Football and Blockchain: Possibilities for fan participation?

My second passion, besides blockchain technology, is my local football club. I’m not a huge fan of the big commercial teams like F.C. Barcelona or the magic of Messi. They’re great teams, don’t get me wrong but for me magic in football is something entirely different, it’s what lives on the terraces, the close connection between fans, club and players and more than anything, the love we all share for the heritage we grew up with.

Established in 1906, K Lierse SK is one of the few remaining original tradition clubs in Belgium, many international players came up through our ranks (even Romelu Lukaku).

I was only six when my team won its last first division championship in 1997, marking the last time in history a small club has ever won it. These are moments no one ever forgets. To this day the feat is still known as ‘the miracle of the lion’. While this was the ‘start of the end’ and mismanagement opened the door for foreign investors, it saddens me to see that, 21 years later our club is once more on the brink of financial ruin and collapse due to the actions of a single person.

The fans are currently trying to come up with a plan to ensure the club lives on. Because of this I wanted to look where blockchain could play a potential role in solving a problem not only our club faces. The solution is described in a quickly drawn up mini-paper below, enjoy!

Promotion from second division to first division in 2009–2010.

Problem

This paper proposes a solution to fan participation in football clubs through crowdfunding and a fluid organization model referred to as Decentralized Autonomous Organizations.

Crowdfunding has made it easier for small contributors to invest in large projects, while at the same time making it possible for ventures to receive financial support that might have not been possible in the past. On the flip side of the coin, small investors remain vulnerable to financial mismanagement, fraud and lack of control. The small stake in the venture may lead to a lack of power to identify problems or participate in governance.

Corporate entities, including football clubs are governed by rules that describe permitted and proscribed conduct. These rules may exist as private contracts, shareholder agreements, imposed by law, written agreement between participants, … . Historically, these rules are made and controlled by a select amount of participants while the group of stakeholders is often vastly larger than management and shareholders. This leads to three fundamentalproblems, (1) people do not always follow the rules, (2) there is often no consensus on what the rule requires, (3) interest of stakeholders might not be aligned. Rule-breaking within organizations is not always obvious and motives may not matter to the stakeholders until it is too late. We propose a solution using Ethereum​, a blockchain technology like Bitcoin, that includes a turing complete programming language which allows for the creation and execution of smart contracts​ to interact with an immutable distributed ledger. The Ethereum blockchain allows for the creation of decentralized autonomous organizations​​ (DAOs) to create digital organizations without the need for central management. Football organizations are not digital organizations, but the governance can happen digitally by the stakeholders. In combination with the necessary bylaws, the decisions made digitally can be legally binding (to eg. replace central management in case of not complying with the DAO’s decisions).

Blockchain

Blockchain is an electronic solution to irreversibly make transactions that are stored within a ledger. Every node in the network has a copy of this ledger to check if transactions are valid. When a new transaction is made it is only added to the blockchain when enough nodes deem it as valid. The most common use case would be a form of electronic cash. Blockchain allows us to collaborate with parties that don’t trust each other or without the need of athird-party with respect for participant’s privacy.

Ethereum

Ethereum is what some define as blockchain 2.0, it allows to make irreversible transactions when conditions of a mutual agreed contract are met upon. These conditions are called ‘smart contracts’, they are written in a programming language called Solidity .The blockchain guarantees the correctness and validity of the contract and acts as a witness to the transactions executed through the contract.

Decentralized Autonomous Organizations — Concept

The code for the DAO ‘contract’ (cfr. computer program) is written in the Solidity programming language for the Ethereum blockchain. It is activated through deploying the contract onto the blockchain. Once it has been deployed the code can not be changed, this introduces a core concept: ​ “code is law”​ .

The Ethereum blockchain requires ‘Ether’ to engage in transactions. Ether is the digital currency that powers the network. When the DAO is deployed, ether may be sent to the address where the smart contract is located on the blockchain. In exchange for Ether, the contract will create tokens that are assigned to the account of the sender of the Ether. These tokens grant voting and ownership rights to the owner proportional to the amount sent in Ether and the eventual total amount in tokens. This phase is known as the​ ‘crowdsale phase’​ , it’s duration and funding goals are defined in the contract code.

At the core this is all a DAO does. It cannot do anything out of itself except for storing Ether and sending tokens. It cannot initiate a vote, make a player transfer or build new youth infrastructure. In order to accomplish anything the DAO needs ‘proposals’. These proposals can use the DAO’s ether to cover the expenses if there are any. Anyone with ownership tokens of the DAO can submit proposals. In order to accept/decline a proposal the remainder of theowners can cast a vote within a predefined time frame. Votes are cast weighted by the amount of tokens each voter controls. After this timeframe has passed any member can verify the result. Proposals can take any form: player transfer, staff position appointments, price of consumptions, kit design, … . Once a proposal is accepted the designated funds will be sent to the smart contract created for it. From this smart contract the designated spender (most likely the club management) can use the funds accordingly to the proposal. Because of the immutability and transparency of blockchain technology the money flow is completely auditable.

Tokens

Ownership tokens are divisible, transferable and traceable. Participants are free to sell or buy tokens on exchanges as they please, they are however unable to withdraw Ether from the DAO. In order for the club to always be open to receiving new funds to interested participants, the DAO will remain to issue tokens in exchange for ‘Ether’ after the crowdsale phase. The exchange rate however will be significantly lower in terms of tokens/Ether. This is to reflect the assumption that early participants take greater risk and have less information available over the eventual success.

To further reward investors token holders are granted discounts for club-related purchases like season passes, tickets, fanshop items or food & drinks. These purchases are made with Ether (or a separate token to ensure price stability) which immediately flows back to the DAO.

Countering Single Majority Attacks

A single majority attack is a situation in which a participant or very small group of participants is able to get a majority vote and thus pass any proposal of their choosing. In a traditional DAO structure the attacker could thus make a proposal to send all of the funds to his address and approve that proposal. In terms of a football club an attacker could eg. vote himself in the manager position. There are a few technical methods that could solve this problem such as: ● Limiting the amount of tokens 1 participant can hold ● Limiting the amount of tokens 1 participant can buy in the crowdsale phase ● If a participant holds more than the required vote count for acceptance of proposals, the quorum is set to that participants weighted vote count + 1● Vote weight can never be more than 49.9% regardless of # tokens held.

Since football clubs are nothing without their fans we propose an additional/ alternative solution to the problem under the form of a ‘golden token’. A golden token is the digital token equivalent to the traditional golden share. A golden share is a nominal share which is able to outvote all other shares in specified certain circumstances. Golden shares are a controversial legal topic, it is however acceptable when it acts in the common interest of stakeholders.

In Dutch football some clubs implement a form of the golden share, here a golden share does not represent an actual share but a veto-right that can be cast by the fanclubs regarding club-sensitive decision such as colors, shield, ground, etc.In this concept proposals that are accepted by the general DAO would be forwarded to a separate DAO in which only holders of a ‘golden token’ can vote. Each vote has an equal amount of weight and only a 50%+1

majority is needed to accept proposals. A golden token is automatically acquired upon purchase of a season pass and will expire once the season ends.

Conclusion

While blockchain technology is still in its infancy a lot of its characteristics seem valuable to increase the decision-making capabilities of fans in a transparent and fair way as well as provide the opportunity for clubs to raise funds at the same time. This alternative model could be a positive change in the current climate, where clubs are owned by foreign capital, often with interests that largely differ from those of the community around the club.

The downside is that the proposed model is not the most agile or secretive (when need to be) in terms of decision making. Crisis situations require fast decision making, which a voting process by many participants isn’t. Therefore some form of central control would have to remain.