Chiliz, fan tokens, and the story behind Messi's transfer to PSG

The summer of 2021 witnessed perhaps the most famous transfer in modern football history: Lionel Messi left Barcelona to go to Paris Saint-Germain (PSG) with an annual net salary of 41 million USD, including bonuses. Besides PSG, the company that made the most significant contribution to the successful deal was Chiliz, the fan token platform.

"During the bull run of August 2021, the price of PSG's fan token increased from 15 USD to a peak of 45 USD. Chiliz sold a lot of PSG tokens because there was a lot of demand. The revenue generated by the sales of these tokens actually paid for Messi going to Paris Saint-Germain," said Alexandre Dreyfus, founder of Chiliz.

During a conversation with Coin98 Insights at the Token2049 event in Singapore, Dreyfus gave the impression of being a person full of energy, talking fast and smiling a lot - a spirit that clearly resembles an avid sports fan. This is not surprising, as Dreyfus is the founder of a project that has worked with the world's top sports teams.

The Spotlight is a series of conversations between Coin98 and industry builders about hot topics in the market.

- You are a successful Internet businessman who participated in the sports betting, gaming, and online poker industries. Why did you decide to switch to crypto and found Chiliz?

Dreyfus: I started my journey as an Internet entrepreneur at the age of 18, and over the past 25 years, I have founded many companies. I spent 10-12 years in poker and online sports betting, though I sold that business in 2012.

In 2017, I started looking into crypto and founded Chiliz a year later. Actually, I entered crypto through the window of sports. 99% of fans do not have the opportunity to be present at the stadium and do not live in the same city or even the same country as their favorite team. For example, many Vietnamese people are fans of Manchester City and Arsenal, but they do not live in England.

So, the question asked five years ago was: What can we create that is valuable for our fans and scalable for our teams? And, what a fan finds valuable is to be recognized by the team as a super fan.

Therefore, we created the idea of a fan token - a type of fungible token. This is like a loyalty program or DAO (Decentralized Autonomous Organization) to help fans around the world become more active and recognized as passionate fans of the team.

After five years, Chiliz has 340 employees and nine offices and works with more than 100 sports teams worldwide.

- Are there any similarities between sitting at a poker table and navigating the crypto space?

Dreyfus: There are many similarities, for example, in terms of regulation. Online games are a regulated product, so at Chiliz, we thought about regulations from day one.

Next is the similarity from the trading point of view. An online poker player believes he has an edge against other poker players. Similarly, a trader on Binance thinks he has better knowledge than other traders.

- Are there any current legal issues that Chiliz is facing while operating in different countries?

Dreyfus: Chiliz is working with very famous sports teams and currently has two million users around the world, so we are very careful about regulations. We've worked with regulators almost everywhere: Spain, Italy, the UK, Portugal, Germany.

For example, when launching fan tokens for Johor Darul Ta'zim - the biggest football team in Malaysia - we spent eight months making sure that we did it right. In Vietnam, we are taking our time as well because the regulations there are very specific.

In the US, in the 2021-2022 period, we worked with 27 NBA teams and 14 NFL teams. However, we have now almost entirely eliminated our exposure there because, in the US, everything is a "no". Specifically, we were not yet able to launch fan tokens legally, so there was no reason for us to spend money there.

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- In an interview, you once said that Chiliz is "tokenizing emotions". Can you shed light on that concept?

Dreyfus: What is football? Football is a community, it’s emotional, and it’s a relationship between me and a brand. With that idea, Chiliz is tokenizing the brand, tokenizing the community, tokenizing emotions.

When you buy fan tokens, you are not buying shares of a sports team but “shares” of an emotional community experience shared between people.

We're trying to turn passive fans into active fans. In different regions, fans engage with their favorite teams in different ways, but in the end, they are still fans. So, we’re trying to find out what they want to do and satisfy them.

When you buy fan tokens, you are not buying shares of a sports team but “shares” of an emotional community experience shared between people.

- You say fan tokens are not stocks, but there are concerns that fan tokens may potentially separate fans from their money by making them think that they are actually buying a stake in their favorite team. What do you think about this?

Dreyfus: You don't buy shares or stakes because you actually buy fan tokens, which are very specific. If you want to buy shares, for example, you can buy shares of Manchester United, as it is a listed company.

I think the criticism you are talking about is from people, in the UK especially, who actually do not accept that someone in Vietnam should be able to be a fan of a team in the UK or put $5 or $10 on the team that he supports. We call that discrimination. That's not true and not fair. On the whole, in UK football, there are people who are very old school and very conservative. But, we don't face these criticisms anywhere else in the world.

- There is another concern about fan tokens, which is that their utility is mainly focused on voting and access to exclusive content. What is Chiliz doing to expand their utility?

Dreyfus: I think there is a misconception here, there is way more utility than that. For example, last year, we gave away 16 - 17,000 VIP tickets to fan token holders. In addition, they were able to play on the pitch with all other token holders and even some players.

A few weeks ago, a team in Turkey let fan token holders decide what number they wanted to have on the jersey of a new player. Three and a half years ago, Juventus asked their fan token holders what music they wanted to have in the stadium. When the team scored a goal, the chosen music was played.

Most recently, every time there is a goal in Serie A, the referee stops the game to seal the ball for the fan token holders, with a certificate issued on Chiliz’s blockchain.

These are very personalized and customized experiences for fan token holders. In short, I think the utility of fan tokens is way more than some people believe, and people just need to spend more time to figure this out.

The future is really about bringing more utility, not done by us, but by wallet companies, Nike, Adidas, and Under Armor, for instance. Imagine it's Saturday afternoon and you send a message to the fan token holders in one city and say, “Hey, every PSG fan who goes to this Under Armor store at 2 p.m. will get a 10% discount.”

- But, what about those who are not fans but buy fan tokens for speculation?

Dreyfus: Just like there are people who buy the latest Nike shoes or wine or watches for speculation, anything that has a limited amount and that has utility has value. Why do people buy memecoins, buy MATIC, buy CHZ? Because they believe one way or another they’re going to go up or down. Those are the traders.

But for fans, the reason they buy fan tokens is going back to the foundation of what we do, which is being recognized as a super fan, being able to brag about it, being able to earn experiences, points, tickets, voting, and being part of the community.

- That's the fan side, but how can fan tokens be leveraged to create new revenue for the sports teams? In the future, if the teams want complete control over their fan token launches, how will the game change for Chiliz?

Dreyfus: When you look at the business of a sports team, they sell sponsorships, merchandizing, ticketing, and of course TV rights. Now, we think the next generation of revenue will come from what we call direct-to-consumer, which is more or less like a loyalty program and other B2C businesses. And, fan tokens are going to be one of them, a direct-to-consumer product branded and run by us and the team.

A football team, like PSG, has about 100 million fans all over the world, but they can fit only 52,000 people in their stadium and probably have about 30,000 people who have season tickets. So, the question is how they can monetize these 100 million fans. They're never going to be able to do it, but they could monetize 1 million fans and fan tokens are one of the ways.

Regarding whether the teams could have complete control over their fan token launches, the answer is “yes” and “no”. “No” because the token would still be on the Chiliz chain, although it's going to change a little bit with Socios as the mobile app.

“Yes” because actually, Chiliz wants that in a way. We would love to have more people doing more for the fan tokens, since right now we are doing about 95% of the job.

- Can fan tokens empower fans to influence decisions by team owners, such as in the case of Manchester United?

Dreyfus: Manchester United is already a listed company. If you want to oust the owner, you have to go to the stock market, pay $6 billion and buy the team. You cannot ask to have a second layer of governance that's going to compete with the board or the shareholders of Manchester United.

In the future, you may have the traditional shares and board members that govern the company. Then, you’d have the fan tokens that are governance for fans. But, this would be limited to non-sports, non-business, fan-related matters only.

As much as everyone hates the owners of Manchester United, I'm sorry, but the only way to change is to buy the team.

- In the future, will it be possible for other fan token platforms to sign contracts with sports teams that are already working with Chiliz?

Dreyfus: That’s impossible, and that's the difference between NFTs and fan tokens. You can have many drops of NFTs for different reasons, with different providers and on different chains. However, you can only have one fan token, because there is only one loyalty token that is branded by the team. Otherwise, it would make zero sense.

I have a love-hate relationship with NFTs. I love the technology, don’t like the products. I like them in games, don’t like them in sports. I think nobody has really cracked the right products related to NFTs in the sports space, though people talk a lot about them.

Currently, the trading volume of fan tokens is 10 times bigger than that of all the NFTs in the world. That’s the beauty of fan tokens - they are fungible, so they are liquid and much easier to trade. Meanwhile, NFTs are non-fungible, so they lose value over time.

- What do you think about Chiliz's competitors?

Dreyfus: I don't think Chiliz has any competitors, because we are more or less the only kind of sports blockchain doing fan tokens nowadays. When we started five years ago, nobody believed in us. They were like, “Oh, that's bullshit. It's not going to work.” Although nobody believed in us, we grew, secured that market, and finally owned the niche of the concept of fan tokens.

Football teams and sports teams want to work with the leading company that invented the concept of fan tokens and is working with more than 100 sports teams. They would like to launch a token or have something to do with us. We have this network effect, and that matters a lot.

- But, does Chiliz want other players to enter the area, or does it just want to "sit on the throne" forever?

Dreyfus: This is why the Chiliz chain is now becoming Layer 1, which allows anyone to be able to launch a fan token on our platform. For example, if someone in Vietnam wants to introduce a fan token, they could do it with us with all the necessary equipment and still benefit from the network effect we are building.

Actually, we already had a Layer 1, but it was a private chain. So, all the fan tokens you can see today were on the Chiliz chain, but that chain was only connected to exchanges. Now, we have opened that chain, so developers will be able to develop.

My dream is that the PSG fans will be able to go to a Nike shop in Ho Chi Minh City with their wallet, prove they own a PSG token with a QR code, and get a 10% discount from Nike. By doing this, we would need more and more developers in every country to come and build on an open chain.

- Given that Chiliz was initially perceived as 'bullshit,' how did you persuade the first sports teams to partner with you?

Dreyfus: In 2018, we started to talk to all of the sports teams. Everybody looked at us like, “Who are these guys? What are they doing? Well, that doesn't make any sense.” So, we spent a lot of time educating them, and that summer, we signed our first contracts with PSG and Juventus. But, the answer was not simply "yes" or "no", it took them a few months to come over.

For people in the gaming and internet industries, this is a small world, you can use a connection. With Juventus, I reached out through a friend of a friend. With PSG, I connected via LinkedIn and was very lucky because the guy I talked to was a fan of what we were doing in poker. So, you start like this and grow your network.

It was difficult. Many teams, including Real Madrid, Manchester United, and Liverpool, told us "no". However, after five years, the story is different. Now we have teams calling us. We have people who know what we do and want to work with us. We are currently in a bear market and yet we will soon announce a new fan token for a very big Premier League team.

- Ronaldo has teamed up with Binance in a partnership centered on NFTs. Does Chiliz plan to have any financial collaborations with other sports stars?

Dreyfus: Actually, Leo Messi is the ambassador of our Socios.com. But, except for very specific events, there is no need to work with celebrities.

If we launched fan tokens for Ronaldo and Messi, we would sell them and make a lot of money on the service. But, where is the sustainability? What happens when they retire? When they die, what is the utility? What happens if the token goes down 50% and Messi’s sponsor says, “Hey, I'm Adidas, I want to pay you 50% less.”?

This is not something we believe makes sense. That's actually why I'm against social tokens. I don't think it's the right model for now.

- Can you share Chiliz's future plans?

Dreyfus: We have plans to expand our business into other fields, but the details are a secret.

In addition, Chiliz will focus on Southeast Asia in the near future, especially investment in Vietnam. I've never been to Vietnam, and as a French person, I feel ashamed about that. I want to work together more, as Vietnam has so many big communities of good developers. So, if a guy in a small city in Vietnam wants to develop an idea on the Chiliz chain, we have funds to help him.

In short, I believe we can bring so much value to the fans in Vietnam by creating more products with international teams and even by connecting them with TV channels, banks, credit card companies, and everything like that.

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