The Next Goal: OneFootball and NFTs

Welcome Shareholders,

Every Sunday, We'll highlight one company to do an in-depth breakdown of their business, financial situation, and whether or not it's a worthy investment opportunity - large or small. In today's edition, we'll look at a sports media aggregator that's looking to build a Web 3 platform for soccer fans around the globe. So sit back, grab a snack, and enjoy!

Before we get started today, we have a small announcement to make. VCBrags and Miami Hack Week are hosting a Happy Hour on Feb 1st. To know more and sign up for the event, please fill out the form below.

Berlin-Based Soccer Media Aggregator OneFootball made waves last year when it raised $300 million in a Series D to build its NFT platform. What's remarkable about the funding is that the company reached unicorn status and broke the curse of sports media outlets that preceded it, albeit with a nimble pivot into the Metaverse and Web3. The company, which has surged in popularity over the past few years, now has over 200 million active users and wants to engage & monetize this growth.

With OneFootball Labs, the company's Web 3 Division, OneFootball wants to do for soccer enthusiasts, as what Dapper Labs did for the National Basketball Association (NBA) or what Rario is trying to do for Cricket. Only, in this case, the market opportunity is several folds larger, given the global popularity of Soccer. However, many Web 2 startups have come and gone, trying to break into the space to engage and monetize soccer fans. Can OneFootball Labs avoid the missteps of its predecessors and successfully create a global behemoth?

Why Sports Media is So Hard to Crack

While it may not be apparent in the US, association football/soccer is the most popular sport in the world by a considerable margin. Soccer's origins can be traced back to 19th Century England, although some have claimed that the sport has existed for as long as two thousand years. Football has gained popularity across all demographics, rich and poor, due to its accessible nature of not requiring any additional equipment. With over 4 billion fans following the sport across 200 countries in Europe, South America, Africa, and Asia, Football presents a massive market for companies to potentially monetize and engage fans.

However, despite the engaged fanbase, most pure-play media has struggled to gain traction due to investor skepticism around these companies attaining hyper-growth and profitability. This is particularly true for the venture model, where investors have looked for many multiples of their initial investments in their winners to cover the losses of the losers. While Sports focused news outlets have historically had a large fanbase, like most other legacy media outlets, they have struggled to monetize their users. Digital advertising has always had its pitfalls by being cyclical and compromising the product experience. On the other hand, subscriptions have historically turned users off to other platforms that have offered sports news for free. Even those that have received VC backing have struggled to turn a profit, instead relying on Facebook advertising and discounted subscriptions to attract users, which has resulted in significant losses over the years.

This is evident from two high-profile VC-backed sports media outlets, including San Francisco Headquartered The Athletic and Bleacher Report. Both were proclaimed saviors in the industry, ready to disrupt traditional media by attracting the best writers and refining their business models to grow fast. However, both platforms struggled to flip the industry over its head, failing to gain enough traction to go public and eventually settling for an acquisition. Bleacher Report was acquired by Turner Broadcasting System for $175 million in 2012, while Athletic announced that it was selling its business to the New York Times in January 2022 for $550 million.

Media Success Stories in Sports have primarily been those that have focused on streaming content on a subscription or through pay-per-view. This is evident from EPSN and DAZN in the US and UK, which primarily cater to English-focused audiences for various sports. However, one company is taking this a step further by aggregating content and acquiring the rights to stream Soccer outside traditionally competitive English-speaking markets. We are, of course, talking about Berlin Based OneFootball, which recently raised $300 million at a billion-dollar valuation.

The Ultimate Aggregator

In order to understand how OneFootball joined the billion-dollar club even as so many others before it failed to do so, it is crucial to understand the company's original vision, its expansion into streaming, and most recently, its pivot into Web3 to monetize fan-based experiences. Founded in 2008, OneFootball is essentially a soccer media company that features live scores, statistics, and news from 200 leagues in 12 different languages covered by its newsroom. While Content Providers are a dime a dozen ranging from websites to broadcasters, OneFootball was one of the first to identify the impact of aggregated sports content and creating experiences for the community.

When the company was founded over a decade ago, the founders conceptualized a platform that involved content aggregation, curation, and automation, primarily targeting hardcore soccer fans across Europe, South America, Africa, and Asia. Despite the vast audience and loyalty of soccer fans, companies have always struggled to personalize experiences and target users in non-English speaking regions. OneFootball set out to solve both these problems by creating hyper-local content based on the specific club and national team the users support while delivering multi-lingual content that gives audiences an authentic experience.

Compared to a traditional website that caters to a broader audience, OneFootball can create a personalized experience that attracts younger audiences while increasing engagement. Essentially, the company's app is a one-stop solution for football fans looking for information on matches, transfers, and other statistics.

• The company estimates that users aged between 13-35 make up three-quarters of the company's user base, while 90% of its users opt for push notifications. This would suggest that OneFootball is not only attracting a growing user base but also one that keeps coming back repeatedly.

• Another key advantage the company has over other sports media is its penetration into difficult-to-reach target markets. OneFootball's biggest markets are in non-English markets like Brazil, Germany, Austria, and Switzerland.

Furthermore, since the company categorizes each user's preferences based on language, region, and club support, it also has a leg up over pure-play sports media in terms of its advertising business. Advertisers have a goldmine of information from OneFootball's customers and are willing to pay a premium to increase their odds of converting a sale. Another benefit of delivering personalized content is to pair it with live and non-live broadcasting networks. This has enabled the company to partner with rights holders to stream matches on pay-per-view. While the Sports streaming and Over The Top (OTT) market has become crowded in recent years, OneFootball benefits again by primarily targeting a non-English-focused soccer audience. Furthermore, instead of competing with sports broadcasts, the company acquires rights to matches traditionally outside the country where the sport is originally played, opening it up to other audiences. For instance, the company has partnered to stream the Argentinian, Brazilian, Danish, Italian and Swiss Leagues outside their respective countries to an international audience. While these leagues may traditionally not garner interest from mainstream soccer fans, diehard loyalists residing outside their primary country will look to services from OneFootball to stream games.

The initiatives implemented by the company over the years to cater to user-specific experience has enabled the company to reach a large audience. Furthermore, Fans have increasingly moved towards digital experiences due to most sporting venues being closed for the better part of a year, with most flocking to apps like OneFootball. This has enabled the company to grow from 40 million active users to over 180 million active users between 2019 and 2022. OneFootball now plans to leverage this audience by creating fan-centric experiences in Web3.

Digital Gamification

OneFootball's recent entry into the world of Web3 is essentially a spin on the concept of Digital Gamification, which has long been a trend in Soccer, even before NFTs rose to popularity. Since the popularisation of smartphones more than a decade ago, companies have been looking to create new fan experiences that combine the entertainment of the sport with the loyalty and engagement seen by supporters. However, most companies that previously built experiences have failed to garner a strong user base or struggled to monetize their products.

The opportunity to build a team of superstars like Kevin De Bruyne, Vigil Van Dijk, and Harry Kane on a £100 million transfer budget would be a dream for many real-world premier league managers, but it has created a worldwide phenomenon in the form of fantasy football (or Soccer) in recent years. At the end of the 2021 season, more than 10 million players were building and competing head-to-head to claim supremacy. So what propelled this phenomenon, and is it sustainable? Fantasy Football has been around for more than two decades but has been growing rapidly over the past decade. Fantasy Football caters to a few growing trends across sports fandom. While Soccer has always been a social experience, driving loyalty and engagement from fans watching on the big screen, fans have craved more content, wanting to be a larger part of the sport. In recent years, most club supporters have opted for 'Dual-screening,' whereby they seek opinion-forming content to enhance the action on the pitch.

Fantasy Football takes this one step further, giving players control over crucial decisions such as player transfers based on performance and form on the pitch. The social aspect drives the loop, where users constantly interact with others through the league and knockout games, check decisions and discuss the most important decisions with the community. Weekly, Monthly, and Annual Prices tie the whole experience together, rewarding players for investing time into the game. The strategic and social aspects are so enticing that it has attracted the attention of Chess Champion Magnus Carlsen, Tennis grand slam champion Daniil Medvedev and England cricketer Stuart Broad. However, despite the reach and success of the fantasy premier league, it has failed to evolve from its roots. The experience is still geared towards the most hardcore soccer fans, with very few rewards for those casually following along. Furthermore, the business model leaves much to be desired, and the company hasn't figured out how to monetize the experience beyond selling user data.

Perhaps the closest a company came to building a product in the Web 2 Era to engage fans and monetize the experience was Index Labs' subsidiary Football Index. In its appearance and terminology, Football Index mimicked an investment platform akin to Robinhood, although customers bought and sold players rather than company shares. Customers were awarded payouts calculated based on player performance on match days in the form of 'Dividends' and their presence in the company's media rankings. For instance, someone who bought a share in Manchester United forward Cristiano Ronaldo for £10 would receive cash dividends of between £0.01 to £0.14 (similar to fantasy points but replaced with payouts). At its peak in 2019, over £320 million was traded on the platform, with over 500,000 active users buying and selling their favorite players.

However, things came crashing down in 2021 after the company's board announced drastic reductions to the dividends. Trading volumes collapsed, resulting in the company going into administration and having its Gambling Commission License suspended. All in all, over £120 million in investments became worthless overnight, leaving many confused. Experts later compared the platform to a pyramid scheme under the guise of an investment platform, while many were baffled that the UK's financial regulator let the charade go on for so long. Despite the negative sentiment in the aftermath of the events, the core idea of owning players in teams that customers supported was a stroke of genius. Ultimately, the company failed due to the terrible economics and lack of a long-term business model.

OneFootball could avoid its predecessors' missteps to build a sustainable fan experience that combines the best aspects of the sports, such as engagement and community features, along with rewards and monetization through digital ownership and experiences.

The Hype Around Web3 Sports Startups 

Unsurprisingly, OneFootball's expansion into Web 3 and the Metaverse comes with excitement. Companies focusing on building new digital fan experiences have been gaining traction and investor interest in the past few years due to the vast potential for monetization. There are three ways brands and operators have been looking to create new revenue opportunities by engaging and monetizing fans.

• The first and most direct approach will be from brands looking to advertise and promote digital assets. OneFootball investor Adidas has been working on creating NFTs by partnering with the Sandbox metaverse and Bored Ape Catch Club creator Yuga Labs, while Nike bought NFT fashion collectible platform RTFKT to build new experiences.

• Soccer Clubs have also been exploring options to bring the physical world to a potential 'Metaverse' by building out virtual experiences. English Premier League Champions Manchester City has partnered with Sony to create the company's home stadium, the Etihad in the Metaverse, while English Football League club Birmingham City is selling virtual land in its Blues' St Andrew's stadium.

• However, by far, the most popular option for companies to enter the Web3 space has been through Non-Fungible Tokens (NFTs), which are essentially digital assets recorded on the blockchain and can be sold and traded with other users.

With NFT activity surging in 2021 (although it has died down quite a bit in recent months), investors have rushed to capitalize on the space. In September 2021, Paris-headquartered Sorare, a sports-based NFT and fantasy platform, raised $680 million at a $4.3 billion valuation in its Series B round. NFT platforms have been cropping up in other sports as well. Rario, which has built a cricket-focused NFT platform, raised $120 million in Series A, while Dapper Labs, the makers of NBA Top Shot, was last valued at $7.6 billion after raising $250 million in September 2021. All in all, Sports NFT platforms have racked up over $5 billion in funding to create new experiences and monetize various sports categories. Even prominent clubs, like French champions Paris Saint-Germain, Italian soccer club Juventus, and Spanish soccer giants FC Barcelona, have released Digital Collectibles and NFTs to engage their fans and make them feel like a part of the on-pitch action.

Growing Partnerships

Much of OneFootball's new valuation could have been derived from OneFootball Labs (the company's digital marketplace) and its foray into digital assets. But can the company generate enough momentum from potential partners and its loyal user base to justify its recent valuation jump?

In many ways, OneFootball's first step into building out a fully-fledged NFT ecosystem could have several ramifications for both the company and the partners involved. If the company can hit the ground running, other leagues and clubs will look to jump on the bandwagon to capitalize on the opportunity. It's important to remember that most soccer leagues have struggled over the past two years, having their stadiums shuttered and advertising revenues pulled, resulting in hundreds of millions in potential revenue being lost. While some clubs backed by Oligarchs or States remain unaffected by the loss in revenues, other clubs restarted borrowing to keep up with transfers and high wage bills. While this undoubtedly helped bridge the funding gap in the interim, it has had long-term ramifications on club success.

There are over ten clubs in Europe's top flight with over €500 million in debt, while three clubs, including Tottenham Hotspurs, Juventus, and Barcelona, have over €800 million in debt. The latter, widely regarded as one of Europe's greatest clubs, has struggled with transfers and wages in recent years, eventually selling its TV and naming rights to extinguish part of the growing €1.1 billion in debt. A potential partnership with a thriving NFT marketplace will go a long way in helping the club deal with its debt. To its credit, OneFootball has already capitalized on these factors by signing on Italy and Germany's first division to release NFT moments.

OneFootball Labs and NFTs

To understand how valuable OneFootball's new venture is, we should first address the potential market size and how quickly the company can scale its revenues over time.

First, it is essential to look at two critical factors: comparable trading volumes and revenues at other Web 2 and Web 3 companies and the total user base that can be potentially monetized. The most immediate comparable platform is Dapper Labs' NBA Top Shot, which surpassed over $1 billion in trading volumes this year. Since the platform charges 5% on all secondary market transactions, the company should have already generated $50 million in revenues. In addition, the platform also sells packs ranging from as little as $9 for the starter packs to $999 for limited pack drops like the Legacy packs, containing moments of game legends like Magic Johnson, Isiah Thomas, and James Worthy. Dapper Labs routinely drops as many as 100,000 starter packs while limiting the top moment packs to between 500 - 1,000 per drop. Considering new drops and refreshes every month, the company should have generated between $50 and $75 million in revenues. At the upper end of the revenue estimates, the company is valued at close to 60x revenues, which is a significant premium, considering that trading volumes have been dropping in recent months. Considering that OneFootball only recently introduced its first NFT moments in collaboration with Serie A (Italy's top flight) and has signed on the Bundesliga (Germany's Football Division), it could be worth substantially less than even the money it recently raised from investors.

On the other hand, two factors suggest that the brand could justify and even be undervalued. Since OneFootball Labs primarily targets Soccer fans, its target fans are widely different from Dapper Labs Top Shot. At its peak, NBA Top shot had over a million users buying, selling, and collecting NFTs. A similar comparison would be with Electronic Arts (EA) iconic Soccer game FIFA 22 (the company's latest game is FIFA 23, although the company hasn't released its financials for it yet, so we're using its predecessor to compare financial metrics), which has an Ultimate Team mode with a similar card collecting and trading marketplace that is extremely popular. The mode had over 7.6 million players, generating $1.62 billion in annual revenues or 29% of the company's total revenues (this does include all ultimate team revenues, including NFL and UFC, But FIFA is by far the most popular). While $1.6 billion in annual revenues is quite a sizeable opportunity on its own, OneFootball could go a step further in monetization to potentially double or triple its revenues. When EA makes money from FIFA or Madden, it only does this by selling packs through micro-transactions through a dual currency system. While the company does charge a 5% transaction fee on its transaction marketplace, similar to NBA top shot, it does so with its free virtual currency (dubbed coins), having no material impact on revenues. Assuming that OneFootball can scale its platform and attract its 200 million strong userbase to actively trade on its platform, it could, in theory, generate an additional $1 billion in revenues from transaction fees over time. Taking the platform and NFT pack revenues together at scale, OneFootball revenues should generate $2.5 billion in 5-7 years. Assuming a conservative 3x revenue multiple, the company's NFT division alone could be worth $7.5 billion if it can successfully attract users and scale its platform.

Platform Limitations

While there's significant optimism that the company could 10x its valuation in the next five years, there are also some limitations to consider. First, the broader NFT market has completely collapsed, in terms of volumes traded and the number of collectors, compared to the peak in April-May 2021. Analysts don't expect volumes to bounce back quickly, considering the macroeconomic uncertainties and rapidly deteriorating liquidity. Furthermore, OneFootball labs should also look to avoid missteps and learn from the failures of Dapper Labs and other NFT collections. While these collections initially had limited NFTs, which made them appealing to collectors based on supply-demand dynamics, NFT makers flooded the market with collections and packs, crashing the price severely. OneFootball will need to fundamentally solve the NFT marketplace issue of balancing supply-demand dynamics while ensuring that it appeals to the broadest audience possible.

Bottom Line

OneFootball, which has built a soccer-news content aggregation platform for fans to access news, live scores, videos, and streams, has now amassed over 200 million active users, which is no small feat, considering that most of them are based in hard-to-crack non-English markets. The company is now looking to monetize this rapidly growing userbase by launching its NFT division OneFootball Labs, which aims to transform the Soccer NFT market, similar to what Dapper Labs did with NBA Top Shot. However, while NBA Top shot was generally limited to a North American/China audience, OneFootball could garner significant attention from soccer fans across four continents. The company needs to address some significant structural challenges, including plunging volumes and supply-demand dynamics. If the company can move past these issues and scale its business, it could be worth significantly more.