokens by market cap. A total of 23 were football clubs, with the anomalies being the UFC Fan Token (UFC) and the OG Fan Token (OG). The UFC is the largest MMA competition in the world while OG is an e-sports team.
Below we are going to take a look at the top 5 fan tokens in the world by market cap; which is the total amount of value that they are each worth. All of the top 5 fan tokens belong to European football clubs. Surprisingly there are two clubs that are not particularly world-renowned on this list, Lazio and Porto. What this shows us is that is not only important to how big your fanbase is but also how dedicated it is.
- PSG – Paris Saint-Germain is the youngest team out of the top 5. Having been founded in the year 1970. Since being acquired by the Qatar investment fund it has become a dominant force in France and in Europe. Currently, it sits at the top as the most valuable fan token with a market cap of $48.85 million with a circulating of 3.1 million.
- LAZIO – Lazio is right now a mid-table Italian football club from Rome. Regardless, this has not stopped it from fighting for the top spot in the fan token rankings. It has a market cap of $43.63 million. However, the price per LAZIO token is $5.14, or one-third of the price of PSG’s. Yet, the LAZIO token has nearly three times the supply of 8.6 million LAZIO tokens.
- CITY – Manchester City like its Paris-based rival PSG is an oil-rich club. That has managed to climb its way to the top of the football pyramid thanks to the gigantic spending powers of its owners. Man City has a massive fanbase in its home city of Manchester, England as well as the rest of the world. The price of a CITY token was a cool $10.15 with a market cap of $35.6 million.
- BAR – FC Barcelona. If you would ask random people in the street to name a football club, without a doubt, many of them will say Barcelona. The Spanish team has been the home of many of the world’s greatest ever football players such as Lionel Messi, Diego Maradona, and Ronaldinho. Its market cap is an impressive $30.95 million with a BAR token value of $8.76.
- PORTO – FC Porto, also known enthusiastically as ‘The Dragons’ by their fans. FC Porto has a long and decorated history, which includes 7 pan-European trophies. FC Porto has gone with the same strategy as Lazio, by making their token very affordable to their fans by creating a large circulation. This has worked well for them, with a circulation of 7.8 million PORTO tokens and a high market cap of $25.04 million.
Where to buy fan tokens?
Buying cryptocurrencies, including fan tokens, can be tricky when you are doing it for the first time. We will make sure to explain it step by step, in a simple and easy-to-follow way.
- The first step is to find a reputable and leading crypto exchange. Ideally, it should also be licensed in the country where you live. Although we do understand that regulation is still not in existence in many countries around the world.
It is also key to check if the crypto exchange that you are interested in using actually allows you to buy fan tokens. This is especially important if you are going to have to sign up, as the registration and verification process can take up to an hour. Crypto exchanges we would recommend include Binance, Coinbase (affiliate link), and Kraken.
- Once you have signed up and verified your identity. The next step is to exchange your fiat currency into a crypto coin that you can buy your club tokens with. The main crypto for this is Chiliz ($CHZ), which we will go into more detail about in a future article. Some exchanges such as Binance want you to buy other cryptos such as Tether (USDT), which you can then use to buy the fan token.
- Now that you have loaded up on the required cryptocurrency, you can buy the fan tokens that you are after.
Are fan tokens worth it?
I’ve been fairly critical of fan tokens as a financial investment but I do believe that they can be a good purchase for other reasons.
One of the big allures of buying a fan token is the special perks that are associated with them. For example, if you are a fan of Manchester United ($MUFC). You can purchase an official fan token which in turn will allow you to benefit from ticket discounts and prize raffle entries for once in a lifetime experiences. You cannot put a price on experiences and where else would you get the opportunity to meet your childhood hero?
To add to this, some official tokens are counted as votes in specified decisions that the clubs make. The good thing about this system is that the more fan tokens you have the more votes you will have in such a situation allowing the most dedicated fans to have a bigger influence in their club.
Due to this, fan tokens can be a great use of your disposable income if you are a big fan of that club. The key here is disposable. You should not be spending money that you cannot afford to lose on utility tokens. Instead, it should only be a bit of money that you can put away for your hobby and personal enjoyment. You should never get into fan tokens in the hope of making money.
Purchasing fan tokens are also worth it for your club. Every little bit counts, even if you only spend $100 on fan tokens you are still financially supporting your favorite team allowing them to perform better in competitions and potentially win more trophies.
As a fan, you get to take a bit of pride in having a part in your team’s achievements. Fan tokens can be particularly great for international fans who cannot physically attend every single live game due to them living on the other side of the world. Thanks to fan tokens, you can now have a say and an impact regardless of where you live.
Finally, fan tokens have an opportunity to transform what it means to be a fan. Fan membership in itself is not a new idea. For example, for much of their history, Real Madrid and Barcelona have been owned by their fans.
These fans pay a yearly membership and get a major say in how the club is run, including by voting for the next president of the club. A fan token can allow for holders all around the world to interact with each other and thus build a stronger fanbase for that particular sports team.
Are Fan Tokens halal?
Scholars would consider fan tokens as halal so long as the token does not represent or promote anything unlawful in Islam. Still, there are scholars who would advise staying away from anything that is not truly of benefit to the user or may be a waste of one’s money and/or time. Some scholars would view fan tokens as something that does not have benefit.
And in the end, Allah knows best.
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