A new report from the UK House of Commons Culture, Media, and Sport Committee has issued a stark warning against soccer clubs turning to so-called fan tokens.

This recommendation stands out in the 30-page report which delves into the intricacies and challenges posed by NFTs in both the arts and sports domains.

Fan tokens are cryptocurrencies pitched at providing fan benefits for sports teams or music groups. Some examples in the past have seen token holders vote on what music an athlete will walk out to or which jersey a team should wear.

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“Clubs’ use of fan tokens has been criticized for not delivering on promises of fan engagement,” the report reads. “We are (...) concerned that clubs may present fan tokens as an appropriate form of fan engagement in the future, despite their price volatility and reservations among fan groups.”

Consequently, the committee members conclude the report by recommending that “any measurement of fan engagement in sports, including in the forthcoming regulation of football, should explicitly exclude the use of fan tokens.”

In response to the criticism, James Newman, Chiliz chief of corporate affairs, the firm behind Socios, one of the leading fan token issuers, presented an alternative perspective.

“When a fan purchases a token from us, they are essentially acquiring access and asserting their membership rights to a specific fan community,” he told Decrypt. “Currently, this is centered on Socios, but in the future, it could extend to other club channels that are token-gated. We believe such transactions should be regulated as either commodity purchases or financial transactions.”

Addressing doubts about the real-world utility of fan tokens, Newman affirmed that the offering shouldn’t “supplant traditional fan governance or supporter trusts,” but instead to improve the dialogue between clubs and fans.

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"We understand and respect that our offerings might not appeal to everyone," he said.

Additionally, Newman underscored Socios' commitment to adhering to regulations.

“We've recently witnessed the inauguration of the first phase of crypto regulation in the UK,” he told Decrypt. “We actively participated in this process by submitting evidence, sharing our research, explaining the workings of our platform, and detailing the intricacies of fan tokens.”

UK Committee goes beyond fan tokens

The report also points out the risk associated with NFTs linked to sports clubs, emphasizing the resemblance to gambling. The Committee had earlier suggested that retail trading of unbacked cryptoassets should be considered similar to gambling.

However, Andrew Griffith MP, Economic Secretary to the Treasury, expressed concerns about potential discrepancies with international standards, especially those from entities such as the EU.

Internationally, many countries are establishing regulations for Web3 sports platforms.

France's SREN bill, aimed at enhancing digital security, showcases the nation's proactive stance on emerging technologies such as NFTs and cryptocurrencies.

Often referred to as the "Sorare law" by the media, this bill is now under review by the National Assembly. French firm Sorare launched in 2019 a fantasy sports game where players can either play with free cards or NFTs that they can resell on the secondary market.

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Last year, the company reached an agreement with the Autorité nationale des jeux (National Gaming Authority) to avoid being classified as gambling.

It was required to expand its range of free products, even though 90% of its user base was already accessing the platform's free content.

It includes provisions specifically for games rooted in NFT and cryptocurrency technologies.

These guidelines differentiate Web3 games from traditional gambling, with the differentiation grounded in three key factors: financial commitment, the element of luck, and possible financial gains.

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