Gm!

The NFL season begins today, so I thought it would be fitting to write about sports.

No, I’m not going to be writing about Football.

And I certainly will not be discussing how Justin Herbert is destined to lead my Chargers to the Super Bowl.

Instead, I want to talk about the future of sports.

In particular, the novel ways in which onchain games (and only onchain games) can revolutionize sports team ownership, funding models, and league structures.

I like memes, so I’ve decided to package my ideas on this topic into a broader term that I call decentralized sports or “DeSports.”

I would define DeSports as a form of competitive onchain gaming with decentralized team ownership and league rules that are enforced by smart contracts.

These new systems of competition are able to be created by leveraging the properties of onchain games like permissionless modding, the ability to fork, and protection against unilateral rule changes.

In my view, we can use these attributes to not just recreate our physical and esports leagues, but ones that are more equitable and entertaining than their offchain counterparts.

I think there is a lot to unpack here, and I don’t want to make you all sit through (or have myself write) a single, 8000+ word article. So instead, I’m going to write about this topic over time (not every week) in a series of pieces.

Each of these articles will explore different aspects of DeSports and try to envision what a world of truly decentralized sports leagues could look like.

In the future, we’ll hopefully be able to extend this series by looking at the actual DeSports teams and leagues that get built.

Today, we’ll start this journey into DeSports by focusing on the topic of decentralizing team ownership. In particular, we’ll discuss:

• Why centralized ownership of sports teams is bad

• Structures for decentralizing team ownership

• Why this is only made possible by onchain games

Now, let’s lace up our digital cleats and dive in!

The Perils of Centralized Ownership

Before we explore ways to decentralize ownership, let’s touch on a few of the issues posed by centralized team ownership.

As any fan knows, control over sports teams is incredibly concentrated, with most ownership groups consisting of one or a small group of individuals.

These owners rule with an iron fist, and near have near-total control over all aspects of the team including personnel decisions, ticket pricing, the decision of whether to build a new stadium, and much more.

Furthermore, owners are near-impossible to remove from power.

No matter how much you may want to, you can’t fire them. Unless they choose to sell the team, an owner will remain in control until the day they die.

If you are a fan of a great team with a good owner, you may not care much about this. But to all the fans stuck with terrible owners, this is incredibly frustrating. In many cases, it can doom your team to decades of mediocrity.

This is a struggle I have had to endure with my aforementioned Chargers.

Our owner, Dean Spanos, is notoriously cheap. He refuses to spend money on staff to support his players, whether it be a top-notch trainers or a good head coach. This is why we’re stuck with our current head coach, Brandon Staley, who is terrible at his job.

There is nothing I can do about this, and it’s particularly infuriating considering that his franchise plays in one of largest markets on Earth and is worth billions.

This leads us to another issue: Owners get to keep all of the potentially immense profits that their team generates.

While players at least have some revenue share, fans, whose love and passion for the team is what keeps them in business, are locked out from sharing in even the slightest sliver of financial upside.

Sports teams are a highly coveted investment that, in the offchain world, is only accessible to the richest of the rich.

They are like the ultimate high-end, meatspace NFT, as they are scarce, convey status, and are highly lucrative.

This is reflected in the value of teams in successful leagues over time.

For example, since 2000, the average value of an NFL team has increased more than 12x from $423 million to over $5.1 billion.

However, the fans, despite being one of the leading drivers of this value creation along with players, did not reap any of these returns.

But the issues don’t stop there.

By proxy, this ownership structure translates into highly centralized governance over leagues as a whole.

Let’s take the NFL again as an example.

On paper, governance of the NFL appears decentralized.

It almost resembles a DAO, as its 32 teams can vote collectively on major decisions. These teams can also select a commissioner, an individual to whom they delegate certain powers and responsibilities.

However, this notion of decentralization is a sham.

In reality, it’s just 32 owners and one commissioner calling all the shots, controlling the fate of an entire league with dozens of different stakeholder groups, thousands of players, tens of millions of fans, and which generates billions in revenue.

Decentralized Team Ownership Structures

Now that we know the problems with centralized sports team ownership, we can begin to explore some solutions.

Thankfully, onchain games can address many of these challenges by enabling true decentralized ownership of teams, and the ability for fans to share in the upside of a teams success (or even the downside of their failure).

I think there are several different ownership structures which can enable this.

Let’s touch on a few below.

The Traditional DAO Model

One way in which teams can be governed is through a traditional, tokenholder-controlled DAO.

In this ownership structure, a team would issue a governance token, which holders could use to vote on key decisions, including players to sign, developers to hire, or leagues to compete in.

This would help decentralize team management, control, and allow for the sharing of financial upside through mechanisms like token buybacks or dividends.

I think if designed properly, this approach to team ownership and governance would be far superior to simply having one individual calling all the shots.

With that said, DAOs as an ownership model for teams does pose some challenges in its own right.

For starters, it would present the same coordination and governance challenges that plague all DAOs. And I think there is a very strong case to be made that day-to-day management (and management alone) would be better off skewing more centralized.

At the end of the day, a sports team does likely not need the same degree of decentralization that something DeFi protocols like Maker, Aave, Uniswap, and others require to achieve their full potential and run smoothly.

Furthermore, it does not solve the funding problem.

Onchain gaming teams that want to compete in the big leagues will need capital to not only fund operations but also to participate in games themselves.

This is because many onchain games are trending towards implementing a “Stake-To-Play” mechanism, where players have to stake tokens in order to participate in a game. These tokens are then allocated into a prize pool, which is autonomously distributed to the winners of the game.

This means that to compete in high-stakes leagues or tournaments, teams will need to be armed with capital, which they will either have to provide themselves or raise from the public or private markets.

Short of holding a public token sale, the traditional DAO model does not provide the team with any funds to play with, as teams would have to consistently sell their own governance token and deplete their resources in order to scrounge up the capital to compete.

The Power Player Model

TradDAOs are one way you can decentralize team ownership.

However…

Rather than create a TradDAO, I think onchain games can enable a new type of ownership structure in which fans can provide funding for the teams they support while allowing them to share in the profits (or losses) they generate.

I call this the “Power Player” model.

(Yes, I know I still need to come up with a better name for this.)

I discussed this idea in my previously mentioned Stake-To-Play piece a few weeks back, but here’s a refresher.

Essentially, a Power Player refers to a someone who is playing an onchain game with outside capital.

This funding be facilitated by smart contract vaults, which would aggregate user deposits and route this capital to single player (the Power Player) who would then use it to participate in a game.

The profits they earn from playing would then be redistributed back to the depositors, while the Power Player, like a hedge fund manager, would take a cut of the total profits earned.

While I initially thought of using this mechanism on a small scale to enable individual players to play games for a living in a sustainable way, I think it could also easily be used to fund and decentralize ownership of an entire team.

Through this structure, fans can directly support their teams by providing them with the capital they need to compete. They will have direct skin in the game, and be able to share in the upside or downside of their teams success or failure.

This not only democratizes access to investing in sports teams, but will likely create even deeper, more rabid attachment between fans, teams, and players.

Furthermore, a Power Player ownership model could enable teams to have more flexibility over how they are managed.

For instance, a team could be run as a full-blown DAO, an entirely centralized organization, or be made up of just an individual player who cooked up some bots.

Although this has never been tested in prod, and there will need to be clear articulation of the rights that depositors have when it comes to team management, I think this is a really interesting alternative to DAOs that I want to explore further.

Only Possible Onchain

As you can see, competitive onchain gaming has the potential to radically change sports team ownership structures.

Whether through a DAO or a Power Player model, fans can now directly fund their teams, participate in their management, and have exposure to their upside.

This is another example of the power of onchain games.

This sort of experimentation would not be possible without an underlying game that can be modded by anyone, is able to facilitate the movement of capital at the speed of light, and where innovation cannot be stopped in its tracks by publishers, developers, or incumbents of any kind.

Furthermore, we can use these qualities to build competitive onchain gaming leagues that are more than simply a port of what exists in offchain sports.

Instead, we create entirely new ones that are decentralized for the better.

See you in Part 2.

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