In an appearance Monday at the Milken Institute’s Global Conference of the Digital Transformation of Sports, Joe Tsai laid out a brave new world of fan experience where the NBA and the Nets could find hidden value. That world could include sports betting from your seat on “particular” in-game scenarios; the issuance of “fan tokens,” a crypto currency; purchase of NFTs and even the use of facial recognition technology to identify fans and their interests as they enter the arena.
Tsai made the comments in the same discussion that he said Nets had “moved on” from Kyrie Irving, arguing that Irving’s “individual action is not consistent with the collective goal,” winning a championship.
Tsai laid out how the NBA and professional sports in general are at the beginning of a transition from a “media economy” to a “transaction economy,” from a passive fan experience to a more interactive one. The Nets owner — and league governor — didn’t detail how much he thought the movement could affect NBA economics but it was clear that that he believes digital transformation will be a difference-maker.
Tsai first noted the difference between Alibaba’s e-commerce model and what he found when he invested in the NBA by buying the Brooklyn Nets and New York Liberty. Alibaba customers are engaged, visiting the e-commerce site regularly where their interests can be tracked. The NBA, he said, was a different animal.
“When I came into sports, it’s pretty much a media economy. where you sold your media rights in a B2B (business to business) transaction to TV and then you measured the audience via reach,” he told the panel. “But you had no idea if your viewers are watching two minutes of the game or two hours of the game. You have no idea if when you play the commercial, the viewer is in the kitchen getting a sandwich or watching the commercial.”
Now, he said, the e-commerce model is where things are headed, getting fans to engage.
“Once you shift from a media model to a transactional model, you go from looking at the audience in a very shallow way to fan engagement. So you start to care about how your fans engage with your platform through content, through other activity use cases,” he argued.
He also cited examples of things could work in the stands and in suites during games as well as at home.
“So for example, I’m very excited looking at our sports business in terms of, if we are in a game, like a video game, you have in-game transactions. Look at NBA2K, 72 percent of their revenues actually come from in-game transactions. That means fans are engaging with the platform every second.”
One big example, of course, is sports gambling.
“Obviously with each state legalizing gambling in sports, that’s another fan engagement use case where the fans can really get deep into betting on the particular scenario. I think that’s really going to open up a lot of the economics for sports leagues, for IP (intellectual property) owners, team owners.”
What might a “particular scenario” look like? Tsai didn’t say but Mike Mazzeo wrote recently for PlayNY.com about the kind of bet that could made from the seats in Brooklyn: “Kevin Durant has just made two consecutive 3-pointers in the fourth quarter, and a screen prompts a sports bettor watching the Brooklyn Nets game whether they would like to place an in-game wager on KD making three in a row.”
The transaction economy wouldn’t end there, Tsai suggested.
“We haven’t even talked about NFT’s. Just look at NBA Top Shots. The NFT trading at the highest month — I think it was earlier this year — they were annualizing at around $2 billion of trading value for NFTs,” he said.
Tsai also talked about how the European soccer teams are issuing “fan tokens,” a type of cryptocurrency that allows holders to vote on mostly minor decisions related to their clubs. Might that work as well?
“The total market value of fan tokens issued by European soccer teams is around $3 billion,” he pointed out.
“So a lot of additional economics are being created because are engaging with the content on a frequent basis and all of a sudden, your revenue model changes from CPMs (cost per thousand ad rates) and impressions to the number of users, how frequently they engage on the platform. It’s a very exciting business model and you’re seeing the transition right now.
What about using facial recognition inside the arenas to target individual fans interests? Tsai was asked. Tsai said Barclays Center has not “implemented” facial recognition but suggested that Madison Square Garden might. (Some have suggested the Garden uses facial recognition to identify those fans who had been banned from the arena.)
Tsai indicated that overcoming privacy concerns would be critical. Still, he didn’t dismiss the possibility, briefly saying that the organization had “debated” the issue.
“I think in the future if people are comfortable with privacy and all those issues, I think yes, you’ll be able to identify your fans down to each individual, their likes and dislikes because you’ll have a whole sort of database about them with probably 50 attributes of each individual and if there’s one entity that could consolidate that data so that people who are looking at the data can be intelligent about cross-selling and also providing a better service. That’s the future of the world. But we’re not there yet. It’s going to be quite far off.”
How far off? he was asked. “I think five to 10 years from now.”
Tsai also noted that mobile devices, not traditional television, will have to be the platform for the transformation, adding that in China, the NBA is only seen on mobile. (Of course, that’s because CCTV5, the Chinese over-the-air carrier, has declined to carry the games since Daryl Morey’s Tweet endorsing a Free Hong Kong.)
Of course, there are lot of hurdles to be mounted, from privacy concerns to sports betting regulation, but it seems that when it does, the Nets will be among the first teams to embrace it all.