On Tuesday, we reported that Binance signed a sponsorship and fan token deal with the Argentine Football Association (Asociación del Fútbol Argentino AFA). However, the AFA already has an agreement with Chiliz / Socios and a fan token was issued last year. Last night Socios announced that a commercial tribunal issued an injunction ordering the AFA and Torneos y Competencias to recognize the Socios agreements.
Legally, we believe this is an arbitration, a private ruling as opposed to a decision in a court of law. Usually, this sort of international dispute would be arbitrated by the International Chamber of Commerce. We’ve requested confirmation from Socios.
Socios says the ruling orders the AFA not to take actions that would hamper Socios’ exclusive rights.
Theoretically, if the AFA issued a fan token with Binance, what benefits would Socios token holders continue to receive? Oddly, the $ARG token price was not significantly impacted by the Binance announcement and actually rose a bit. And since this tribunal ruling, the price has shot up. At one point, it was double the figure before the unveiling of the Binance deal.
The issue highlights the tenuous legal position of fan tokens. While some investors treat them like stocks, their rights are very limited and they lack the legal protections. Much of the money raised from fan token sales goes to the leagues and clubs. In return, users get to vote on issues that are usually insignificant, like choosing a new logo or a song. Sometimes they also get access to exclusive merchandise and rewards.
Pushback in the UK
Meanwhile, Socios is attracting attention in the UK. In late December, the Advertising Standards Authority censured Arsenal Football Club over a Facebook ad for its Socios Fan token. The ruling said that the ads took advantage of consumers’ inexperience, were misleading because they failed to illustrate the risk, and didn’t clarify that the token is a cryptoasset.
Socios CEO Alex Dreyfus, was grilled by the UK’s Sky News yesterday. “What you buy is a kind of membership program, you pay £5 or £10 for a token for life, it is actually like a membership program, but a little bit more modern, a bit more digital,” said Dreyfus.
He continued, “The value that is provided is not financial and will never be financial, the value is about the experience, and the relationship between me, the fan, and the club.” Dreyfus said he welcomes further regulation of the sector.
However, given claims that the motivation is not financial, the Chiliz Exchange (Chiliz owns Socios) looks rather similar to a stock market or cryptocurrency exchange. The chart is from a provider that serves all the financial markets: stocks, currencies and crypto.
The UK’s financial regulator, the Financial Conduct Authority (FCA), has been clamping down on the marketing of cryptocurrencies.
FCA head of markets Sarah Pritchard told Sky News, “We see particularly among young people that there is a big disconnect between levels of understanding and the risk that is posed.”
She continued, “There are complexities [with fan tokens] and we want people to know the risks they’re getting into. As to whether there are higher risks with football than other adverts that other people might see on social media or elsewhere, I don’t know the answer to that.”
Socios complex web
Like many other cryptocurrency organizations, Socios has a complex structure. That’s likely partly to do with the patchwork of regulations around the world. But if anything goes wrong at a technical or legal level, it would also protect the group’s assets. The website is incorporated in Malta and the Socios wallet is part of an Estonian company. A Swiss company issues the tokens and the Chiliz crypto exchange is operated out of the Seychelles.
In fairness, this is plain to read on the websites. But if something goes wrong, buyer beware.