Thesis
The Blockchain Sports Thesis
Spanning the entire spectrum of legacy Sport, Web3, and everything in between; the Blockchain Sports thesis is a dense, multi-pronged exploration around the tremendous opportunities from the symbiosis these growing, underserved industries.
If put into a single sentence; The challenges that held back innovation in Sports and widespread adoption of cryptocurrency, are the path to bringing these industries to their ultimate versions.
Synergies
BCSports has identified tremendous synergies between Sports & Web3; Fundamentally relevant areas of the sports industry that require the operational efficiencies of blockchain technology and areas of the Web3 industry that stand to benefit tremendously from a new caliber of highly active market participants.
By leveraging the strengths and innovations native to each industry, and intertwining them to supplement each others shortcomings, we can arrive at an order of magnitude improvement in the athlete's journey, the user's experience, and the industry's economic significance.
The surface area of elements attributable to this is broad and the nuances of each element extensive. In order to articulate the opportunities and fully grasp the implications of what BCSports is building, we must inspect the specifics of each industry individually, the intersection at which they meet, and even venture into some intellectually dense adjacent subject matters (such as economics and psychology).
This section of the document will be updated regularly and invite the reader to check back here every so often to make sure they have the most recent version.
Once the final version has been published here, we will conduct a formal announcement to commemorate the event.
An Introduction to the State of Techno-Sports
From simplistic administrative operations such as scheduling, messaging, and video calling to the borderline fantastic complexities of robotic limbs and cloud computing, technology has integrated itself with and disrupted every industry known to mankind.
Largely left out of this socio-technological transformation has been the sports industry. It would be unfair to say that there has been no innovation at all, but the degree of it has been microscopic (relative to all the applicable touchpoints and total addressable size of the industry) and predominantly non-disruptive.
The exact reason(s) for this are difficult to ascertain, however, there are three major points to which it can be attributed:
The gap between the atomic world and the binary world.
Conflicting Interests of Insiders.
Regulations around data privacy.
As it pertains to the absence of a direct connection between the physical/tactile nature of Sport and the intangible digital nature of information; extrapolating, recording, operating on, and properly interpreting the logic of human performance was long considered to be in a domain bordering on the fantastic. Capturing motion of objects in material space and transmutating its information into sustainable data streams has simply not feasible. Until recently.
As it pertains to the conflicting interests of insiders; this is a problem that has been prevalent in every industry throughout history. The largest, controlling private entities wish to protect themselves from competition and create fictitious moats of complexity to deter radical fundamental shits in the structures of their markets. This is not an attempt to spread conspiracy about them, this is simply to highlight the laws of big business, move slow to extract maximal value while minimizing any excess spending. Technology won't wait.
On the front of regulation; by virtue of the nature of Sports being heavily intertwined with human biology, the data generated by it and that is applicable to it, cross a multitude of jurisdictional boundaries, including medicinal. By crossing these boundaries, Sports data is subjected to stringent laws from ancillary sectors. While the original intentions of protecting the public from having its information misused were philosophically sound and rational, incessant database leaks (without adequate legal repercussions) have largely nullified those intentions. Those protective measures have become a double edged sword that hinder innovation. Things change.
Sports
Recording a global market capitalization north of $500 billion USD (without accounting for private deals, apparel, franchise values, snow, automobile, or aquatic sectors) and anticipating a compounded annual growth rate of over 10.5%; Sports is one of the largest remaining sectors disconnected from the domain of public markets.
Unlike any other industry, Sports has the unique sociological element about its demographic; fans and athletes posses a religious fervor about their affiliations. The depth of connection to their communities translate to some of the most mindboggling "life-time values"; a fan remains a fan for their entire life (and then passes his/her belief onto their families, friends, and societies). When taking into account the quantitive elements of there being over 8,000 officially recognized sports, over 20,000,000 professional athletes training, and over 3,000,000,000 enthusiasts building, watching, betting, and playing recreationally every single day; the raw amount of mindshare that Sports consumes on a daily basis makes it the worlds largest and only, physical gaming platform.
Subjected to arbitrary regulations and stuck behind the walled gardens of ultra-high networth individuals and enterprises, Sports has always been a public good owned by private entities. This logical gap has imposed a subtle social dissonance and resulted in the fragmentation of information; where the siloed databases of independent actors have no point upon which to consolidate, nor the incentives to do so. Without a credibly neutral environment for referencing data, average consumers (fans), as well as Athletes, have been force into trusting the integrity of third parties (that have their own agendas). As a history full of conflict would indicate, private interests can (and will) stage sporting events in order to impact wagers.
The need to unlock the full potential of this category has never been as pressing as it is today.
Primed and ready for a fundamental paradigm shift; technology has begun making its way into the Sport supply chain now. Breakthroughs with sensors in IOT (Internet of Things), big data processing with AI (Artificial Intelligence), and distributed databases (blockchains) have conspired to properly record, process, store and retrieve data.
Data
Prior to the arrival of Big Data, high-frequency information markets did not exist.
Today, data brokers are considered to be among the most influential actors in global commerce due to the value of the information they possess. While the nuances of their activity remain predominantly private, second-hand dark markets have been able to serve as a public reference point in assessing data value. Of all data types, biological data (in the form of medical/healthcare records) are classified as the most materially valuable, upwards of 6,000% more valuable than the second most valuable data type, financial. Where information such as credit card numbers can trade hands for around ~$0.1 and social security numbers around ~$1, healthcare records easily trade above ~$60.
This premium for medical data exists due to the sensitivity and depth of information they provide. In the event of a credit card number database leak, the impact of fraud is constrained (cards can be canceled and do not carry sensitive personally identifiable information). Taking this a step further is the impact of social security number fraud, which is much more pronounced due to the permanence of the asset (SSNs do not change) and the ability to extrapolate a certain degree of personally identifiable information with it (primarily the pseudo-financial-social elements such as addresses). At the furthest extreme of this spectrum is medical data; which carries the full range of sensitive information spanning the biological (eye color, hair color, blood type, etc.), the financial (SSN), and all of the interim social parameters that define an individual in society.
The data generated within the sport industry crosses a multitude of highly regulated jurisdictional boundaries; among them being the medical/biological ones related to healthcare, the financial related to betting and consumer spending, and of course the social, relating to user psychology and behavior.
When coupling the degree of regulation with the control being in the hands of private corporations and a lack on any universal reference points; an eerie sense of unease creeps into the mind.
The existing regime around Sport data must be displaced with open, private, sovereign alternatives.
Web 3 Sports
The Crypto, blockchain, and Web3 industry has been looking for alternative vectors of value, real-world use cases that are beyond defi (including privacy, gaming, social networks, etc). Uniquely positioned to provide a radical new alternative asset class rooted of its own sitting somewhere between RWA and social networks (Athletes), Sports has recently made its way on-chain.
From decentralizing the storage of media for building content delivery networks, to tokenizing memorabilia in the form of phygital goods for ensuring authenticity for collectors, to gamifying social interactions for platforms to engage their audiences, and beyond; the surface area for applying blockchain technology in the domain of Sports is yet to find its limitations.
Floating at a valuation around $2 billion across ~100 projects with upwards of 80% being owned by a single entity (Chiliz), on-chain Sports represents less than 0.3% of the total sports market. Even though it is good that the number of projects is growing, the fact that they are fragmented across different networks with different liquidity profiles, results in sub-optimal experiences and ultimately a similar suite of problems that are prevalent in the existing systems.
The sports industry needs Web3 creators to open up and define the design space of opportunities.
Bio-Economic Primitives
Built on the highly nuanced and complex biomechanical foundation of human performance, sports presents a sui generis vector upon which financialized systems are yet to be developed.
At a high level, financialization is the transformation of an object into a monetary unit. Financialization happens when an asset transcends its original intrinsic archetype and becomes a general purpose tools for the exchange of value. The inflection point at which financialization is takes place is denoted by its level of adoption, the exact threshold may vary by circumstance, but the thinking goes as follows; when a large enough group of people agree upon the accepting the asset as a form of debt settlement and the commercial acknowledgment is broad enough to accommodate for all of their citizens basic needs (food, water, shelter, transportation), that asset becomes financialized.
In order for something to financialize, it must possess the innate primitive properties of money. In order to extrapolate primitives, concepts must be boiled down to an atomic level of individual, independent elements, that do not possesses and intra-system dependencies on one another.
Example In economics, primitives include the velocity of money, productivity and waste of the population, rate and direction of change relative to historic performance, population dynamics, and so on. On their own, the elements do not rely on the others; when in combined they produce a symphony used to establish the sense of a state's wellbeing.
In biology, primitives refer to the isolated mechanical systems of nature. The prime example here is the human organism. An organism is composed of thousands of systems, digestive, nervous, vascular system, muscular, and so on; putting all of these systems together we create a body. Each of these systems is structured through the layering of other micro-systems; atoms create molecules, molecules create tissues, tissues create organs, organs create organ systems, and organ systems create the human organism.
In Sports, primitives are a more abstract concept due to the nature of sports being a social-human construct. We can distill these primitives through a reverse engineering approach; while each sport may require some degree of nuances, general, universally recurring elements relating to performance such as: energy expenditure (caloric burn), training intensity, distance covered, genetic predisposition, and recovery time stand to serve as a baseline.
By tokenizing the biological data associated with human performance and building free markets around them, we can effectively extrapolate fundamental primitives to establish a benchmark/index of a global Sports market.
The world has moved from barter, to seashells, to coins, cash, cards, and now digital tokens; its time to take this evolution to the next level.
Biological Market Multipliers
Whenever a company or project is ascribed its valuation a multitude of factors including collateral assets, workforce, intellectual property, industry standards, growth potential, and cashflow are taken into account. Of these, the factor with the most weight is cashflow; the better the cashflow the higher the multiple. Multiples are an expressions of an asset's face value relative to the economic value it generates and serves as a barometer that gauges growth expectations.
Generally speaking, there are three categories of multiples:
Private Markets are commonly floating in the 3x-10x range.
Public Markets easily attract multiples of 20x, 30x, 50, and even 100x.
Public Goods have seen these multiple skyrocket beyond 1,000x.
Example A single owner private software company doing $1,000,000 in revenue can trade hands at a $8,000,000 valuation. A public company with multiple stakeholders like Facebook can earn $100 Billion, profit $20 Billion and trade around $660 Billion 33x its earning. A public good, such as the blockchain-based decentralized storage and content delivery network Livepeer (LPT), earned ~$149,000 USD for its validators in 2023 (not all of which is profit, considering the operational costs to maintain a validator), and was trading at a market capitalization around ~$200,000,000, a multiple of over 1,342x.
The reason for such a severe discrepancy in multiples is due to market accessibility.
Private Markets usually have very tight, specific, arbitrary restrictions (such as net worth, network, and even personal biases) in place, limiting the total addressable audience pool {sub 10m}
Public Markets loosen the private market restrictions to include factors of geolocation or citizenship, expanding the audience pool by roughly an order of magnitude {~200m}
Public Goods remove any of the prior markets restrictions, allowing for anybody, anywhere in the world to participate at any time; opening up the addressable audience pool to the entire world {>8.1B}
Golden Rule of Thumb for Market Multipliers: The more Participants there are in a market, the less sensitive that market is to price.
By shifting the market structure of Sports from private to pubic, we increase the multiples and in turn the market capitalization exponentially.
Its time to take the leap and restructure the Sport market.
Last updated