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Fan Tokens: The Form of Cryptocurrency taking over the Sporting World

Author: Naman Khanna

5th year student at Symbiosis Law School, Pune


I. Introduction

Individuals and companies have a new world of possibilities thanks to the emergence of cryptocurrencies. Now, people may transmit money across borders without paying a high commission or losing money in currency exchange. Further, they can invest in the novel world of crypto-currencies 24 hours a day, 7 days a week while anticipating big results. Cryptocurrency has also enabled sports teams, celebrities, and businesses to create their own tokens and seek sponsorship or support from their fan base via investment and merchandise purchases.

II. Blockchain Technology

To fully comprehend what a fan token is and the possible legal ramifications, one must first understand the blockchain technology that enables it. Simply explained, blockchain technology is a method of storing data in a manner that makes it extremely difficult to modify the data that was initially inputted. It's a public digital record of transactions that anybody can download and verify, and it's updated in a decentralized way. As a result, the blockchain is considered as a 'consensus mechanism,' which enables everyone on the same network to cooperate and agree on the network's future state by evaluating and updating the database structure.

III. Fan Tokens & how they are different from NFTs

Fan tokens are a kind of cryptocurrencies, traditionally issued by a sports team, which allow its holders to access a range of fan-related membership advantages including, voting on club matters, merchandising designs, and offer other unique experiences and incentives.

Fan tokens are similar to Non-Fungible Tokens (NFTs) in several ways, however, while NFTs confer ownership rights through a digital copyright that cannot be transferred or exchanged, fan tokens are completely and freely interchangeable. This ensures that fan tokens may be instantly swapped for items or services provided by the sporting organization that created them. Furthermore, fan tokens establishes identity and bring individuals together in a group that make them feel as a part of the team.

IV. How do Fan Tokens work – Socios and Chilliz is the leading participant in the fan token market as of now. It has collaborated with a range of international men's football clubs, including Liverpool FC, FC Barcelona, and Paris Saint-Germain, all of whom have their respective fan token supply. The fan tokens are maintained on the 'Chiliz' blockchain, which was created exclusively for Socios's sports fan interaction platform.

Chiliz has a distinct consensus process than Bitcoin, which is based on 'proof-of-authority'. Proof-of-authority, a reputation-based consensus algorithm that introduces a practical and efficient solution for blockchain networks, is primarily utilised by private organisations with semi-closed or permissioned blockchains to help enable a certain environment, primarily in terms of value for money and efficiency. Every team or club determines the price of their unique Fan Tokens during the period of the Fan Token Offering. The price of a single Fan Token will be "decided by supply and demand" after the Fan Token launching.

V. Why do Sporting Organizations sell them?

With a gaping hole left in clubs' finances as a result of COVID-19's loss of any and all matchday earnings, a greater emphasis has been put on maximising commercial incomes. Instead of a typical fiat currency like USD or Rupee, Chiliz's native crypto-currency is called '$CHZ,' and it serves as the de-facto money in the Socios ecosystem. Any purchase and sale of $CHZ will be recorded on the Chiliz blockchain, which will include the buyer, seller, transaction value, and time in a traceable and pseudonymized format. Socios then transforms the $CHZ revenues into a currency through which they pay their affiliates, either on a set price basis or through a revenue sharing agreement.

FC Barcelona developed its own fan token ($BAR), which raised $1.3 million in less than two hours. A.C. Milan, a Serie A giant, recently teamed up with Chiliz to sell its fan token ($ACM) on Binance, a cryptocurrency market, and produced $6 million in only a few hours. PSG revealed that a "substantial" element of the "welcome gift" in Lionel Messi's two-year deal included remuneration in the organisation's cryptocurrency fan tokens. Even in Cricket, Indian Premier League fan tokens are in the making, and Polygon, an Indian blockchain scalability platform aimed to create a multi-chain ecosystem of Ethereum suitable blockchains, is likely to power them.

VI. Analysis from a legal point involving the Stakeholders


When drafting and negotiating partnership agreements with Socios, these sports clubs will need to evaluate if the extra revenue sources and possibilities offered by Socios overlap, or are restricted by, any of their current partnership agreements. Several rights that Socios may anticipate to be awarded on an exclusive basis may have already been provided to other funders which may be betting partners or other financial or even crypto-currency partners like eToro, which is an Israeli social trading and multi-asset brokerage company that focuses on providing financial and copy trading services such as Forex and cryptocurrency. Any exclusivity terms in partnership agreements, or any effort to categorize the cryptocurrency industry as a competitor will need a careful consideration by clubs and their legal representatives.

In context of the rights granted to owners of Fan Tokens, the clubs will also need to assess the potential influence on their underpinning constitutional documents. These are the documents which define the existence of an entity and regulate the structure and control of that entity and its members and may include the Memorandum of Association and Article of Association of the organization. Now, if a fan buys a stake in a club, they are entitled to certain voting rights in connection to the club. Token holders do not yet have any rights in regard to management decisions made by the club; however, if the Fan Token model evolves, clubs may explore this as an option, and clubs and attorneys will need to evaluate the implications on the club's constitutional documents. If a club decides to provide Fan Token owners with special voting rights over player’s transfer policy, this may fall within the third-party ownership laws and regulations and thus suffer such consequences.


As the number of teams working with Socios grow, the likelihood of clubs agreeing to pay players' salary, transfer fees, or result-related bonuses with Fan Tokens will grow as well. As discussed earlier, a part of Lionel Messi's signing agreement with Paris Saint-Germain was paid in $PSG Fan Tokens. While that specific move was one of the most high-profile in recent times, it may have created a precedent for players and their representatives to be paid at least in some part in Fan Tokens or other cryptocurrencies in the future. It's also unclear how these contributions would be categorised under financial fair play standards from a regulatory standpoint.

Further, usually when a player signs a separate image rights deal with their new club through an image rights agency or a loan-out instrument, they are usually paid through a revenue sharing or fixed fee structure with the club. Undeniably, the athletes and their agents need to be mindful as Fan Tokens may influence the transfer fees they anticipate to receive. We may begin to see profit sharing or increments of the fixed fee given to the player in Fan Tokens, or in the form of other crypto-assets, making tax implications for athletes and their agents even more complicating.


Essentially, owning a Fan Token enables the owner to vote on certain club-related affairs. The specifics of what token owners may vote on varies in every club; however, they typically revolve on topics like the music played when the club scores a goal at home, themes for the club's social media accounts, and player-led take-overs of the club's social media interactions for a limited time. The owners of FC Barcelona Fan Tokens, for instance, were allowed to submit a model for a mural to display on the walls of the Nou Camp's dressing room when the tokens were introduced in June 2020; the top four ideas were then submitted to a vote of all owners to choose their preference.

Nevertheless, the issuance of fan tokens has also caused uproar in fans. The majority of fans, including some who may be deemed vulnerable, have little concept of cryptocurrencies as an unregulated product. Thus, fans will be forced to participate in a cryptocurrency ecosystem, which many may be unfamiliar with. In author’s view, if clubs of a particular sportsdecide to incorporate uncontrolled cryptocurrency into the game, they must also provide education and guidance on the purpose and risks involved.

VII. Conclusion

With Fan Tokens still in their infancy in the sports business, it is surely an area for clubs, fans, players, and agents to keep an eye on in the future. As clubs try to recoup from the losses incurred as a result of COVID-19, an alternative income streams such as Fan Tokens will become more appealing. However, it is unclear how the sporting regulatory environment will respond to the legal problems offered by Fan Tokens, as well as how national governments and regulatory agencies will treat the growing popularity of consumer-facing crypto goods in the world of sports.


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