Sports and Management

The Metaverse Era – Also for the Sports Industry?

A new consumer experience for sports enthusiasts

Are we about to witness the “next big thing”? Or only a fleeting phenomenon? And what potential can the often discussed metaverse offer to the world of sports? Taking a sports industry perspective, Professor Sascha L. Schmidt and Johannes Fühner of WHU – Otto Beisheim School of Management have analyzed this digital parallel world—one into which large companies invest millions. Based on the analysis of existing use cases, they explain what opportunities are emerging for the various stakeholders in the sports industry.

– Expert opinion –

The term “metaverse” has been on the tip of everyone’s tongue lately, at least since Facebook rebranded itself as Meta in October of 2021. But there’s a lot more than just Facebook pushing the metaverse into the conversation. In all actuality, this is about the internet taking its next evolutional step, one where the physical and digital worlds start melting together. Experts in the tech scene have been discussing this controversial topic for some time, with Mark Zuckerberg speaking of an “embodied internet” that will combine social media, gaming, the working world, recreational events, and shopping into a single three-dimensional platform.

There appears to be enormous market potential. In fact, according to estimations made by Morgan Stanley, the available market of the metaverse amounts to a staggering US$8T. In 2021 alone, over US$10B in venture capital funneled into start-ups active in the metaverse. For example, Animoca Brands, an Australian company, has generated a valuation of approximately US$5B through its visions for an open metaverse. One of the company’s key areas of activity is sports, as it collaborates with, among other organizations, Formula 1 to develop a blockchain-based game.

All the usual suspects of the tech industry play an important role in the metaverse. For example, Microsoft made its metaverse aspirations clear when it acquired the gaming company Activision Blizzard for US$69B—an amount roughly equal to the market capitalization of car manufacturer BMW. This acquisition demonstrates that the gaming industry has close proximity to the metaverse, and, if the interplay between traditional sports and gaming continues to progress, that could be good news for the sports industry. Additionally, there are countless start-ups that have anchored their business around the metaverse, e.g., the Roblox gaming platform, which Nike and the NFL (among other brands) have already joined.

 

The value chain in the metaverse is multifaceted and stretches over seven levels—from the heart of the technical infrastructure all the way to experiences in gaming, shopping, or also sports. Here, sports can add value due to its strong emotional impact.

 

 

But what opportunities is the metaverse currently offering to the various stakeholders active in the sports industry? Are we on the verge of the “next big thing” that the sports industry should address sooner rather than later? Or is the metaverse merely a burning match that will fizzle out as quickly as it caught fire?

Sports clubs and leagues are looking to create a new digital fan experience

Nobody knows what the metaverse is going to look like in the end. The future may offer both clubs and leagues interesting new ways of interacting with young demographics and boosting fan engagement. And given how strong the brands of these organizations are, the conditions appear rather promising. Unsurprisingly, some established industry players have already dared to jump in, being the first representatives of the sports industry to do so.

In November 2021, for example, the National Football League (NFL) caused a commotion with the announcement that it would open its own store on Roblox. With an interface developed by specialist provider Melon, this free online video game is regarded by many as the first glimpse into what the metaverse could become in the future. Participants can create avatars, build their own game world, play games, and attend events. In this digital world, products from all NFL teams are available for purchase with Robux, the platform’s proprietary digital currency. The value that NFL adds to the platform lies primarily in the contribution of its brand value. Similarly, FC Barcelona, Spain’s premiere soccer club, has already made its first forays into the metaverse by using Roblox to present its new team jerseys.

When it comes to soccer, Manchester City is considered a metaverse pioneer through its cooperation with Sony. One of the core objectives of this top English club is to create a global online community, the likes of which fans have never seen. Fans can meet up on the platform and exchange ideas both with each other and the players. All of this should help develop an even closer bond between the club and its fans. Manchester City also wants to build a metaverse version of the Etihad Stadium, which fans from all over the world will be able to visit using their customized avatars. Even before joining the metaverse, the club had already announced a partnership with Socios to launch a blockchain-based fan token.

Other early forms of the metaverse can be seen, for example, in the case of Manchester United, which offers people the chance to “visit” Old Trafford through the use of virtual reality (VR) at its Experience Center in Beijing. VfL Wolfsburg, a team in the German Bundesliga, is working together with the start-up The Football Company to build a presence in the metaverse through the platform Discord.

The world of tennis has also taken its first steps into the metaverse. This year’s Australian Open offered a series of non-fungible tokens (NFTs) that featured 700 unique pieces of differently colored tennis balls. These were later integrated into a metaverse called AO Decentraland, which hosted live broadcasts of the tournament in 3D. Swiss tennis pro Stan Wawrinka has also created his own series of NFTs: 5,555 digital tennis players that compete against each other in a tournament in the metaverse. Owners of the NFTs can train their digital avatars, thus increasing their monetary value.

Less mainstream sports have also reported their first pilot projects. For example, the Drone Racing League developed a “play-to-earn” game in the metaverse, in which players are rewarded for their efforts with a digital currency. The League is working in cooperation with the blockchain-based platform Algorand as part of a sponsorship agreement worth US$100M over the course of five years.

To date, it has mostly been the bigger names in the sports industry to have ventured into the metaverse. That being said, there are many attractive opportunities for smaller clubs and leagues, chiefly due to the relatively low barriers to entry. Aside from needing to acquire virtual “land,” entering the metaverse is essentially a matter of presenting one’s brand in digital channels. When it comes to fan tokens, for example, one can see that also smaller clubs, such as Young Boys Bern, Levante UD, and Fortuna Sittard, have a strong presence. Something similar is possible for the metaverse, too.

Sporting goods manufacturers open new distribution channel

The metaverse can offer manufacturers of sporting goods a major new distribution channel. This potential is the crucial factor behind why big tech companies like Meta and Microsoft are investing huge sums in the metaverse. It is therefore not surprising that sporting goods manufacturers are following suit. Thus, similar to the move from brick-and-mortar retail locations to e-commerce, a shift to the metaverse could be imminent in the medium term.

As an example, industry leader Nike is present both on the Roblox platform as well as on its own Nikeland campus. There, users can take advantage of various gaming offers and get outfitted with virtual Nike products. In December of 2021, the next milestone was made public: Nike acquired the British metaverse company RTFKT, a start-up that is to develop those virtual products, including sneakers and other articles of clothing.

Rival company Adidas is also active in the metaverse and, similar to Nike, has entered the market through collaborations with specific companies, including NFT provider Bored Ape Yacht Club and crypto-investor Gmoney. Under the banner “Into the Metaverse,” Adidas primarily offers its Adidas Originals product line. Recently, the company launched an NFT package of around 30,000 tokens, which sold out almost immediately and generated proceeds of over US$20M.

Entering the metaverse may be worthwhile even for smaller sporting goods manufacturers in order to reach new target groups at an early stage. For example, New Balance registered legally protected trademarks to sell virtual products in the metaverse. ARSV Sportswear, an American sporting goods manufacturer that started in 2014 with online-only distribution, is also preparing itself to make the jump into the metaverse: In December of 2021, some 60 premium winter collection NFTs appeared on the OpenSea marketplace—and all sold in under 30 minutes. In addition to all this, there seems to be an interest in the acquisition of virtual land on the metaverse platform Sandbox.

One thing is clear from all these examples: The most promising way to enter the metaverse is through collaboration. While the brand of the sporting goods manufacturer provides a “face” to the consumer, the technical implementation should be handled by specialists. This is the exact path that both Nike and Adidas took to build up their presence in the metaverse on emergent platforms such as Roblox.

How sports media are changing in the metaverse

In the future, the metaverse may be able to convince even the staunchest television viewers into moving from the two- to the three-dimensional perspective to follow their favorite club. This change can already be observed in certain areas of the gaming industry. For example, the virtual world already hosts record-breaking concerts featuring popular artists. In April 2000, more than 12 million users tuned in to a concert held within the virtual confines of the game Fortnite. The show featured American rapper Travis Scott, who appeared climbing out of a virtual spaceship.

Virtual concerts held within video games saw great success during the COVID-19 pandemic and created a new sense of community. The coalescence of gaming and entertainment is already in full swing, and behind these in-game concerts awaits a lucrative business model: When superstars take to the virtual stage, the gaming company gains access to that performer’s fanbase—who then go and download the game. The deal is equally lucrative for these prominent figures, who are able to reach a large target group of gamers. Travis Scott, for example, is said to have earned US$20M from his ten-minute performance.

If we look at the world of soccer, private channel Sky debuted an early form of the metaverse under the name SkyWorlds, where it broadcasts matches over VR technology. Using an Oculus Quest headset developed by Oculus VR (a subsidiary of Meta), spectators can view a match from a plethora of angles and, just as in-game concertgoers can, move freely around a virtual stadium.

Using a similar setup, the Brooklyn Nets attracted a lot of media attention after becoming the first team in the National Basketball Association (NBA) to offer a VR-based, live broadcast in the metaverse. Viewers could freely choose to view the game from any point on the basketball court and watch James Harden or Kevin Durant from up close. The NBA also offers free VR experiences via Meta’s Horizon Venues platform, in which viewers can snag a virtual courtside seat.

Assuredly, the shift toward metaverse broadcasting is not only imminent when it comes to sporting events. In fact, it touches all streaming services and even has an effect on future hiring decisions. Last year, for example, Netflix secured the services of Mike Verdu, one of the masterminds behind Meta’s metaverse activities.

Prospects for the sports industry

Although the development of the metaverse is still in its infancy, the potential for the sports industry is immense. There is a significant difference in the fan experience if the sporting event is shown on a two-dimensional screen or, conversely, if the spectators can immerse themselves in the action in such a way that mirrors—or perhaps even exceeds the limitations of—a physical visit to the stadium. The success of the metaverse is highly contingent on how quickly and widely the use of VR glasses (or other necessary hardware) will spread; the simplicity of the service and the usage costs will also be determining factors.

Naturally, sports organizations will have to show a great deal of courage and a strong entrepreneurial spirit in order to establish a presence in the metaverse. The most promising way to do so is to build partnerships with established players active in the tech industry or even with start-ups (e.g., Roblox or Unity). Cooperation of this kind offers an additional advantage, i.e., that investment costs are kept within bounds. As previously mentioned, sports organizations primarily contribute value through the strength of their brands, which can benefit long-term from any investments made for the future. In other words, any company that positions itself early enough within the metaverse will be increasing its chances of growing and sustaining its brand value—particularly as it pertains to younger demographics.

Tips for practitioners

  • Bring your brand into the metaverse early! With all the investments made by large tech companies, all signs are pointing to the metaverse sticking around for at least the medium term. Successful brands should act now to avoid becoming the next Kodak or Nokia.
  • Know your role in the metaverse! The value chain in the metaverse is multifaceted. Companies in the sports industry add value by offering new and unique fan experiences. Partnerships with specialist providers are required for handling the technical aspects of the value chains.
  • Design new offers tailored to your target group! It is primarily Generation Z that moves about in the metaverse, and they have completely different needs than older target groups. For that reason alone, a simple transfer from the old world to the new is unlikely to garner any success. Offers made in the metaverse should be gamified and radically re-fashioned to meet the needs of Gen Z.

Literature references

The original article “Aufbruch ins Metaverse – auch für das Sportbusiness?” was published on the SPONSORs platform on March 03, 2022: https://www.sponsors.de/news/themen/aufbruch-ins-metaverse-auch-fuer-das-sportbusiness

  • Schmidt, S. L. (2020): 21st Century Sports - How Technologies Will Change Sports in the Digital Age. Springer.

Authors

Professor Sascha L. Schmidt

Sascha L. Schmidt is Director of the Center for Sports and Management and Professor for Sports and Management at WHU – Otto Beisheim School of Management and the Academic Director of SPOAC – Sports Business Academy by WHU. Additionally, he is a member of the Digital Initiative at Harvard Business School (HBS), is affiliated to the Laboratory for Innovation Science at Harvard (LISH), and is active as a Research Associate at Emlyon Business School Asia. Sascha has co-authored various sports-related HBS case studies and is one of the initiators and Senior Lecturer of the MIT Sports Entrepreneurship Bootcamp. His research and writings focus on growth and diversification strategies, as well as future preparedness in professional sports.

Learn more

Johannes Fühner

Johannes Fühner is a Research Assistant at the Center for Sports and Management (CSM) at WHU – Otto Beisheim School of Management. His dissertation focuses on diversification strategies in sports and the influence of new technologies. Aside from his duties at WHU, Johannes Fühner acts as a management consultant at McKinsey & Company.

Learn more