SportsDAO — A self-governing, meritocratic, decentralized autonomous organization that leverages the wisdom of the crowd and cryptoeconomic incentives to improve the decisions of a sports franchise.

Abstract

A commonly cited misconception among coaches and management in professional and elite-amateur sports that “if you listen to the fans, you’ll be sitting with them”. Given the strong body of evidence in favour of decisions that leverage the Wisdom of the Crowd, I contend that sports franchises could benefit significantly from taking in crowdsourced input on some decisions from their fanbase as well as using an appropriate cryptoeconomic model that incentivizes strong positive contribution and punishes negative contribution by participants.

The dramatic rise in the popularity of fantasy sports to a 7bn industry demonstrates that fans have a strong desire for more participation in decision making and there is a threshold of accumulated wisdom within a knowledgeable fanbase. When equipped with next generation statistical analysis generated through computer vision and machine learning techniques, the fanbase could contribute relevant data points that may prove helpful in making key decisions both within the game and strategically for the organization. In the best case, the fanbase (or SportsDAO token holders) could contribute positively to better decision making thereby leading to better overall performance of the team. However, even in the worst case where the input from the fanbase isn’t helpful, the team would dramatically improved fan engagement which should lead to a more loyal, higher-revenue fanbase. I propose to test this thesis within a community that has a professional or elite amateur-sports team and is populated with a threshold number of highly knowledgeable citizens who are passionate about the sport at hand.

Introduction

Anyone who has known me for a long time is acutely aware that beginning in the early 2000s I started brainstorming around the idea of possibly purchasing a sports team in a “hot-bed” environment (i.e. where the community is very passionate and knowledgeable about the sport in question) and opening up certain decision making areas to input from the fanbase, leveraging the wisdom of the crowd and changing the reward system for how a sports franchise is run. My thesis was that fantasy sports was a clear demonstration that fans wanted to be more than passive observers of the sport in question and were actually quite well informed, given the information they were presented with. As I moved abroad and observed that some sports franchises use a democratic model for periodic voting for certain leadership positions, such as with Barcelona FC, I felt that the fan inclusion could be significantly increased to the benefit of the team and the fanbase. Some departments such as player scouting, line-up pairings, day-to-day administrative operation of the franchise and scheduling could all potentially benefit from contribution from an incentivized fanbase that is rewarded/punished based on the quality of their individual contributions. The widely held view in sports that fans are not knowledgeable flies in the face of overwhelming academic research in favour of the wisdom of the crowd, especially when their is incentivisation around decision making (something at stake) and the crowd in question is reasonably knowledgeable on the subject at hand. I would argue that tens of thousands of fans who are engaged via an online/mobile platform and incentivized to provide feedback would be more attuned to certain decisions than even a very professionally competent coach or management staff.

With the rise of Cryptoeconomics — the field that studies using tokenized representations of digital scarcity to incentivize a distributed network of actors to contribute certain valuable resources to a network, we now have the means to potentially realize the dream of a crowdfunded, crowdsourced sports team. Cryptographic tokens can be distributed over time for positive contribution to decision making to the token holders making those contributions, which would give them certain rights and benefits as fans such as discounts, better locations for seats or other rewards. Tokens would be liquid and tradable within the community so contributors could monetize their efforts and wisdom while allowing for new fans to gain access and be able to make contributions.

We can also add in another factor that should equipe the fanbase to make better decisions. Using modern computer vision techniques, we can utilize deep neural networks to watch the entire history of a sport — both professional and televised amateur ranks and derive important probabilities around tendencies, matchups, weather, and other variables. As an illustrative example, the technology now exits to analyze the entire history of the NFL and NCAA college football film right down to individual player movements and understand that a pocket-passing quarterback that prefers to play out of the shot-gun position and runs a 40 above 4.7 seconds is far less likely to convert 3rd downs in the red zone if it is snowing. This is a greater level of granularity in sports analytics than has been traditionally sought. Providing that kind of analysis to a stadium of observers would likely lead them to recommend a run or trick play on 3rd down in the given conditions.

The result of a crowdsourced, crowdfunded, meritocratic sports franchise is that could potentially be that the team makes far better decisions overall and is considerably more successful over the long run as a result. However, even if the fanbase doesn’t provide valuable input and the management and coaching staff are compelled to usually disregard the contributions of the token holders, the result is still dramatically improved fan engagement which leads to higher revenue-per-fan and a more loyal fanbase. This win-win outcome is sufficient for such an experiment to be tested at scale.

Crowdsourcing & Decision Areas

There are certain types of decisions where the wisdom of the crowd is better than a select group of experts. There are certain activities where a decentralized approach with prizes is far more productive than a centralized approach. One hypothesis that I have is around player scouting via centralized organizations. I find the current approach to player scouting of amateur ranks laughably absurd. It is impossible for a handful of individuals to fly all over the country watching one or two games of a given prospect and then trying to make a recruiting or draft decision based on that limited information. The very nature of player scouting calls for a massively distributed organization. I have personally witnessed many extraordinarily talented hockey players that I played with growing up who didn’t make the NHL because they had a slump at the wrong time or were hurt at an inopportune moment, while far less talented players moved on to successful NHL careers. It would be far more efficient if a decentralized network of individuals would record amateur games and allow them to be streamed to a decentralized scouting organization so the merits of players could be debated on a collaborative platform based on more complete information and thousands of reviews rather than just one or two. Also, payment to scouts should be based on bounties and prizes for success and not salaries to a few individuals who are deemed ‘experts’ (but usually are just willing to work and travel incessantly for low wages). For example, the scout that proposed drafting Tom Brady (a counter-intuitive choice at the time) should receive a bonus well into the millions for every Super Bowl the Tom Brady-led New England Patriots bring back to Foxborough.

Lineups and depth charts can likely be voted on by the crowd as they are usually very obvious for most decisions and this would improve fan engagement and make for a more thoughtful fanbase. For example, the passionate fans of a MLB baseball team know what the implied ranking of pitchers within that team are, which ones need rest and what the upcoming games are. I would guess that the fanbase could produce a coherent pitcher selection plan over time, especially if they were rewarded for positive input and punished for negative input. The team doesn’t need to necessarily follow the fanbase vote 100% of the time, but doing so wherever possible would dramatically deepen the relationship with the fans.

Day-to-day operations and financial disclosures could also benefit from greater transparency and debate among stakeholders. Fans that have appropriate managerial and financial expertise would likely offer relevant input on tax positioning, administration as well as other non-sports related decisions. Opening up to feedback on major capital deployments such as stadium build-outs or new concessions and entertainment options seems like an obvious place where deepening the relationship with fans leads to better decisions and more loyal consumers.

Cryptoeconomic model — Governance & Token Mechanics

The SportsDAO token should allow for choerent organizational governance. Eventually it would be ideal to allow a Futarchy model, where people can stake their decisions based on conviction and rally others around such a position. However, Futarchy is complicated and requires further research so the initial model would need to be simpler and algorithmically evaluate contributions according to an accumulation of credibility or reputation by the individual contributor. Individual fans could earn tokens for contributing to positive outcomes or making positive proposals that are accepted by the team and produce positive results.

Tokens would be distributed in a block reward that hands out a majority of tokens over time (for example, 50–80% of total tokens distributed on decay curve with a 10 or 20-year half-life).

Fans would conversely be penalized via an algorithm for their contribution to negative outcomes based on the overall effect to the organization and these tokens can either be burned or returned to the block reward pool to be redistributed to positively contributing participants in the future. Whether a decision and subsequent outcome was deemed positive, negative or neutral should either be objective (i.e. did the team win?, etc.) or be left to confirmation by the collective of token holders (i.e. the SportsDAO) through a prediction market structure similar to Augur.

While the accumulation of tokens would be based on meritocratic input be each individual fan, certain over-arching decisions that cannot be judged as objectively positive or negative in a reasonable time frame would rest to weighted stake-voting of all token holders and have a certain decision-making backstop by a counsel or the team management.

Another possibility is to have a “reward token” separate and distinct from the “ownership token”, with some possibility to trade reward tokens earned for ownership tokens over time. The benefits of this is that the franchise doesn’t pay individuals for short term decisions that look positive at one moment, but then end up being negative with a long-term asset like an equity-token and the team would maintain a more stable ownership base. However, the problem with this model is that it entrenches early participants thereby detracting from the meritocracy of the system, which I view as absolutely fundamental to the success of a crowdsourced SportsDAO.

Next Generation Analytics with Computer Vision and ML/AI techniques

A somewhat tangential but equally compelling experimental opportunity is to allow the SportsDAO fanbase access to better next-generation analytics by leveraging new advances in computer vision combined with detailed analytics of player movements and consideration of the myriad of variables recorded in the films of the entire history of professional and elite amateur sports. This can be thought of as the next evolution of Moneyball-style big data analytics applied to sports. I would propose to concurrently fund a competent group of technologists tasked with using deep neural nets to analyze the entire recorded history of the chosen sport in question. There is work in this matter, but I believe there could be a more aggressive approach to data-analytics, especially at the level of the individual player.

Illustrative Example

The OHL’s Kingston Frontenacs

My original idea around a crowdsourced, crowdfunded, meritocratic sports franchise was intended to be applied to the very unique situation of the CHL and specifically my home town of Kingston, Ontario. For context, the CHL is the training ground for 52% of the NHL. Players are amateur status, but teams are run as professional sports organizations with considerable budgets and passionate fans. Further, the city of Kingston is a true hockey hot bed and boasts an impressive list of current and former professional hockey players that follow the team. Kingston residents are as fervently passionate and knowledgeable about the game as anywhere on earth. Many residents are formerly elite players and spend considerable amount of time and mindspace on hockey. Thus we have all of the elements to test my thesis.

I would propose the following steps in an experiment with the Kingston Frontenacs, but the same experiment could be applied to any elite-amateur or professional sports franchise and even maybe applied to the current opportunity to acquire the Carolina Panthers of the NFL:

1- Crowdfund the acquisition (whether all or part) of the team through a KYC/AML-compliant token-offering of the SportsDAO token. Token ownership would confer certain benefits such as discounts on season’s tickets or other benefits.

2- Create an interactive web portal that would allow the SportsDAO token-holders (fans) to interact, share ideas, make proposals to be voted by the SportsDAO token holders, watch games and otherwise interact with the team’s players and management.

3- Open-source the scouting process by offering prizes that are paid out for proposing prospects that are eventually drafted or signed as free agents under the rules of the CHL. This is a critical piece. Today, hockey scouting is handled mostly by the CHL’s Central Scouting. I would argue that this organization suffers from groupthink, is dominated by legacy scouts and could benefit from a decentralized approach. By decentralizing scouting and offering compelling rewards, the SportsDAO would gain the leverage of thousands of reasonably competent hockey minds evaluating players around the world and making proposals on the platform for evaluation.

4- Slowly A-B test and ‘grandfather in’ tokenized governance and decision making by the SportsDAO over time. Certain examples are, token holders should be able to have input on lineup decisions or who starts in goal. They can have input on pulling a goalie should that player be underperforming. Eventually, there may interesting information received with respect to proposed trades or certain player development opportunities. The point is not that the coaching staff follows everything that the SportsDAO token holders vote for, especially in the first few years. The point is that the fanbase/token holders feel as though they are being listened to and there is an inclusive culture that the SportsDAO token holder’s feedback is considered important to the team. Equipped with next-generation analytics and a competitive information advantage, I suspect that the input from the crowd would be quite coherent over time. Note that because there are penalties for token holders who are disruptive or negative, individual token holders would lose money should they try to ‘game the system’ and recommend bad decisions or if they behave inappropriately on the platform. The platform would also need a certain amount of crowdsourced moderation similar to Reddit, but with financial incentives.

5- The SportsDAO would attempt to be as transparent as possible with respect to the operation of the team, but within reason and according to CHL rules. Administrative items such as marketing budgets and capital allocations could potentially be reviewed by the SportsDAO token holders and feedback taken into account. Again, the concept of grandfathering in governance over time implies that initially the organization would not necessarily take the direction of the SportsDAO token holders votes into account until it is proven empirically that the governance model of the SportsDAO is in fact a highly efficient and offers consistently coherent strategy.

Success would be measured first and foremost based on on-ice performance over time. But in line with my core thesis, even if the success of the team remains the same over time, if fan engagement is dramatically improved and as a result attendance and revenue is durably increased, than I would argue that the SportsDAO has achieved success anyway.

Risks & Limitations

I must note that this initial rough concept for the creation of a SportsDAO is subject to certain risks and limitations that would require further research and robust testing. Below is a non-exhaustive list of some of the issues along with some considerations for mitigation.

Governance attacks/malicious actors — There could be malicious actors that purchase tokens in order to attack the governance mechanism and cause the team to perform badly. Certainly fans of rival teams would have some interest in doing so. However, the meritocratic model would geometrically increase penalties as a given individual token holder makes repeated mistakes or bad proposals, thereby costing the individual significantly as they attack the system. Another alternative is to have a reputation score that accompanies each individual token holder which is separate from token holdings and could only be accumulated over time through positive input, but not traded in any way. Here, input would be taken into account in accordance with an individual’s reputation on the platform and not their token holdings. This means that credibility can only be accumulated through performance and an attacker can’t buy their way into power.

Token design — There is a chance that the token mechanics reward the wrong type of behavior leading towards perverse decisions or unintended consequences. It is quite precarious to reward short term outcomes with long-term rewards such as equity in the organization. However, using a locked-up token staking model and Futarchy governance would help mitigate this risk considerably. Also, allowing adjustment of the cryptoeconomic design to be voted on by the SportsDAO would allow the participants to adjust incentives over time to be in line with the best interests of the team. Further, ensuring that there is a strong voting bloc of benevolent and competent token holders would dampen any risks of inappropriate decisions being made by the SportsDAO.

Confidentiality — Having so many eyes on both the players of the team and the team’s operations and financials could cause some issues with respect to individual privacy, financial confidentiality, and even competitive positioning. Again, it would be important to roll this type of plan out in phases and A-B test different options. I would not propose having a forum for proposing player trades in a first iteration or that all financials be made public to the entire SportsDAO right away. However, over time, I would argue that the benefits of transparency would outweigh the drawbacks and if the SportsDAO performs properly and has appropriate safeguards, than more transparency could be grandfathered in over time.

Regulatory concerns — The token in its current iteration is likely to be classified as a security and thusly subject to certain financial regulations (primarily in the US). My expectation is that financial regulators will have an appropriate framework in place within 1–2 years which will appropriately account for cryptographic tokens being held by retail non-HNW investors. Alternatively, the utility of the token could be modified in order to not be classified as a security and thereby allow any fan to own and trade them.

Conclusions

I offer this idea in the public domain to solicit feedback, debate its merits, and consider additional ideas. I also hope to open a discussion around the operation of sports franchises today, which limits fan engagement to the detriment of the organization and the fanbase. I believe quite strongly that opening up decision making within major sports franchises to the wisdom of the crowd combined with an appropriately structured cryptoeconomic incentivization mechanism for value-add contributions may prove highly successful, both on the field and financially. If successful, it could change the way we think about sports management globally.

-Ryan Zurrer

Disclosures

I note that while I am passionate about this concept and would very much like to participate in such an endeavour personally, my own interest in a SportsDAO as an compelling application of blockchain technologies is in no way is representative of Polychain Capital’s thesis or capital deployment intentions. As a firm, we remain laser focused on supporting technical innovation deep down the decentralized software stack known as Web3.