Sorare: An Unregulated Time Bomb or a Game That Will Completely Change Virtual Football?

Author: Financial Traveler

Image source: BTCManager

In September this year, the blockchain-based football NFT collectible game Sorare announced the completion of a $680 million Series B funding round led by Japan's SoftBank Group, bringing its valuation to $4.3 billion. Reportedly, this funding round is one of the largest Series B rounds in European history, making Sorare the highest-valued tech company in France at this stage. Such impressive achievements have also led French President Macron to praise the company on LinkedIn.

Founded in Paris, France, by Nicolas Julia and Adrien Montfort in 2018, Sorare's namesake game allows players to purchase officially licensed cards representing football players and form teams to compete, with match outcomes based on players' performances in real-life matches. Notably, all athlete cards in the game are traded as NFTs.

Reports indicate that Sorare has experienced rapid growth recently, with sales reaching $150 million from January to September this year. The platform currently has over 800,000 registered users and has secured player licenses from up to 216 professional clubs, including giants like Real Madrid, Barcelona, Liverpool, Juventus, and Bayern Munich. In September, Sorare also announced a partnership with La Liga, marking its first collaboration with a top-tier football league and the first NFT brand to sign with one of Europe's top five leagues. This new area of brand licensing will also create additional revenue streams for clubs under La Liga.

In September, Sorare announced a partnership with La Liga. (Image source: La Liga official website)

The establishment of multiple partnerships has prompted more clubs and professional leagues to promote Sorare to fans on their social media accounts, with some well-known players joining in, such as Antoine Griezmann from Atlético Madrid and Gerard Piqué from Barcelona, who are both loyal supporters of Sorare. As an early investor in Sorare, Griezmann has spent tens of thousands of euros purchasing star cards bearing his name, which can also cause fluctuations in the prices of those cards.

The trading volume of star cards on Sorare can be astonishing; last year, a star card of Paris star Kylian Mbappé was purchased by an enthusiast for $64,000. Recently, star cards of Portuguese star Cristiano Ronaldo have repeatedly set new price highs, selling for $290,000 and $400,000.

"At Sorare, fans can express their love for football in a unique way," a spokesperson explained the platform's popularity, "by collecting NFT star cards, a new connection is established between fans and stars. This is our business and our vision."

But is NFT as simple as it seems? Should those wanting to participate proceed with caution and rationality?

One Sorare user is concerned about the platform's future, believing that the overall volatility of cryptocurrency assets significantly increases the risk of trading, thus labeling Sorare as an "unregulated time bomb." In response, Sorare pointed out that NFTs are different from gambling or investment products; regardless of market fluctuations, the star cards in players' hands will never disappear.

Based on this, whether Sorare is a startup that can bring revolutionary changes to the football world or a dangerous financial bubble is still too early to conclude.

01

Although blockchain and NFTs may seem unfathomable, the concept behind Sorare is quite simple—these "cards" are essentially digital versions of physical football trading cards that have existed for decades, which have always held strong appeal for fans. And through blockchain technology, digital cards can be "artificially made scarce," meaning they can be produced in limited quantities like physical cards.

In Sorare, cards come in different versions: each season has 1 "unique" version, 10 "super rare" versions, 100 "rare" versions, and 1,000 "limited" versions, with the "unique" cards being the most valuable. Generally, players acquire cards through auctions, purchases from the "secondary market," and participation in tournaments. The rarer the card, the higher the entry threshold for players, making acquisition more difficult and costly. These cards can be bought and sold once produced, and their trading prices are often high.

In Sorare, cards come in different versions.

Unlike traditional physical games, Sorare players can earn cash rewards based on the real-world performance of the players on their cards while also winning new cards. Therefore, the better the star on a player's card, the more money they can earn. This explains why cards of big-name stars are more likely to set trading records.

However, winning cash rewards through Sorare is not simple. If you are a new user, you have to spend hundreds of pounds or more to "break ground," but since the game's early profits are low, you will be forced to invest significantly to elevate your cards to a higher level to earn better rewards. Thus, to make money through Sorare, you first need to invest real money.

However, Sorare insists that their game is "free," and that "purchasing star cards does not increase the chances of winning." Sorare repeatedly emphasizes that Sorare itself is not an investment product, and many users' motivations are to "collect" NFTs, not to win cash rewards.

As the popularity of the Sorare platform continues to rise, the value of star cards is also increasing, benefiting some users. However, they cannot help but worry that if such games become unpopular one day, the cards in their hands will depreciate.

A PhD student at University College London studying cryptocurrency stated that while he is very interested in the concept of NFTs as digital collectibles, the instability of the crypto market poses significant risks for the industry. If a small number of people hold a large market share, once they sell their cards, the entire market will face considerable challenges.

According to data analysis from one user, in Sorare, the top 1% of players hold virtual cards worth 45% of the market share, while the top 20% of players collectively hold 89% of the share, although this data has not been independently verified.

Sorare has yet to comment on this data analysis. However, they have promised to "work hard to make Sorare as fair as possible."

02

In November last year, a "unique" version card of Mbappé was sold for a high price of $64,744. The buyer was a Sorare enthusiast named Max Mersch, who now owns virtual cards worth a total of $2.9 million, ranking sixth on the overall leaderboard. Recently, he also purchased a Lewandowski star card for $127,000. Such high-profile acquisitions have naturally brought significant attention to Sorare, and Mersch is very excited, stating, "This shows that more people see the value of these collectibles, and they will naturally want to be part of it. This is great for both Sorare and me personally."

In November last year, a "unique" version card of Mbappé was sold for $64,744.

Sorare pointed out that Mersch is not the only individual willing to pay large sums for NFTs; some investors are also users of the platform.

One such investor is a quant hedge fund for NFTs called "BlackPool," which is one of Sorare's users. BlackPool is a "decentralized autonomous organization" with no address and is not regulated by any country, with all its main figures using pseudonyms online. The organization's assets include NFTs from Sorare and some other NFT games. BlackPool firmly believes in the long-term value of scarce digital assets and asserts that every NFT platform needs to be highly specialized to maximize value creation. Additionally, BlackPool provides funding for active professional liquidity pools, aiming to become a leading provider of financial derivatives in the digital asset market.

Among the six largest accounts on Sorare, three accounts hold star cards worth millions of dollars. Besides Max Mersch, who has an investment portfolio worth about $1.4 million, there is also Mark Sharman with a portfolio worth about $2 million, and AJ Romero with an even larger portfolio. This indicates that they can "generate cash flow" through BlackPool. Although Sorare's rules explicitly prohibit users from holding multiple accounts, it seems that BlackPool is not restricted by this.

Users of Sorare are accustomed to this, stating, "BlackPool is a well-known entity in the Sorare community. Many people think that depositing £1,000 allows them to compete, only to find out that this is completely insignificant in the face of large pooled funds. The platform continuously displays the potential 'value' of cards, attracting more newcomers, unaware that this is a perfect product marketing strategy."

This user believes that Sorare should eliminate large portfolios because if these individuals suddenly sell their star cards, confidence in the platform could be destroyed overnight.

"BlackPool operates completely independently of Sorare and our management," a Sorare spokesperson's comment is quite thought-provoking, "Any questions about BlackPool's operations should be directed to them."

03

Many people learned about Sorare through their favorite stars, but some discovered the platform through social media or video sites. Searching for "Sorare" on social media reveals numerous players discussing their cash rewards, while videos on video sites promise users in front of the screen can quickly profit through Sorare.

Interestingly, most of the users posting on social media are "members" of Sorare, and if they successfully recruit new members, they will receive additional rewards. Those player tutorials also suggest that players initially invest over $1,000 in the game and then profit from it.

Tutorials on how to make money on Sorare on video sites. (Image source: The Athletic)

Although one of Sorare's founders stated earlier this year that "our product marketing will never use making money as a selling point," many of Sorare's affiliates are straying further down this path, and Sorare's measures against this behavior have only remained verbal warnings. "Affiliates operate independently of Sorare but should not distort the company's philosophy or products. Making misleading claims about our products could be considered fraudulent, which is explicitly prohibited in our cooperation terms."

04

Additionally, Sorare has rebutted the concept of "losses" that players have been discussing. In Sorare's view, even if the market for non-fungible products plummets, users will still own non-fungible products, just as they own physical cards.

According to Sorare's rules, the value of cards is influenced by players' real performances. Some believe this indicates that Sorare is no longer just a card game and should introduce regulatory models. However, Sorare insists that it is not a gambling company and states that it is still bound by local consumer laws, such as the UK Consumer Rights Act and the EU Consumer Rights Directive. However, these laws pertain to defective goods and product refunds, not gambling products or highly volatile trading assets, which fall under the jurisdiction of the UK Gambling Commission or the Financial Conduct Authority.

Although Sorare has been banned by Swiss gambling regulators, the local gambling commission does not regulate the platform. Nevertheless, the gambling commission has already launched an investigation into Sorare "to determine whether Sorare.com requires an operating license or whether the services it offers constitute gambling."

The UK Financial Conduct Authority currently does not consider NFTs to be "hidden assets," and therefore will not regulate platforms like Sorare. However, this may create a false sense of security for users, as they may not realize that market volatility can place their assets at significant risk.

Despite Sorare repeatedly emphasizing that its product positioning is digital collectibles rather than gambling or financial investment platforms, as the amount of money involved increases, voices of skepticism are beginning to rise. "Essentially, the platform is a mirage built on sand," one user has written a warning letter to the UK Financial Conduct Authority.

A Sorare spokesperson stated, "Any new product or technology should undergo rigorous scrutiny to ensure users are treated fairly and have a safe experience. We firmly believe that the greatest role of NFT technology is to promote the development of the sports collectibles industry, and we are the leaders in this field."

Is it a time bomb or a technological innovation? Sorare still needs the test of time.