Metaverse opportunities — and risks — for sports are unlimited
Co-authored by Anna Sykes, Trainee Solicitor
Why is the digitalization of the sporting world so appealing? The answer — it’s a process driven by more than pure monetization. It’s accessibility and mass participation that is really at the core of this transformation. Imagine a platform where users adopt facial recognition technology to unlock a world in which they are represented by their own unique avatar. They enter a virtual sports arena, stepping onto a court to play alongside their favorite NBA star or sit courtside amongst other virtual fans who, in the physical world, may be hundreds of miles away.
This is just a taste of the so-called metaverse, referring to a space where the physical and digital worlds come together, and digital representations of people — avatars — interact. Given the ongoing boom in the global esports sector, a market valued at $1.08 billion in 2021 and forecast to grow to as much as $1.62 billion in 2024, we believe a similar pattern is taking shape on an even wider scale in the sports industry with the advent of the metaverse. This holds exciting opportunities, as well as risks, in the sphere of M&A and investment.
Sponsorship, advertisement and streaming opportunities
Similar to esports, the key monetization opportunity for the sports metaverse lies in sponsorship, streaming, broadcasting and advertising. This is no different from the traditional sports sector where, according to Statista, the global sponsorship market was valued at an estimated $57 billion in 2020.
While the estimated $882.4 million valuation of esports sponsorship in 2020 pales in comparison, given the infancy of the industry this already high valuation is testament to its success to date. It also foreshadows the possibilities for the metaverse in this arena and its overwhelming scope for growth. The potential for fans to attend matches "virtually," sit in stadiums plastered with virtual advertising and purchase sponsored merchandise for their virtual avatar to wear, perhaps using cryptocurrency is just a flavor of where this industry may go.
An example of this was seen just last month as top Italian soccer league Serie A livestreamed a match between AC Milan and ACF Fiorentina. Fans were required to purchase non-fungible tokens (NFTs) as their “ticket” into the match, which they then “attended” via virtual worlds platform The Nemesis.
Super League Triathlon’s Arena Games is another prime example, as the games adopt a format that blends real life with virtual racing and features world-leading triathletes competing on software platforms like Zwift, as well as in real Olympic-sized swimming pools. Moreover, the first esports Commonwealth Games is set to take place this August and will bring with it a number of sponsorship, brand, broadcasting and streaming deals. Revenue opportunities from platforms such as Netflix, Twitch and YouTube appear to be endless and such sites have taken full advantage of the effects of the pandemic, as became evident when Twitch hit a peak of 6.3 billion hours watched in the first quarter of 2021.
This pattern of monetization will likely flow through to the sports metaverse where potential is even greater, given participation will not be limited to esports athletes alone but will hold novel opportunities for spectators and amateur athletes alike. This was seen in 2021 when interactive show Rival Peak took Facebook Gaming by storm, generating over 100 million minutes of viewing time in just three months. Viewers from over 70 different countries helped virtual AI-controlled contestants solve puzzles to progress through the game.
We have already observed how these shifts in consumer behavior and industry demands have affected hardware and software developers, chip manufacturers and global supply chains, as production focus moves from niche esports gaming hardware toward everyday consumer fitness wearables and at-home training platforms like Whoop and Peloton. This is the manifestation of the intersection of sports, esports and the metaverse.
Legal risk
Despite the vast opportunities, with new territory comes new risks, both commercial and legal in nature. Entering into any sporting metaverse will likely require a significant amount of data from users.
Fitness wearables are already set up to track almost every inch of people’s daily lives, from their location to their heart rate and even stress, sleep and breathing patterns, and there will be legal restrictions on what kind of data can be stored, where and for how long.
Cybersecurity, player protection and employment rights, IP rights and licensing issues are also key areas of concern. For example, the employment status of players and athletes must be carefully considered and the growing popularity of NFTs brings increased concerns over copyright and fraud.
What’s more, the growth and amalgamation of competitive sporting formats is likely to create a complicated infrastructure and regulatory landscape. For example, while cycling esports is now recognized as one of the nine UCI cycling disciplines alongside traditional road, track, BMX, etc., new federations and governing bodies with tailored rules and regulations will need to be established to monitor athletes and users’ use of online sports platforms, and the more remote this becomes, the harder it will be to monitor. This has been evident in the recent weight doping scandal on the online cycling platform Zwift, where users’ abilities to manually enter dishonest weights into the game during racing leagues to enhance their performance was publicly exposed.
Finally, if matches, sports and leagues eventually became largely or fully virtual, there will undoubtedly be questions over which jurisdictions’ rules and tax regulations will apply. All such questions are only likely to grow in quantity and complexity as technology advances and the industry grows.