Oct 27, 2020

Utility Tokens vs Security Tokens – Sports Clubs’ Strategies

Utility Tokens vs Security Tokens – Sports Clubs’ Strategies

Security tokens have already been implemented in many respected sports clubs in the world. Juventus F.C., FC Barcelona, ​​Galatasaray S.K., or A.S. Roma – that’s just a few global names that decided to make this move.

In the case of sports clubs, the use of Tokens is best when combined with loyalty programs (and SSO-based tools). We discuss it in our article Tokenization – a Game Changer for Loyalty Programs in Sports Clubs.

However, to be fully aware of the obligations, rights and privileges associated with the implementation of the Tokenization process, you need to understand how Utility Tokens differ from Security Tokens (and when you should focus on the latter!). Read our article and get the know-how!

UTILITY TOKEN

Utility Token, as the name suggests, is used to provide purchasers with a product or service they can utilise. These Tokens work as a gateway that allows users to access the network or have their voices heard through voting.

Therefore, we already know that there are three possible functions of Utility Tokens:

  1. Access to the network,
  2. Access to the product or service,
  3. Power to decide where the company (or sports club) goes by possessing the right of influencing the decision-making process. 


You can compare Utility Token to the “improved ticket” to the movie theatre. What does this improvement stand for? 

Imagine you bought a ticket and already entered the cinema hall. However, not only can you watch a movie, but you also have a chance to influence what the actors in the film do. Amazing, isn’t it? Nonetheless, remember that all the other spectators have a similar right. Those who possess a greater value of tickets make the decision happen. That’s just one of the possibilities that Utility Tokens give to your supporters!

Utility Tokens vs Security Tokens – Sports Clubs’ Strategies

Remember that it’s you [the football club] that decides which decisions will go under the voting [of Tokens holders] and which ones will be sovereignly taken by the board. An advantage of the possibility to vote should be given wisely to your supporters so that the organisation keeps developing and fans remain happy with the new opportunities for a long time. 

You can also decide to omit this function and only offer your supporters the possibility to exchange tokens for unique rewards with the help of loyalty programs, which we explained here.

A pivotal property of Utility Tokens is that they aren’t created for investment. Those who purchase such Tokens should have no expectation of profit in the future. Only then can we say that Tokens you implement are the Utility, not the Security ones. 

How to differentiate between Utility and Security Tokens? We explain it below in the “UTILITY TOKENS VS SECURITY TOKENS – METHODS TO DIFFERENTIATE” section. 

SECURITY TOKEN

In contrast to Utility Tokens, Security Tokens are purchased with an aim of generating profits. That’s one of the main reasons why they are subject to Federal Laws, which makes them follow strictly defined regulations. On the one hand, it gives them additional safety and guarantee. However, on the other hand, that’s why they face many legislative difficulties.

Conceptually, Security Tokens are digital properties that obtain their value by being derived from an external asset that can be traded. What’s essential, Security Tokens don’t need to have a utility. They very often constitute an investment by representing a share of the company that is releasing them.

Once there are any clear (or hidden but distinct enough) expectations of profit in the future, the Tokens might be officially perceived as the Security ones. Take it into consideration when implementing Fan Tokens in your sports club. Make sure you know what opportunities and threats your idea concerns.

UTILITY TOKENS VS SECURITY TOKENS – METHODS TO DIFFERENTIATE

Do you want to check whether your concept of implementing Tokens refers to the Utility or Security regulations? The questions that you should ask yourself are known under the term of “The Howey Test”. They try to figure out whether the Tokens you release are purchased as an investment that will bring profits to fans in the future.

The Howey Test Questions prepared by the Security and Exchange Commission are:

  1. Is there any investment of money?
  2. Is this investment into a common enterprise?
  3. Is there an expectation of profit for the investors?
  4. Is there an expectation of profit based solely on the work of others?


If any of your answers to these questions is “yes”, it means that your concept might test positive and your Tokens might be legally perceived as the Security ones. In the case of football clubs, answers mainly depend on your approach to implementing Tokens. Choose it wisely so that they serve you in a way you want.

Remember that your core supporters don’t necessarily need to make profit on Tokens. They dream about having access to the exclusive decision-making process, players or places regarding your brand. Simply saying, the majority of Fan Tokens purchasers will have no expectation of financial profit whichever path you choose.

SPORTS CLUBS TOKENS

As we mentioned before, in the case of sports clubs, Tokens usually aren’t bought for investment purposes (but they might be!). Their real value is formed by the access of supporters to unique experiences or exclusive products.

That’s why it makes so much sense to combine Tokens with the loyalty programs. As the better you reward your loyal fans and motivate the entire community to interact with your brand, the greater the value of your sports organisation and the higher the profits for you (and your fans).

Nevertheless, it doesn’t change the fact that due to the market demand-supply law, the value of your Token may (and inevitably will) fluctuate.

Your task is to clearly explain to the fans what the Utility and Security Tokens are all about, how they can use it in your organisation and why it’s so valuable from the supporters’ point of view. Once you’re transparent with them from the very beginning, you have no risk of their dissatisfaction or lack of understanding. And it’ll help you prepare regulations that will be in accordance with the international (and your local) law.

GEN Y&Z

Supporters have always been looking for solutions to increase their club membership and strengthen their bond with your brand. Tokens make it possible as your fans can utilise them to obtain unique (not available elsewhere) and highly-valuable rewards.

A modern fan from Gen Y&Z has changed, especially in comparison to what your club might have gotten used to in the last twenty years. We discussed this matter in our article summarising the FUTURE OF FOOTBALL BUSINESS Conference.

Utility Tokens vs Security Tokens – Sports Clubs’ Strategies

New generations want to have a real impact on what their club looks like and what decisions are made. They also demand being close to their idols and are willing to support their club both economically and emotionally. The implementation of Fan Tokens is a safe method that allows them to be engaged with the everyday life of the club to a much greater extent than any other solution on the market.

Moreover, when a fan can use SSO [like WICKET] to register to the Tokens platform, his experience becomes much better. If you’re interested, check how you can use SSO in Sports Clubs to Enhance Daily Fan Experience.

CONCLUSION

Tokens are a great tool when used for their intended purpose and in accordance with legal requirements. Both the Utility and Security Tokens seem to be a previously unattainable utopia for sports clubs. Don’t hesitate and make a contribution to breeding loyalty, enhancing the fan experience and motivating supporters to be more active!