Cryptoasset Promotions in Sport

Jeff Smith Excerpts

Tuesday 8th November 2022 Westminster Hall

[Jeff Smith (Manchester, Withington) (Lab)]

It is great to see you in the Chair, Mrs Cummins. I congratulate the hon. Member for Newcastle-under-Lyme (Aaron Bell) not only on securing the debate, but on what I thought was an excellent speech that really set out the issues. I completely agreed with most of his speech, including, sadly, his criticism of the club for which I have been a lifelong season ticket holder, Man City. We have not covered ourselves in glory on this issue.

Some 2.3 million people in the UK apparently own cryptocurrency or cryptoassets, so it is no surprise that lots of sports teams have seen the financial opportunities and signed up for lucrative deals with the sector. In the USA, crypto sponsorships have been established across Formula 1, the Ultimate Fighting Championship and Major League Baseball, with major venue sponsorships as well. In the UK, most premier league clubs have some sponsorship links with cryptocurrency businesses and some clubs have launched their own non-fungible tokens. As we have heard, the Premier League has just signed a multimillion dollar deal with a blockchain company, Sorare, to deliver its own NFT collection. Alongside several major European teams, six premier league clubs have partnered with the company Socios, which markets itself as a fan engagement platform and also has links with rugby union. By purchasing fan tokens based on blockchain, fans are told they will have more of a say and can vote on club decision making, mostly on issues around the match day experience and so on.

There is a key question here for the clubs, not the businesses. The businesses are just in it for the money, but the clubs should be in it for more than that. In the wake of the fan-led review, if clubs really want to engage with fans and give them a say on these issues, they should do so. Why can they not do that without requiring their fans to sign up to spend money on cryptoassets? In this day and age, it is not hard for clubs to carry out that kind of engagement. Is it, as many of us suspect, just another way to exploit the loyalty and wallets of football fans?

Labour believes that fans should as a right have a say in the direction and decision making of their club, and that they should not have to invest in a cryptoasset to earn that right. I was reassured many times by the Minister’s predecessor, the hon. Member for Mid Worcestershire (Nigel Huddleston), that the Government are on board with all the recommendations in the fan-led review. When they come forward with the White Paper and the proposals, I trust that we will see some opportunities to clamp down on this kind of business and really promote genuine fan engagement by the clubs.

In December 2021, analysis commissioned by the BBC estimated that more £262 million had been spent on fan tokens through Socios. Some producers of football NFTs and fan tokens state that these cryptoassets were never intended as investments, which is fair enough. However, that is certainly not always made clear by all producers. It is clear that some people have felt encouraged to purchase these tokens as investments. If so, they are taking a risk. We have already heard about John Terry’s Ape Kids Football Club NFT collection, which was promoted by a number of high-profile football stars, and how the NFTs crashed in value and lost about 99% of their initial price. Several footballing figures have advertised NFT schemes on social media and then had to retract or delete their posts when the schemes nosedived and fans lost money.

As fan tokens are usually linked to volatile cryptocurrencies, which they provide an incentive to invest in, and are influenced by supply and demand, the value of those NFTs has fluctuated wildly. In November 2021, the crypto market was at its peak, with a valuation of almost $3 trillion; by June 2022, it had lost more than two thirds of its value. As we have heard, fan tokens pushed by premier league teams have often tanked in value. I do not think we have heard about this in previous contributions: the Advertising Standards Authority recently upheld a ruling against Arsenal for its promotion of Socios fan tokens in an advert. It found that the club

“trivialised investment in crypto assets and took advantage of consumers’ inexperience or credulity.”

We need some action and we need regulation. Labour is not advocating a ban on the ownership of cryptocurrencies. We recognise the opportunities they can create for our economy when done right. Proper regulation of cryptoasset promotions marketed to sports fans is clearly needed, as the hon. Member for Newcastle-under-Lyme set out.

I have some questions for the Minister. First, as I have asked many times of his predecessor, can he tell us when or if—I hope it is when—he will bring forward proposals for the independent regulator? Does he foresee an independent regulator of English football having any role to play in the regulation of cryptoassets in football? It might be that the FCA is the appropriate regulatory body. The FCA has indicated that it is working with the Government to target financial promotions and advertising in crypto as a priority. Can the Minister set out a timeline of when those reforms will happen and what the legislative vehicle for doing so will be?

I will conclude with an aside. In the week of COP27, we should probably note that cryptoassets are really bad for the environment. They require huge amounts of power and powerful computer calculations to verify the transactions. They are very carbon-intensive. Will the Government be clear with supporter bodies about at least the environmental impact of crypto technologies? I do not want to let COP27 week go by without mentioning the detrimental effect of crypto.

The clear message from across this Chamber today has been that this is a really worrying development for football fans. It is not something we need necessarily, unless the clubs and businesses are out to make money and at the expense of football fans. Regulation is clearly needed. That is the message from Members today. I hope the Minister will take that on board.