Metaverses – A Brave New World For Sports Brands?

Millennials and Gen Z have grown up with video games. Gaming has formed a core part of human experiences over that time, not least in terms of sports and media consumption. There are no doubt millions of traditional sports fans who were converted by virtue of their PlayStation or Xbox, and vice versa. It has been the perfect marketing tool in many ways.

The so-called ‘Web3’ revolution (more on that below) has opened up the world of marketing to a new generation of sports fan. Gaming, on-demand video and instant content creation have been the defining internet phenomena of the last five to 10 years. Encouraged by the feeling of autonomy (even if this concept is, in reality, artificial), this new category of sports fan has proliferated, and sports brands and talent need to be ready, willing and able to welcome them in.

After a few false starts, sports and gaming now look to be seriously entering a new era: metaverses.

Given the ever-changing nature and huge breadth of the topic, this article will seek to:

• provide a brief and current definition of metaverses;
• explain what opportunities there might be for sports brands, athletes, events and rightsholders; and
• set out how you might protect your sports business from any associated legal and commercial pitfalls.

In Brief – What are ‘Metaverses’?

Essentially, metaverses are environments, ecosystems and communities existing only in a digital form. Matthew Ball, a metaverse expert and author, has described metaverses simply as “a parallel plane of existence…that we’re all participating in…altogether…at the same time.”[1] Very broadly speaking, metaverses make use of a number of technologies, including:

• fully immersive experiences using virtual reality (VR);
• augmented reality (AR) which projects virtual items into the view of the physical world (PokemonGo is a good example in the gaming world); and
• mixed reality, such as filters and other virtual features which actually interact with your view of the physical world.

All of the above are ways in which users can experience metaverses, but they are by no means the full picture. The idea is that metaverses will continue to evolve as necessary both through technological advancement and the development of utility.

The term ‘metaverse’ was originally coined by author Neal Stephenson in his novel Snow Crash, published in 1992, which revolves around a virtual world, accessed using VR headsets.[2] This fictional concept may now appear Nostradamus-esque, but the truth is that such ideas around the use of VR had been developed at least 35 years earlier.

Cinematographer Morton Heilig’s ‘Sensorama’ [3] invented in 1957 and patented in 1962, was a multi-sensory machine used “to provide a new and improved apparatus to develop realism in a simulated situation.”[4]

A short while later, what is believed to be the first-ever VR headset was invented by American computer scientist Ivan Sutherland[5]. Through the headset (known as ‘the Sword of Damocles’), users could experience a ‘virtual room’ – a real-time, interactive virtual environment.

Skipping past a number of applications (such as the ‘Super Cockpit’ flight simulator in 1986[6]), the way was paved for the “failed” SEGA VR headset, announced in 1991 but never released.[7] This product highlighted one of the many barriers to mass production and sale of VR products – outlined a little further below – being the cost of production and integration.

Different applications in the business and media world include resources like online (or ‘virtual’) exhibitions, allowing organisations such as museums and event production companies to display virtual versions of buildings, rooms, products and more. The impracticalities and expense of transporting large, heavy products (such as machinery or components) to prospective customers are combated by simply demonstrating them to customers using a VR or AR headset.[8]

Audience Engagement – What’s New About Metaverses?

Metaverses are now viewed in the cryptoasset and blockchain world as the “decentralised version of today’s internet”[9] – essentially, the epitome of the Web3 revolution, whereby users and not platforms control the inputs and outputs of the internet (e.g., owning their own data and virtual goods). Those goods can then be monetised – such as by buying and selling ‘virtual real estate’ (normally plots of land within the metaverse) which are sold in the form of non-fungible tokens (NFTs).

Two of the biggest proponents of this model have been Decentraland and The Sandbox; 3D virtual worlds, each built on the Ethereum blockchain. They have their own cryptocurrencies as a means of exchange for the purchase of these plots (Decentraland uses MANA and Sandbox uses SAND) and other goods and collectibles within those worlds.

For businesses, the COVID-19 pandemic provided a catalyst for the global adoption of video conferencing and online communication. Internal and client meetings, work socials, instant messaging and the like were all moved online by firms around the world almost overnight.

The financial value in modern day sport is very much derived from media and entertainment properties, an observation which was all but solidified with deals like Liberty’s £6 billion takeover of Formula One in 2016. The production of content for all and any sports – including amateur and semi-professional sports – has become chief among the focuses for clubs, leagues and other organisations in the sporting ecosystem.

What the use of metaverses could do is to expand, replicate and diversify the ways in which brands can market themselves. A good example of this was when HSBC took the plunge into the metaverse for marketing purposes, partnering with The Sandbox[10] (a blockchain-based 3D game, which includes user generated content which can be monetised by those users).

Opportunities – In digital form

Live sports, of course, rely on the real-life attendance of humans for several reasons, chief among which is primary (tickets) and secondary (refreshments and memorabilia) match-day revenue generation. However, it is predicted that end-users may be spending up to six hours a day in metaverse experiences by 2030. Further, given existing market trends in virtual interaction and experiences post-COVID-19, half of all live events could be held in the metaverse.[11]

In fact, the effect of the pandemic on the digital space has meant an almost overnight and widespread adoption of virtual experiences. The simple reasons for this are that virtual experiences are presumed to be cheaper and safer than ‘real-world’ versions. The use of VR and AR technology for delivering fire safety training on an oil rig, for example, can be easily delivered using a headset and interactive props[12].

In the football world, what was seen as a major announcement at the time (and now, a seemingly early announcement, being that it came in November 2021) was Manchester City’s partnership with Sony[13]. This was due to involve the building of a “virtual recreation of the Etihad Stadium” in order to enhance digital fan experiences. Through this partnership, Sony have been appointed as the club’s ‘Virtual Fan Engagement Partner,’ which is reflective of an increasing number and variety of such designations we are seeing across football in particular.[14]

These technologies and trends seem to change almost wholesale every five to seven years, highlighting the inherent risk associated with businesses attempting to make significant waves in the space – particularly as early adopters. Financially and from a public image angle, being a first-mover can be a gamble. However, every industry needs trailblazers and successful early adoption could have hugely significant benefits, both commercially and from a fan engagement perspective (which, of course, are symbiotic).

Conservative estimates as to the value of the metaverse is $1.3 trillion, but with the addition of virtual real estate and other assets, this value increases to several trillions of dollars[15]. This is clearly an unprecedented opportunity to change (or at the very least, enhance) the way sports are consumed.

Exploiting (and Protecting) IP in the Metaverse

Metaverses are certainly being viewed by rightsholders as a new dawn for diversifying and monetising their intellectual property (IP). As was discussed in this piece, whilst care must be taken, NFTs have been an increasingly lucrative way of creating new assets for long term revenue generation.

NFTs are fast becoming key digital assets within metaverses, utilised by immersive games such as Fortnite and allowing brands and other rightsholders the opportunity to sell their wares in digital form. Not only can you buy collectibles, but Fortnite opens up the already well-established world of ‘skins’ and the like, giving gamers the chance to buy items with unique features, with NFTs acting as their certificate of ownership.[16]

Similarly, attention has been turned towards metaverses as a way to further exploit (both in terms of brand awareness and monetisation) the already significant goodwill held in sporting brands. If you picture the seemingly limitless world of social media as a place for brands to promote themselves, metaverses may be viewed as the further merging of two spheres: gaming and digital communities.

The legal and regulatory issues which are already being seen in the metaverse and Web3 space will, for now, likely have to fit into an existing regime of IP law. This will therefore very likely cause issues for the owners of the core technologies involved in building these virtual worlds, as well as those who wish to make use of the environments. A number of key considerations are as follows.

• ‘Interoperability’ – the way in which different software and systems ‘speak’ to one another. Enhanced interoperability will mean a more seamless experience for developers and end-users. This will, however, affect the way in which developers can protect and monopolise their products, as it will be more difficult to ‘draw a line’ between one system and another. In reality, however, the more open it is the more efficiently it will operate.
• The importance of registering trade marks (and using them). It is reassuring for users to see their favourite and most frequently used products. Similarly, it is critical for sports brands and their partners to have a presence in the metaverse where they wish to exploit their commercial rights IP. The way brands can combat this is to use a suite of registered marks in such a way that it builds a genuine commercial presence in the space.
• When and how to enforce your IP (particularly trade marks and copyright), where audiences are getting younger. From a PR perspective, brands are now looking at just how far they can let users get away with infringing behaviour, while trying to balance the necessity to crack down on unauthorised use of IP.
• Making use of metaverse platforms for brand protection. Where infringers begin using your brand without permission or licence, the platform will have an obligation to review and ultimately remove infringing material once this has been reported to them. It is a relatively straightforward, cheap and fast way of protecting your brand.
• Build, maintain and retain data rights. A further, huge topic in the context of metaverses is the importance in retaining rights in the highly valuable data generated via digital projects. Having ownership of (or, at the very least, ultimate control) user and infrastructure data will be critical in monetising the metaverse to maximum effect.[17]

Regulation in the Metaverse

When discussing Web3 in general, we have to consider the wide range of media which exists within it. The regulatory focus thus far has largely been on digital assets (particularly ‘mainstream’ cryptoassets like NFTs, fan tokens and currencies), given the concerns around consumer and investor protection.

Referring back to Web3 principles, a level of self-regulation and accountability (more in the form of setting standards for the industry) has come via the Metaverse Standards Forum (MSF).[18] It is an organisation of now well over 1,000 businesses with a foot in the world of metaverses, ranging from broadcasters and media companies, crypto wallet providers and VR/AR hardware and software manufacturers.[19] The MSF is looking to “foster the development of interoperability standards for an open and inclusive metaverse,” thereby governing the principles which underpin Web3.

Metaverses have the benefit of hindsight in some respects, given that NFTs and cryptocurrencies have undergone somewhat of an acid test in recent years. They will continue to be expanded, tweaked, redefined and improved as time goes by, much like the internet before it. Sports marketing will in turn be a natural partner, given the way in which brands and rightsholders have to continually adapt and embrace market trends.

How might Metaverses Work for You?

Take a step into the virtual world and imagine that you own a football club. A metaverse business (say, a company which actually builds virtual, digital environments) approaches you with an offer to create a digital version of your club’s physical real estate (let’s say, your stadium, training ground and other retail outlets you may have in your hometown or city).

Your first question may (quite rightly) be, “why would we do this?” The proposal is that fans of your club regularly visit your website to buy replica shirts, tickets and other memorabilia from your online store. Aside from regular spectators or fans local to your stadium or club shop, a good proportion of your following is living elsewhere, at home and abroad.

Other global sports properties, including the All England Lawn Tennis and Crocquet Club (organiser of Wimbledon)[20] and the NFL[21] have already teamed up with the online universe game Roblox. Players can collect rewards in game play and redeem them in virtual stores, for example.

What will be interesting for sports businesses and rightsholders is that, unlike the advent of e-sports for example, there is no initial limitation on the type of brand which can build a presence in the metaverse. Endemic brands (e.g., gaming chairs, consoles and other hardware) were initially the ‘obvious’ sponsors and brand partners for e-sports teams and events. Metaverses will not have this issue – it is so wide ranging in appeal and scope that almost any brand or type of sponsor you can think of could build a use case to partner with you.

Possible ‘Cons’ or Barriers to Using Metaverses

There are of course factors which might impact your organisation negatively. It is no secret that much criticism has been aimed at the crypto space in the last four to six months, owing largely to the way in which assets have behaved (e.g., the volatility in the value of items such as fan tokens and NFTs) and their perceived impact on consumers.

While it is true that new and developing products and services are awash with issues (normally relating to reliability, or susceptibility to fraud or other security breaches), this should not necessarily be a sign that such items will ultimately fail. As with other digital products, metaverses will take some time to become as sophisticated as they need to be for mass adoption. This will be dependent on:

1. the trust that end-users can place in the technology. Consumers are far more tech and rights savvy than they were even five years ago. Therefore, transparency is important. The blessing and curse of online communities is that information is accessible within nanoseconds. People concerned with liberty and protection will flag up the finite and unfavourable details of a platform’s terms of service, for example. If you are partnering with a metaverse platform (or any related business, for that matter) being open about user rights is important. Initiatives like the MSF will hopefully go some way in helping the general level of trust among users, but it remains to be seen;
2. the adequacy of the technology. It is currently difficult enough to have an uninterrupted meeting via one of the many conferencing software applications due to network latency, let alone the graphics and processing speed required for a high-definition, real-time experience using a VR headset. Some brands have already looked at experimenting with the use of immersive, experiential ‘meeting spaces,’[22] which allow colleagues to interact with more than just a face on screen. Body language and other cues which cannot be fully captured in 2D can be mimicked using a VR headset, for example. Other wearable technology (such as gloves and monitors etc.) may enhance the user experience even further by replicating the ‘feeling’ of holding or touching something which can only be seen in digital form;
3. the continued costs involved in ‘building’ a digital world. The main tech players will not be ‘independent’ or decentralised, as is the Web3 way. Many billions of dollars of infrastructure investment will be needed to satisfy point 2. Meta (formerly Facebook) alone has reportedly sunk upwards of $10 billion into the development of its own AR and VR technologies (hardware, software and content) through its metaverse division, Facebook Reality Labs.^[23] From advertising alone, Meta generates over $100 billion per year. It has the resources to make things happen, where the remaining 99% (or more) will not;
4. the environmental impact. Such data-heavy processes will in turn mean the need to ultimately offset the massively increased energy consumption required to power virtual worlds. The more users metaverses attract, the higher the standard (and capacity) will need to be. Keeping customers happy is always the aim, so if the quality of experience is not there, those customers will move to a competitor or ditch the tech completely. Without an energy supply solution, metaverses will leave a significant mark by way of its demand on data centres and, in turn, the environment; and
5. protecting young users. A constant battle is being fought in the gaming world against the exploitation and abuse that young people (and people of all ages for that matter) at the hands of 'trolls’ and other malicious actors. Children using chat functions and ‘private’ rooms within immersive games makes them susceptible to verbal, sexual abuse which will go unchecked. As the number of users increases in the metaverse, this policing will become much trickier.

Some Conclusions and Predictions

In short, metaverses can be regarded simplistically as an enhanced version of what video games were to sports fans 25 years ago – immersive and, at times, lifelike recreations of real life. Within those worlds, interacting with and consuming media works a little differently. It is instantaneous, quirky and convenient.

It is the author’s view, however, that until the infrastructure catches up to the proposed execution, metaverses are likely to be utilised by sports brands on a limited, periodic and gaming-related basis. This might include brand activations and ‘cross-over’ projects (e.g., ‘Nikeland’, a collaboration between Nike and Roblox).[24]

The all-access version of metaverses is likely 10 years away and should be viewed as evolutionary in nature, as opposed to an overnight disruptor. As noted above, virtual worlds are not a new concept; we are just perhaps drawing closer to making those worlds a viable and useful commodity.

It is therefore plain to see just how useful virtual environments could be to the sports and entertainment world. They can be seen as more of an extension of what is already mainstream in some ways (online and in-game marketing) and becoming something of new frontier (incorporating value through genuine scarcity of digital assets in the same way as physical products).

The desired decentralisation is becoming increasingly difficult as traditional regulators move in. With the breakneck speed at which Web3 and cryptoassets move, the task of analysis, protection and regulation become all the more challenging. A balance is being struck between listening to a market which is ‘clued up’ on new products (e.g., the MSF) and offering a safety net for those who buy in to risky and (currently) unchecked schemes.

Resources

• Read at lawinsport.com (subscription required)