Tokenizing real-world sports assets could drive foreign investments

Big players in the sports sector such as leagues and clubs are looking for ways to attract more foreign direct investments (FDI), and tokenization is set to become a major part of the strategy. That is according to new research from international consulting firm Agile Dynamics.

The sports industry has been doing spectacularly well in recent years. Despite macroeconomic trends spooking investors (like the pandemic, inflation, and geopolitical conflicts), the sports industry has proven to be resistant and has seen a notable uptick in investments.

Illustrating this, sports franchise values have surpassed S&P 500 values in the last ten years – in some cases five to one, and the banking sector has seen a surge in interest in sports investments.

One classic example of a bank capitalizing on the opportunities is JPMorgan, which has established a dedicated sports-centered investment banking group. This new team works alongside JPMorgan’s investment banking, commercial banking, and private banking sectors to offer advisory and financing solutions for investors targeting sports organizations.

With a track record of advising on significant sports-related mergers and acquisitions, such as deals involving Manchester United, Formula One, and WWE, JPMorgan’s move reflects the growing valuation of sports teams and their appeal to institutional investors, underscoring the sector’s rising prominence as a valuable asset class.

That growth is likely to continue in the short term on the back of investments in everything sports related: from as small as merchandise and media, to as big as major infrastructure (like stadiums) and multi-billion dollar team acquisitions.

“The sports industry is in a period of significant transformation, fueled by institutional engagement, the tokenization of tangible sports assets, and new incentive mechanisms,” said Paul Lalovich, partner at Agile Dynamics. “These developments are particularly visible in the football landscape, altering ownership models in the industry, creating enhanced financial prospects, and increasing operational effectiveness.”

Tokenization

One way to further boost investment in sports is through what is known as ‘real-world assets tokenization’, which has been gaining popularity in a number of industries, including mining and sports. In a nutshell, this is when tangible assets are represented by tokens that exist on a blockchain, just like cryptocurrencies.

Creating tokens from tangible assets simply makes it easier for investors to put money into certain areas that they want to invest in. These tokens are supported by blockchain technology because it is a good way to ensure that assets are securely stored and all transactions meticulously recorded.

“Football is ideal for the tokenization of real-world assets due to several key factors,” said Lalovich. “Firstly, football assets hold significant emotional value for fans, providing deeper satisfaction and connection compared to traditional investments. Additionally, football’s cultural significance and heritage offer stability and resilience against economic downturns.”

“Third, the sport’s global popularity and digital expansion present substantial growth opportunities, while tokenization allows for innovative investment avenues like owning shares in clubs. Lastly, football’s passionate fan base ensures strong demand and stable returns, making it a robust and attractive investment option.”

Tokenization of tangible assets makes it easier for leagues, clubs, and teams to draw investments, as they lower barriers of entry. For example, tokenization fractionalizes assets, making it easier for investors to own a diverse range of assets across different industries and countries. “It can also help investors to reach emerging and untapped markets, which are often in other countries and in other currencies.”

An added bonus of tokenization is that trading fees are relatively low compared to traditional forms of trading.

Lalovich summarized: “Tokenization of real-world assets in sports investment offers significant advantages, particularly through the democratization of access and enhanced liquidity by fractionalizing assets into smaller, more manageable shares. This process simplifies procedures, reduces costs, and makes investment opportunities more accessible to smaller investors within the sports sector.”

“By leveraging tokenization, sports investments can reach a broader audience, fostering greater participation and financial engagement in the industry.”

Foreign investments

FDI is needed in the sports industry because there is just so much investment potential and big industry players compete for it. Injections of capital from overseas can prove to be an indispensable part of strategies for boosting sporting culture and building new, state-of-the-art sports facilities.

“As the sports sector continues to develop, stakeholders must stay alert and flexible to make the most of new opportunities,” said Lalovich. “The landscape of sports investments is brimming with possibilities. By adopting innovation and fostering collaboration, stakeholders are well-positioned to navigate the evolving dynamics of the sports investment environment and explore new pathways for growth, sustainability and achievement.”

“Tokenizing real-world sports assets offers a transformative opportunity for attracting foreign direct investments (FDI) into the sports sector. As infrastructure and regulatory frameworks mature, the sports industry is well-positioned to benefit from this emerging financial innovation, driving growth and sustainability in the sector.”