⭐ 🔗 Upside Thought Leadership Series: Top VCs' Thoughts on The Sports NFT/Metaverse Market

The Sports NFT /Metaverse market has become one of the most talked about sports segments in the past 6 months with the emergence of sports NFT startup unicorns raising a sizable amount of funding (e.g. Sorare, Dapper Labs, etc.), and sports teams and leagues (NBA, NFL…) launching NFT solutions, in order to help them drive their top line and improve the fans engagement. However, many of these Sports NFT startups do not have solid business models, while many teams and leagues still don’t fully understand the difference between NFTs and Crypto.

With that in mind, we interviewed some top VCs such as True Capital Management, GFT, Courtside Ventures, Sterling.VC to get their take on the Sports NFT and Metaverse market, especially in terms of drivers, challenges, and what they are looking for when investing in Sports NFT / Metaverse startups. We also asked them how they see the NFT/Metaverse market evolving in the future. Here is a summary of some of the take takeaways of our conversations with these VCs on the Sports NFT and Metaverse markets. Of note, Sterling.VC and True Capital Management both invested in Dapper Labs, while Courtside Ventures invested in NFT startups such as Faze, Recure, and Nifty Game.

On the key drivers and challenges in the sports NFT space:

  • Some of the largest brands in the world (e.g., NBA) are embracing the digital collectibles opportunity, but providing great user experiences taking advantage of the digital aspects so mass market adoption is accelerated, will be key: This is what Jay Eum, Co-Founder & Managing Partner at GFT Ventures, explained to us during an interview with the Upside. He further explained: According to Forbes, the sports collectibles/ memorabilia market is estimated at $15B and growing rapidly. Digitalization of assets in general is still in its infancy but an undeniable trend so sports-related digital collectibles in the form of NFTs should have tremendous growth potential (..) Some of the largest brands in the world (e.g., NBA) are embracing the digital collectibles opportunity and this will drive others to join the fray. The challenge for the NFT vendors will be to provide great user experiences taking advantage of the digital aspects so mass market adoption is accelerated (..) NFTs or any digital items are key building blocks of the Metaverse enabling personalization and monetization opportunities”.

  • Sports NFTs make a lot of sense as they will complement the physical collectibles: This is what Vasu Kulkarni, Partner at Courtside Ventures, explained to us during an interview with the Upside. He further explained: Collectibles have always been a huge part of sports - from trading cards to memorabilia and now ever ticket stubs - fans have always felt a deep connection with items that they can own which are a part of history. As we move into the digital era, sports NFTs make a lot of sense as they will complement the physical collectibles.

  • NFT vendors need to spend more time thinking about how to truly create community and utility for these NFTs that isn't solely driven by financial returns: This is what Vasu Kulkarni, Partner at Courtside Ventures, explained to us during an interview with the Upside. “NFTs look like a quick cash grab right now as most projects have no utility and prices are being driven up by a lot of insider trading. While there is a ton of momentum and hype in the market, NFT vendors need to spend more time thinking about how to truly create community and utility for these NFTs that isn't solely driven by financial returns, otherwise the market can crash extremely quickly once something else that is new and shiny comes along”. 

  • We are very early in the development of Web3 and NFTs will be instrumental in the ecosystem’s development. Further, Sports and gaming will be a core use case for NFTs and we expect to see many more successful NFT projects going forward: This is what James Danforth, Director of Alternative Investments at True Capital Management LLC, explained to us during an interview with the Upside: While NBA Top Shot was a huge success that helped propel all NFTs, the interest in Top Shots and sports NFTs has waned somewhat. Frankly, we have been disappointed by the market’s interest in NFTs released by individual pro athletes, but believe that could pick up with more interesting formats for those NFTs. We are beginning to see NFTs have utility beyond digital art or collectables.  These range from being tied to a physical object, a meet/greet with a player, or a key an exclusive online club. We are very early in the development of Web3 and NFTs will be instrumental in the ecosystem’s development. Further, Sports and gaming will be a core use case for NFTs and we expect to see many more successful NFT projects going forward. We are actively looking for interesting partners for our pro athlete clients to launch NFTs.​”

  • We are currently in stage 0 of what NFTs unlock for sports teams, with founders experimenting with new methods of fan engagement and gamification: This is what Rohit Gupta, Partner at Sterling.VC, explained to us during an interview with the Upside: “The current sports NFT market is dominated by highlights and digital collectibles, driven by projects like NBA top shot. There are some experiments also happening with sports team ownerships, with a few different DAOs buying a sports team and selling ownership to the fans. We're currently in stage 0 of what NFTs unlock for sports teams, with founders experimenting with new methods of fan engagement and gamification. Obviously there are projects that will fail that don't provide any utility to fans and come across as short term money grabs, however projects that are geared towards deeper fan engagement will unlock monetization opportunities never seen before for all involved”.

  • Onboarding into web 3 is one of the biggest challenges for all companies in the space. It's still rather challenging to interact with fiat onramps and web 3 wallets for the masses, so hopefully it gets simplified over time: This is what Rohit Gupta, Partner at Sterling.VC, explained to us during an interview with the Upside: “Onboarding into web 3 is one of the biggest challenges for all companies in the space. It's still rather challenging to interact with fiat onramps and web 3 wallets for the masses, so hopefully it gets simplified over time. While there's been an explosion of wallets since 2020, it's still relatively small in the tens of millions. Sport NFT vendors need to think about how to onboard the next wave of users rather than just catering to existing NFT users”.

  • There is significant competition in a space where users are transactional and can easily switch between marketplaces for the most attractive place to list their NFTs and as sellers want large audiences, marketplace dynamics could lead to consolidation and lower fees: This is what James Danforth, Director of Alternative Investments at True Capital Management LLC, explained to us during an interview with the Upside: While there is immense interest in NFTs, there are many challenges for small NFTs vendors.  As there are many small NFT marketplaces that have launched many could struggle to build community, differentiate and retain relevance and users. There is significant competition in a space where users are transactional and can easily switch between marketplaces for the most attractive place to list their NFTs and as sellers want large audiences, marketplace dynamics could lead to consolidation and lower fees”.

On what VCs are looking for when investing in Sports NFT startups:

  • NFT startups with great teams that can build great user experiences, are critical: This is what Jay Eum, Co-Founder & Managing Partner at GFT Ventures, explained to us during an interview with the Upside. He further explained: Team, team and team! There are hundreds of NFT start-ups because there is very little entry barrier on writing an NFT business plan and the technology is widely available. However, the IP owners will only entrust their most valuable assets to proven teams that can build amazing user experiences”.

  • Placing a bet on NFT companies that can start with sports but extend into various other verticals is what we are doing: This is what Vasu Kulkarni, Partner at Courtside Ventures, explained to us during an interview with the Upside. “Sports is always an obvious and low hanging opportunity for new technologies. It rarely ends up being the biggest money maker, but it's a great test bed for new ideas because the IP is strong and there is a built in user base of millions of fans. NBA Top Shot likely will not end up going down as the greatest NFT project of all time, but I do believe that it will go down as the project that really put NFTs on the map and made them mainstream. Since we are in the very early days of this new frontier, placing a bet on NFT companies that can start with sports but extend into various other verticals is what we are doing”.

  • We're big believers in platform & infrastructure bets across the whole ecosystem, from wallets to DAO tooling, as these are the companies that are laying the foundations for web 3: This is what Rohit Gupta, Partner at Sterling.VC, explained to us during an interview with the Upside: “While I personally am a huge fan of eth, there are some downsides to the blockchain when it comes to the technical limitations such as transactions per second, as well as transaction costs. Dapper was one of the first companies in the space to understand this when Crypto kitties basically pushed eth to its limit, and as a result a custom blockchain was built around solving those issues with Flow. We're big believers in platform & infrastructure bets across the whole ecosystem, from wallets to DAO tooling, as these are the companies that are laying the foundations for web 3”.

  • Dapper will continue to be a leader in the space so we were excited to get our pro athlete and entertainer clients invested in both of their last two investment rounds: This is what James Danforth, Director of Alternative Investments, True Capital Management LLC, explained to us during an interview with the Upside: We believe in crypto and NFTs, and as one of the first and largest NFT producers, we respect Dapper’s ability to create viral products and even create new categories.  Dapper is much more than just Top Shot, with a robust roadmap of future development, they even developed their own low-gas-fee blockchain Flow which allows for small-value NFT minting and trading. Dapper will continue to be a leader in the space so we were excited to get our pro athlete and entertainer clients invested in both of their last two investment rounds”.

On how VCs see the NFT/Metaverse market evolving in the coming years:

  • Convergence of the physical and digital worlds in the coming years and NFTs will end up going hand in hand with tangible items. We are in the early stage of the Metaverse: This is what Vasu Kulkarni, Partner, Courtside Ventures, explained to us during an interview with the Upside. “We think there will be a convergence of the physical and digital worlds in the coming years and NFTs will end up going hand in hand with tangible items. There isn't actually much in the metaverse right now, as much as every conversation seems to revolve around it. We're still in the very early days, but we've already been priming ourselves to have an online persona via social media platforms for the past decade, and now these digital personas will have an entire ecosystem to live in. NFTs will simply be one of the many features of the metaverse”. 

  • Sports has the opportunity to really drive mainstream engagement around the metaverse and web 3. NFTs, will enable fans to monetize their own content of the team, which isn't possible right now, with easy methods of royalties back to the league/teams: This is what Rohit Gupta, Partner, Sterling.VC, explained to us during an interview with the Upside: “Sports has the opportunity to really drive mainstream engagement around the metaverse and web 3. In the near future, I expect to see virtual stadiums that can only be accessed via NFTs or fans with team tokens. NFTs, will enable fans to monetize their own content of the team, which isn't possible right now, with easy methods of royalties back to the league/teams. Most importantly, expect fans to have a larger voice in the direction of a team and the community. In short, new business models will be unlocked that creates values not only for teams, but the fans can participate in the monetization as well without it being a zero sum game”.

Bottom line: We are still in the very early days of the NFT/Metaverse/Web 3.0 revolution. Right now VCs are all making bets on which vendors will win and gain traction, which ones have the best business model, can scale, can build a great product with a great UI/UX and which ones have a strong management team with a great vision. Now there will be losers, and we expect some vendors to shut down and the market to consolidate over time. With that in mind, we expect to see some major exits and M&As in the next 3 years. At the end of the day it is an exciting time for the clubs, the VCs, the fans and the brands. It will help create new types of fan experiences, new monetization strategies and new revenue streams for the clubs, the brands, the content creators, and the fans themselves.

Share

🔗 🔥 Upside Analysis: NFTs Vs Crypto Vs Digital Currency, How Are They Different?

🔗 Upside Analysis: The NFT Sports Market: Key Players, Trends, Recommendations to Teams

🔥 Upside Chat: Sven Van de Perre, Tropos AR (Leading Metaverse Portal Startup)

🔥Upside Chat: Alberto Maiorana, Sorare (NFT Sports unicorn startup)