DCMS Select Committee warns of financial risks and reputational harms from NFTs

The Department for Culture, Media and Sport (DCMS) Select Committee has said non-fungible tokens (NFTs) pose an inherent “risk of financial harm” to football fans.

Publishing its report on NFTs and blockchain today, 11 October, the cross-party group of MPs moved to warn fans, sports clubs and the UK government over potential harms posed by the sector.

NFTs, which rose to rapid prominence last year before their value recently plummeted, were viewed as a new potential revenue stream for gambling firms.

DraftKings has penned NFT partnerships with the likes of the UFC, NFL and DJ Steve Aoki, while Entain was planning to explore the vertical as part of the opening of its tech hub in London in January 2022.

However, with NFTs valued at a now all-time low, appetite for the sector has seemingly dried up, with the DCMS Select Committee’s report delivering a further blow.

The report explored three main areas for NFTs: art and culture, professional sport and advertising.

The inquiry saw two oral sessions in which experts and academics were pressed on the issue, with MPs now having drawn their conclusions.

Two key NFT firms were named in the report – Socios and Sorare.

Socios has partnered with leading European football clubs to provide fans with tokens which can be used to access exclusive experiences, while Sorare is an NFT-based fantasy sports game.

Socios is partnered with Barcelona and Spurs, as well as a host of other top teams, at the time of writing.

The committee noted it had asked representatives of both firms to attend the oral sessions, but confirmed that for “differing reasons” neither company was present.

Drawing its conclusions, the committee recommended an end to the use of sports-based cryptoassets based on the volatility of the products.

The report states: “The unique relationship between clubs and fans means that fan speculation on sport-based cryptoassets carries a real risk of financial harm to fans and reputational harm to clubs.

“We are also concerned that clubs may present fan tokens as an appropriate form of fan engagement in the future, despite their price volatility and reservations among fan groups.

“We recommend that any measurement of fan engagement in sports, including in the forthcoming regulation of football, should explicitly exclude the use of fan tokens.”

Additionally, on the topic of advertising NFTs, the committee asked the government to step in and ensure that cryptoasset marketing was of the highest standard.

The report continued: “We recommend that the government respond to the evidence we have gathered on misleading and/or fraudulent advertising for NFTs.

“It should ensure that any regime compels the entirety of the advertising supply chain to take steps to mitigate the risks of harm to consumers from the marketing of NFTs.

“We further recommend that the Ministerial-led taskforce explicitly reviews the marketing of NFTs and other cryptoassets to address the prevalence of misleading and fraudulent ads.”