What Is A DAO And How Will It Change Sports
Blockchain, Crypto, NFTs, DAO, Tokens, Wallets, Web 3.0, Metaverse, etc. It’s not difficult to understand why so many people hear these terms and either switch off or think it’s one big scam.
However, I’m here to tell you that despite your confusion and possible skepticism around this technology, it is not too late to get up to speed with it and the real-world use cases, as well as begin to understand the significant impact it will have on almost every industry and sector (you can find a helpful glossary which explains in detail and jargon-free language what each of the above terms means and more here ).
Now for this article, I will be diving into blockchains application within the sports industry and specifically how Decentralized Autonomous Organizations (DAO) provides sports fans the opportunity to own a professional sports team.
As a postgraduate Sports Business & Innovation student, it would be remiss of me to do a deep dive without also using academic theory to underpin my findings. So, with this in mind, I will be using the theory of Psychological Ownership to explain why a DAO provides legitimate opportunities for sports fans who may want the opportunity to own a sports team.
Psychological Ownership theory suggests that individuals possess a sense of ownership in their interactions with objects especially when the individual feels as though the target of ownership is “theirs”. We can see evidence of how this is played out with sports fandom, in the audiences who watch live telecasts of player drafts or carefully track player contract negotiations during the off-season.
Giulianotti (2002) states “attraction to such managerial operations is perhaps a form of consumption, it also demonstrates a sense of quasi-ownership as such fans clearly feel they have a stake in the negotiations. Thus, fans hold possessive feelings towards their teams, even though they are keenly aware that they do not legally own them or receive any financial benefit from them”.
Now despite providing a link to a glossary that explains the terminology bandied about within this space, I thought it would be useful to still provide a short explanation as to what both blockchain and DAO mean.
Blockchain is a type of shared database that differs from a typical database in the way that it stores information; blockchains store data in blocks which are then linked together via cryptography.
Decentralized Autonomous Organizations or DAOs are founded upon and governed by a set of computer-defined rules and blockchain-based smart contacts. 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.
In comparison to traditional companies, DAOs have a democratized organization. All the members of a DAO need to vote for any changes to be implemented, instead of implemented changes by a sole party (depending on the company’s structure). The funding of DAOs is mainly based on crowdfunding that issues tokens. The governance of DAOs is based on community, while traditional companies’ governance is mostly based on executives, Board of Directors, activist investors. etc. DAOs’ operations are fully transparent and global.
“Club ownership in professional team sport in North America is characterised by wealth, syndicates, and collective bargaining with the players. Much of this characterisation has to do with the ownership models that have been developed as a result of these dynamics’’ (O’Reily, 2019). More recently, investors have been exploring DAOs to purchase ownership stakes in leagues and teams.
In the United States, the DAO “Krause House” named after former Chicago Bulls GM Jerry Krause, has been launched to buy an NBA team.
“Krause House is a Decentralised Autonomous Organisation (DAO) governed by a community of fans, the basketball lovers, and purists. Together, we will write the consensus rules that will bring the first fan-governed team to the NBA. We will allow our members to participate in decisions affecting the operating procedures of a National Basketball Association (NBA) team including but not limited to general management, ticketing, merchandising and partnerships”. (Krause House, 2022).
While the money raised is nowhere near enough to purchase a sports team outright in any of the Big 4 leagues in the US currently; recent changes in the NBA, allowing private equity investment, means it is a possibility, should Krause House encourage enough fans to invest and look for a team seeking minority investment.
DAOs are not just being created to target sports teams either, fans of golf have created Links DAO intending to raise funds to buy a golf course. They claim to have raised over $10.4 million in 48 hours through selling NFTs.
Sport and fandom are unique in that fans wrap up so much of their identity with their favourite teams. Cialdini (1976) coined the terms ‘Basking in Reflected Glory’ whereby “consumers of the sports product so strongly identify with their favourite teams that they attempt to proclaim affiliation with a successful club even when they in no way had a hand in the team’s success”.
O’Reily (2019) states that groups decide to invest to become owners for several reasons, which are presented as the 8 P’s of ownership intent: “Performance, Profit, Platform, Pre-emptive, Purpose, Profile, Power and Passion”.
This can be highlighted with fans of the Green Bay Packers in the NFL whose ownership model is almost entirely fan-owned, with over 300,000 fans/ investors purchased shares in the club and who elect a board of directors to manage the club.
In 2021 they were able to raise almost $40 million by selling 119,000 shares of “stock” to fans for $300 each, finding willing buyers even though the shares carry almost none of the benefits commonly associated with ownership such as dividends, profit distribution, and the ability to sell the shares at an appreciation.
Naraine (2019) states that conceptualizing blockchain technology and understanding its impact on the sports industry has not yet occurred. However, I intend to delve into this topic in my thesis in more detail and understand its implications across the sports industry. Sport arouses enormous emotional energies, the intensity of which is infrequently discharged in commercial business (James, 1995).
While I continue to expand on my research in this area, I will continue to share my insights and findings publicly and appreciate any feedback as well as questions, so feel free to comment or DM me.
Peace.
