Over the next few days, Everton football club are going to try and convince (by my estimate) more than ten thousand Evertonians to part with £1 million. A million pound which will be split roughly 50/50 between the club (appearing as commercial income) and the Socios platform upon which the eponymous #EFC tokens will live for “ever”.
As if football hasn’t already created enough methods of removing cash from ordinary fans’ pockets in the real world, clubs around the world including the “People’s Club”, Everton, now want to charge fans for some virtual tokens (of no intrinsic value) with minimal meaningful benefits in return. They are promoted as a “collectable”, a “piece of digital memorabilia” and are “highly collectable”. So collectable that the club plans to issue 10 million of them over the next few years.
So what are #EFC fan tokens?
They are marketed as something that gives enhanced access to Everton via the Socios App, “vote in polls, get access to VIP experiences or take part in the many in-app activities, competitions, quizzes and games”.
The question of course, is why Everton can’t produce this form of content, “engagement and influence” as it is referred to without the requirement to purchase fan tokens denominated in an esoteric crypto-currency, both of which will fluctuate in value subject to supply and demand?
To quote from the Everton FAQs, Fan Tokens are digital assets that have been officially recognised as utility tokens by world-leading regulatory authorities. Well let’s explore that a little more.
The tokens are created using a licence issued to a company called Socios Technologies AG, a Swiss company. This company sits in Zug, a Canton in Switzerland which, and I quote from a leading provider of offshore services is “unlike most countries of the world that are trying to oppose crypto-business in every possible way, Switzerland supports this direction in every way simplifying the life of entrepreneurs”. The licensing requirements are simple, a company with capital of just 100,000 swiss francs (roughly £78,000) and a few checks against past criminal behaviour for the directors.
The ability to accept and make payments on the Socios.com platform or App arises from a licence granted to Socios Entertainment OU, an Estonian company (the details of which can be found here).
As a form of utility token they fall outside the UK’s FCA (Financial Conduct Authority) and are thus unregulated nor part of the FSCS (Financial Services Compensation Scheme)
A look at the standard terms and conditions of Socios.com explains the risks relating to tokens:
Buying & Selling tokens
The club stresses that trading the tokens is not the intention of offering them on the Socios.com platform or App. However the facility remains to buy and sell tokens of all of the many clubs on the platform. It is useful to consider therefore some of the conditions of sale in particular should a fan purchase tokens and then want to sell. Purchasing is as you might expect a simple process requiring a valid email address and a credit/debit card or Paypal account. Your £,$ or € is converted into Chiliz (the crypto-currency behind Socios) at the then market rate.
Everton are restricting the number of tokens any single account can purchase to a maximum of 175 $EFC tokens (£350 worth). That restriction applies to the number of $EFC tokens, not how much can be deposited on Socios. 1 non tradable token is issued to each season ticket holder, hospitality and official member.
Once you have bought tokens they sit on the Socios platform. Using the Socios App to sell tokens, currently further conditions are placed on the sale which are not made apparent at the time of purchase.
- To sell a token one has to provide photo ID in the form of a selfie and a passport or driving licence – verification level 2 as it is called. (for trading large amounts further verification is required – money laundering regulations)
- The sale of tokens is on a matched bargain basis – i.e. there has to be a willing buyer in order for you to sell. This can making selling in poor market conditions very difficult
- If your withdrawal balance includes funds from recently purchased (and then sold) tokens you have to wait 14 days from the date of purchase for funds to be released
- When one tries to sell the $CHZ currency, you are informed that the minimum transaction value is $CHZ 200 (approximately £48.50 at the time of writing). If you have less than that it is not possible to withdraw funds.
- Additional charges may apply to the transfer of funds out of the Socios platform
Chiliz and Chiliz.net
The denominated currency for fan tokens and Socios.com is Chiliz ($CHZ). As with most crypto-currencies there can be wild fluctuations in value. Here’s the value of one $CHZ plotted versus £ for the last twelve months. A year ago 1 $CHZ was worth 1p (£0.01). It peaked in April at 56p (£0.56) and at the time of writing sits around 24.5p (£0.245)
The total value of Chiliz in existence as at time of writing £1.43 billion. 5.9 billion coins currently exist out of a maximum supply of 8.889 billion.
Although Socios.com or the Socios App on apple or android devices is the platform for engagement activities, polling and purchase/sales of fan tokens for fans, the prices of the currency ($CHZ) and the utility tokens (fan tokens) are set on an associated platform chiliz.net. In fact all the buying and selling that occurs on the Socios app actually takes place on chiliz.net, the app is just the fan user interface.
An Everton fan opening an account on Chiliz.net would not be subject to the limits placed on Socios (175 $EFC) although the engagement and polling activities are not available from chiliz.net.
Chiliz.net is a trading platform, as can be seen on the screenshot below:
Why is this worth mentioning? Because this is where most of the activity takes place. Take $PSG for example. In the 7 days surrounding Messi’s signing for PSG $3,040 million worth of $PSG tokens were traded. What’s more there was huge volatility in the token price.
Several interesting things to note, the $PSG price rose before Messi’s signing and fell after his signing was announced. Significantly, the volume of trades ($3.04 billion) in 7 days pointed to professional traders being extremely active and finally at the peak of activity 800,000 new tokens were issued. I assume this was part of the contract package offered to Messi as he agreed to accept fan tokens as part of his remuneration. Additionally, Socios and PSG raised more than $30 million in new revenues, shared between them.
Everton are keen to stress that this is not monetisation of engagement with fans. They’re also keen to stress the tokens $EFC are not intended for trading (on Socios at least) but for engagement plus additional voting rights in polls (to a limit). They’re keen to suggest this opens up a new form of communication to a new demographic or type of fan.
The questions though are if it’s not for monetisation why do fans have to pay for additional tradeable tokens (over and above the free none tradeable one offered to existing members)?
Why do the tokens need to be denominated in an obscure crypto-currency?
If it’s not for trading, why will the tokens appear on the Chiliz.net platform and be subject to the laws of supply and demand? Why not have a fixed price for the duration of its existence?
It seems to me an incongruous step for a club like Everton to take. Apart from raising commercial revenue, on the evidence of how the platform has been used to date, Socios appear to offer little value to club or fan (In my opinion). There does appear to be as the terms and conditions put it “a high degree of risk” with “financial and operating risks confronting innovators (Socios) significant”.
The article is titled “Caveat emptor” meaning let the buyer be aware. In the legal sense, caveat emptor is seen as being harsh on buyers although consumer legislation has moved away from this common law principle. For the purposes of this article, I see this article as an attempt to provide further information (based on my own opinions) in the run up to the Fan Token Offering (C) later this week.
Fans must make their own decision based on the greatest amount of knowledge and opinion available, not just the claims of the promoters.
Jesus, this club has a terrible habit of ‘shooting itself in the foot’ on a regular basis. Paul’s ‘analysis’ as such, has tried to make sense of the ‘crypto-garb’ surrounding this new fan ‘experience’ but even then it sounds terribly complicated. To me, it seems as if the club is offering new, enhanced products and experiences, which sadly, are not available to current stakeholders like season ticket holders or Official Members .
First question, who sanctioned the commercial deal? Whilst I realise that department of the club is under great pressure as well as scrutiny, no-one in their right mind would touch it with a bargepole, given the unregulated nature of the product and the many questions surrounding the validity and background of the people involved with it. How many of our official partner’s feel the need to be based in Estonia?
I’m not sure the club is currently popular enough on a global basis to generate the sort of income that is required from this venture, but worryingly, it goes right against all the principles the club is seemingly trying to promote as the ‘peoples club’.
There is nothing regulated about this crypto currency and it’s introduction by the football industry poses a lot of questions.
We already know that Bitcoin is being used by criminals to launder money and that highly organised criminals are manipulating this alternative currency.
I find the whole thing very sinister but at the same time remain unsurprised, especially when you look at the people owning football clubs at the moment.