Sports Image Rights: The changing landscape in relation to Blockchain technology and NFTs

By Athena Constantinou and Achilleas Zapounis,
Definition of Sports Image Rights:
The sports celebrity’s image is an asset with significant commercial value. This value lies within the athlete’s own personal goodwill which is what attracts fans to famous individuals; and what gives celebrities their commercial value, given their fame.

Image rights are the expression of a personality in the public domain. The provision of image rights in law enables the definition, valuation, commercial exploitation and protection of image rights associated with a person. The right of publicity, often called a personality right, is the right of an individual to control the commercial use of their name, image, likeness, or other unequivocal aspects of their identity. It is generally considered a property right as opposed to a personal right and, as such, the validity of the right of publicity can survive the death of an individual. So-called ‘post mortem rights’.
Personality rights are generally considered to consist of two kinds of rights:
 the right of publicity; and
 the right to privacy
In Common Law jurisdictions, publicity rights fall within the realm of the tort of ‘passing off’, as there is no free-standing legally recognized image right.
However, US jurisprudence has substantially extended the right to one’s image through the notion of natural rights and the idea that every individual should have a right to control how his or her persona is commercialized by third parties, who are intent on making a profit from it.
A. The Current Regime in Sports Image Rights
1. Current methods utilized in building and monetizing the athlete’s brand
Athletes worldwide are aware that developing their brands and working on their personal marketing strategies will help them stay up-to-date and in the spotlight for much longer than their athletic miracle careers endure. This, in turn, will greatly contribute to their lifelong financial success, especially in their retirement.
Athletes usually build and capitalize on their brand by creating appropriate personal marketing strategies, with well-defined branding activities, which are in line with their life plan. Strategic building of the athlete’s personal brand is important, because it capitalizes on the values that the athlete brings to the marketplace in order to stand out from the rest of the athletes. To build their brand, athletes usually utilize a communication strategy that uses both online and offline activities as follows:

Online strategy: They design, build, promote, monitor and optimize their Online Marketing Platform which consists of:

  • A Website;
  • Social Media Platforms (Facebook, Twitter, LinkedIn, Instagram, Snapchat, Tik Tok, Youtube, and so on);
  • Web Broadcasting;
  • Organizing and commercially engaging their fan base, especially their social media followers; and
  • Inviting their fan base into their lives with the use of social media.

Offline strategy: Athletes usually promote themselves Offline through appearing in charity or other events, using philanthropy or common good causes.

The monetization of an athlete’s brand currently utilizes various activities which include the following:
Endorsements by sports stars are considered quite valuable for brands and they are sought at various stages during the life cycle of a product. The promotion of the endorsement through the social media accounts of the endorsing athlete provides a direct way for celebrities to endorse publicly products and share their enthusiasm with their fans, and it is considered a core part of an endorsement strategy nowadays.
Endorsement contracts usually have a definite time frame, anywhere from one to five years, usually with an option for renewal, within the time frame that the sports celebrity is active in their sport, and they may include one particular product or a range of specific products. The compensation can take many forms: from a fixed fee, to a percentage of the sales of the endorsed products, or a combination of the two. Third party endorsers may provide bonuses for athletic achievement within the endorsement period.
Sponsorships are offered by sponsoring brands who support a sports celebrity and hope that their appeal to the public will have a positive effect on the brand’s product sales.

Sponsorships create a more involved contractual commitment for the celebrity athlete because of their long-term nature and because the sponsor requires certain actions from the athlete in return for the sponsorship fee paid to them. Sponsorships can create a good-size income stream for the athlete, as many companies from various industries are moving towards this direction to raise brand awareness and recognition. Celebrity athletes are usually sponsored from various companies in different industries, simultaneously.

Merchandising whilst endorsement is about the product, with the athlete used as a marketing tool, is more about the athlete behind the image and the sale of a range of products under that athlete’s name and image.
Merchandising often involves various parties while the celebrity is at the core of the product’s marketing campaign; the athlete is not usually responsible for the design or production of the goods. The celebrity may or may not have overall strategic control depending on the agreement they have entered into. In many cases, a company with experience in the field of, for example, perfumes, can seek permission to use the celebrity’s name for a particular perfume thus making this a licensing deal.
Other uses the image rights of an athlete may be exploited in a variety of ways, through appearances, apps, or computer games which feature a celebrity athlete’s likeness. In such cases the athlete can be compensated, either through a flat fee or a licensing agreement based on the sales of the computer game. Athletes can also receive royalties for films, documentaries, books, and so on.

2. Existing models of investing in the athlete’s brand commercialization
Image rights arrangements offer lucrative investment opportunities to third parties wishing to participate in either the profits of such arrangements through shareholding or the revenues of such arrangements through the acquisition of revenue participation rights in an athlete’s future commercial revenues.
Usually, athletes establish a corporate entity in which they contribute their sports image rights and through which they commercialize their personal brand for a profit. Establishing such an entity gives athletes the opportunity to raise funding during the early stages of their career by selling part of the entity’s shareholding to third parties or by selling revenue participation rights in their future revenues, arising from the exploitation of their brand, to third parties. The value of either the shareholding or revenue participation rights is usually determined through the traditional valuation methods of Discounted Cash Flow or Discounted Future Profits.

3. Existing sports image rights protection tools
Image rights are an asset of the sports personality with a potentially large commercial value. The right of publicity, otherwise called a personality right, refers to the individual’s right to control the use of their likeness, name and identity for commercial use. A company or person cannot use an athlete’s name or image for monetary gains without permission or contractual agreement.
Unauthorized use of the sports celebrity brand may be manifested in a number of ways including:

a. Trademark infringement through direct use of the athlete’s registered trademarks;
b. Dilution of the mark by using look-alikes of the athlete’s distinctive and famous marks;
c. Unfair competition and false advertising; and
d. Use of web names or domains containing the athlete’s name or distinctive logo, such as Ronaldo’s CR7 distinctive logo.

Whilst sports personalities could possibly rely on unregistered rights, such as claims for ‘passing off’, ‘false advertising’ arguments or ‘dilution of their mark’ through the use of look-alikes, to prevent third parties from using their name and likeness; such claims and arguments can prove to be quite challenging and fact sensitive.
In order to protect their brand, it is important for sports celebrities to identify their relevant trademarks. Most often, the protectable trademarks of a sports celebrity are their name as well as their likeness. Once trademark rights are established in a name or likeness, the next step is to register these trademarks.
In the United States, these trademarks can be registered with the USPTO (United States Patent and Trademark Office) and such registration extends common law trademark rights to the entire United States. Whilst in the United States the personality rights (known there as ‘rights of publicity’) are, to some extent, recognized and protected, there are a number of countries, including the UK, where there are no specific legal tools which define image rights or address the harmful effects of the unlawful use of a person’s image.
In the case of image rights of sports and other personalities, the traditional tools of copyright and trademark protection are not clearly able to offer the required protection to celebrities in relation to the unlicensed use of their image and/or likeness. For a claim to succeed in court the celebrity must be able to demonstrate that:

  • At the time of the event, they had a significant reputation and/or goodwill;
  • The actions of the defendant gave rise to a false message which would be understood by a not insignificant section of the general public that their goods/products/services have been endorsed, recommended and approved by the celebrity; and
  • They must also prove loss.

The creation of the International Image Rights Registry of Guernsey presents a solution for the protection of sports celebrity image rights. Through this Registry, it is possible to register the image rights of a sports personality as a kind of trademark in Guernsey and thereby gain some international legal protection for them. According to Guernsey Law, the core right is the registered personality, known as the ‘personnage’. Registration means that a right exists and protection commences on the date the application is made. Personality refers to the personality of the following types of person or rights:

  • Natural or legal persons;
  • A joint personality;
  • A group such as a sports team or pop group;
  • A fictional character.

4. Valuation methodologies currently used for assessing the value of sports image rights
At present, calculating the value of the sports celebrity image is based on predicting future earnings and cash flows derived from commercializing the image and calculating their net present value. This methodology is widely accepted by global auditors and tax authorities in many countries and it is sufficiently reliable for use in financial reporting.
In using this methodology, first, we have to identify and predict the revenues from commercializing the image and then convert them into cash flows. The revenues from the commercialization of the Sports Celebrity Image can be split between stable revenues, such as future payments from existing endorsement contracts, and volatile revenues, such as payments from expected endorsement, merchandise contracts and other licensing activities. We then calculate the net present value of net cash flows from the expected revenues, discounted by a rate which best reflects the risk that the future earnings and cash flows will produce. The discount rate takes into consideration the strength of the brand. In principle, strong brand equity can accelerate and enhance earnings flow and can lead to less volatile and vulnerable cash flows. Since the Sports Celebrity Image is expected to generate earnings after periods that can be reliably predicted, an annuity component may also be added to reflect the continuing long-term earnings after the short-to-medium term forecast period lapses.
B. The New Regime in Sports Image Rights: Using Blockchain, NFTs and Smart Contracts
With the evolution of Blockchain technology, NFTs and Smart Contracts, the sports image rights landscape is beginning to change. Blockchain technology has revolutionized the way athletes can build, commercialize and protect their brand. The ubiquity of digital technology has given rise to a stream of innovations and to new sources of growth within the sports industry. Fan experience has been given a new dimension as it is now beginning to take place in both the physical and the digital worlds by connecting either physical sports locations or athletes to a virtual universe in real time.
1. Defining Blockchain, NFTs and Smart Contracts and an overview of how they can help grow the sports industry
To understand the new digital world that is beginning to become part of our lives, we need to become familiar with its terminology and tools.
Blockchain technology makes use of cryptography, game theory and peer-to-peer networks. A Blockchain is a digital ledger of transactions that is distributed across a network of computers, rather than being maintained by a single, centralized authority. The participants of each node of the network can access an identical copy of the ledger, and any changes/additions made to the ledger are reflected and copied to all nodes. Transactions are validated, lumped together in ‘blocks’ and added to an already existing chain. Once a transaction has been added to the Blockchain, it cannot be altered or removed.
Tokenization is the representation of an asset (like an athlete or sports tickets) on a token to allow them to be managed and exchanged using blockchain technology.
Tokens of a Blockchain are often issued during an Initial Coin Offering, which is a way of raising funds using cryptocurrencies. Tokens are either created via a smart contract in an existing Blockchain or allocated in the first block of a new Blockchain. The most noteworthy types of tokens are:

  • Utility tokens, which represent future rights to a product or service; and
  • Security tokens, which are the issuer’s debt or equity instruments

A Smart Contract is a computer code that automatically triggers events agreed between two parties. Smart contracts make cryptocurrencies and tokens programmable. Some Blockchains such as Ethereum, are considered more suitable for the use of smart contracts since they have been designed to cater for such contracts.
NFTs (Non-Fungible Tokens) are unique tokens that give their holders immutable ownership rights to specific assets. NFTs are minted from digital objects that represent both tangible and intangible items. Each NFT has a unique digital signature and certifies that an asset is unique and not interchangeable for another. The record of ownership of the NFT is stored and transferred on digital ledgers. Ownership of the underlying asset may never leave the creator and the NFT represents a bundle of rights, either exclusive or shared with others, to access the asset and potentially exploit it for commercial purposes.
2. Intensifying Fan Engagement through Blockchain technology
Tech-enabled fan communities are vital in building or breaking a global sports brand. Blockchain technology in the sports industry, is reimagining the fan experience to create innovative fan engagement opportunities and it offers a number of opportunities to engage an athlete’s fanbase through different types of fan engagement tokens. In addition, athletes and brands can utilize virtual experiences to activate user engagement in the digital world. Blockchain is currently widely used to incentivize fan interaction and create unique experiences. It also allows athletes to crowdfund performances by utilizing income share agreements. In a nutshell, Blockchain has created new revenue streams by allowing athletes to monetize fan engagement through tokenized loyalty reward schemes.
Fans can interact with multiple platforms, clubs, and protocols while maintaining one verified user ‘fan identity’. The introduction of a Blockchain-based identity makes it easier for athletes, teams and sponsors to communicate and network with fans. Rewards and payouts for fans’ winnings will be distributed simultaneously since smart contracts can operate with real-time performance and transactions.
It can be safely said that the technology is enhancing levels of engagement and loyalty, bringing fans closer to athletes and teams than ever before. Various platforms, such as bFAN, Fantastec and Fantoken, are Blockchain solutions which, through the use of their platforms, connect fans with their favorite athletes and teams, and reward fan engagement in a number of ways.
3. The use of NFTs and smart contracts in connection with sports image rights
i. New options for investing in athletes’ image rights. Fractionalized NFT-based smart sports contracts
Several start-ups, through the use of Blockchain technology, are offering potential investors the opportunity to invest in the next generation of sports ‘stars’. With fractionalized NFT contracts, potential investors can get a ‘piece’ of their favorite athlete since they can play an important role in financially supporting their future sports ‘stars’ whilst ensuring a sustainable investment opportunity for themselves as well.
SportyCo, for example, aspires to connect young promising athletes with investors, who will help them co-fund their career for a stake in their future revenues, either from sport or from the commercialization of their brand or both. To do that, SportyCo issues the SPF token which, in essence, is a utility token holding rights to athletes’ future revenues via a smart contract.
Jetcoin is another platform that bridges the relationship between young athletes and would-be investors, who mainly consist of fans. Built on the Ethereum Blockchain, Jetcoin provides the opportunity for talents to develop their image with the support of their fanbase. Jetcoin secures a percentage from the young athletes’ contracts or from agencies and agents. To raise funds, Jetcoin releases JET tokens to be purchased by fans wishing to benefit from the future financial successes of promising talents. Jetcoin implements the young athlete’s career plans with its partners and allows fans to participate in a meaningful way.
ii. Expanding opportunities in the commercialization of sports image rights.
For athletes, branding themselves online has become imperative to drive their success as professional sports ‘stars’. Through their personal branding, athletes convince current and prospective sponsors and brands that they can benefit by using them as their brand ambassadors or promoters. Blockchain technology, along with fractionalized NFT contracts, make it possible for athletes to obtain more than one brand or sponsor for the use of different aspects of their image. Athletes can license different aspects of their name, image and likeness, as tokenized assets for reproduction by fans, sponsors and brands. The opportunities for commercializing the athletes’ brand through fractionalized NFTs are vast and can mint hundreds of different types of NFTs, each carrying different types of economic rights or uses. Through fractionalized NFTs, athletes can break down their economic rights to small, and, at the same time, affordable, particles which can be licensed to different people for profit.
In addition, with the use of NFTs and smart contracts, professional athletes can lend their name, image and likeness for profit in the digital space, in addition to the physical world. For example, the digital space gives athletes the opportunity to mint different types of NFTs holding digital collectibles, digital trading cards and any other athlete-related digital tokenized assets. Due to the fact that digital assets are purely imaginative and are based on creative imagination, the commercialization possibilities can be endless, and a multitude of new revenue streams can be created. Moreover, royalty rights for an athlete’s image, name and likeness can now be cryptographically protected too. Through NFTs, athletes can automatically receive royalty payments on branded merchandise or memorabilia each time an asset is sold.
4. Does Blockchain ensure security and transparency? Legality of smart contracts and protection of sports image rights
Usually, the law is a step behind technology since technology, by definition, develops more rapidly, with legal norms following in reaction to the developments. It is currently claimed that Blockchain technology can potentially eradicate counterfeit sporting merchandise and goods. Using Blockchain, each branded collectible item can be given a unique digital identity and buyers and fans can view the authenticity of the item by scanning a QR (Quick Response) code. Additionally, through the QR code they will be able to verify the maximum available supply and display a chain of previous ownership. In short, Blockchain allows sponsors and brands to validate the authenticity of NFT smart contracts. Another claim in support of NFT contracts on Blockchain is that they emerge as a potential concept for exploring trademark guardianship for the image rights of athletes.
However, there are those who advocate that, smart contracts may not be so secure. In smart contracts, contractual clauses and functional outcomes are mapped as code on Blockchain. Any mistake or accidental vulnerability of the code would have to be regarded as part of the contract too. In addition, deliberate ambiguity in a contract is not possible; therefore, clauses involving terms like ‘bona fide’ or ‘force majeure’ cannot be implemented as code and cannot be part of a smart contract.
An important feature of smart contracts is that Blockchain technology impedes retroactive alteration, therefore smart contracts are unmodifiable and final. This also entails that an automated transaction cannot be reversed or rolled back. This might be a challenge when a contract or an action performed under the underlying contract needs to be declared void.
As technology advances, it is obvious that we need to establish more explicit legal frameworks around NFT ownership and clarify how NFTs relate to existing forms of ownership rights, especially around intellectual property. It is to be said though that Blockchain technology with its distributed ledger ensures immutable, yet transparent recording and storage of each transaction and information.
5. Valuation issues: The challenges of valuing sports image rights-related NFTs
Attempting to value NFTs is a speculative and challenging practice, since the particular asset class is relatively new. There are three main factors to be considered when valuing NFTs and they have to do with their rarity, utility and tangibility. Usually, people are drawn to rare NFTs, because they give the owner a sense of distinction and their rarity determines the premium value of an NFT. Also, the utility of an NFT comes from its real application whether in the physical or digital worlds. NFTs, which are tied to real-world objects, derive their value from the tangible objects they hold. Also, at the time of its creation, the value of an NFT may be dependent on the characteristics of its creator.
There are also several secondary factors contributing to the value of NFTs. Chain security is quite important, meaning that the underlying Blockchain is and stays secure. Currently the Ethereum platform is considered to be the most secure smart contract platform. Also, whether an NFT has direct incorporation of its metadata in the smart contract which represents the particular token, is a factor that can contribute or detract from the value of an NFT. On-chain NFTs, whose metadata is incorporated into the token, are considered more valuable.
NFTs holding different types of economic rights connected to an athlete’s personal brand can be valued on the basis of the economic rights they hold (utility) and on the expected future revenues/cashflow of these rights, discounted into the present using an appropriate risk factor. The risk factor should be determined by taking into account the significant risks related to security over the digital assets and internal controls over transactions. In addition, the value should be adjusted to reflect whether the NFT is on-chain or off-chain and whether the underlying Blockchain is a secure one.
A final factor in valuing NFTs has to do with their liquidity. The more liquidity an NFT has, the greater its value will be. A liquidity premium is one of the reasons why tokens created on the Ethereum Blockchain have better values than tokens that were created off the chain. Anyone that has Ethereum, can easily trade ETC-standard NFT through secondary marketplaces.
C. The Future: Metaverse and more sports image rights monetization opportunities
The Metaverse is a digital shared space where everyone will be able to seamlessly interact in a fully immersive, simulated experience: a parallel virtual world. For sports image rights holders, the Metaverse would open numerous monetization opportunities. For example, the growing interest in NFTs, across the digital space, could lead to activations in the Metaverse. The idea of owning digital items would generate a fresh source of revenue and engagement as there would be a number of virtual events in which athletes can participate and increase both their visibility, fan engagement and revenues.
With the emergence of the Metaverse, the marketing of rights holders and brands will be revolutionized, with no one currently being able to predict accurately what the Internet and Metaverse will look like in the future. We are sure of one thing though: the Metaverse will no doubt allow for creative uses of sports image rights which will disrupt existing business models!

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