INTRODUCTION

“Smart Contracts” are a critical component of many platforms and applications being built using blockchain or distributed ledger technology.[i] Simply put, smart contracts are lines of code that are stored on a blockchain and automatically execute when predetermined conditions are met.[ii] The benefits of smart contracts are most apparent in business collaborations, in which they are typically used to enforce some type of agreement so that all participants can be certain of the outcome through speed, accuracy, security, and savings.[iii] Many multinational companies have already jumped onto the blockchain bandwagon and are working on their own projects to stay ahead of the competition.[iv] This note will discuss the inexorable incorporation of the use of smart contracts into the trillion dollar-sports industry, specifically, athlete representation.

UNDERSTAND BLOCKCHAIN

So, what is blockchain? It is easiest to grasp this concept by thinking as though cryptocurrency technology has its own language. A block in the cryptocurrency language “is a record of new transactions.” These records may include the location of either cryptocurrency or other pieces of data. A new block is then added to the “chain” when each record of the new transaction is completed. This whole process creates the blockchain.

UNDERSTAND SMART CONTRACTS

Coinciding with blockchain is the concept of smart contracts. Smart contracts are self-executing electronic instructions drafted in computer code allowing a computer to “read” the contract and, in many cases, effectuate the instruction.[v] Smart contracts self execute the stipulations of an agreement when predetermined conditions are triggered. The contracts are intended to work in concert with blockchain technology to enforce transactions on the blockchain and are a step beyond typical electronic contracts in that the actual agreement is embodied in computer code, rather than English or another traditional language. Thus, a physical signature is not possible or needed. Instead, the parties “sign” the smart contract using cryptographic security and deploy it to a distributed ledger, or blockchain. Smart contracts are not novel, however, as they must consist of a discernible agreement between parties with the capacity to make that agreement, much like a traditional contract.  The general process of creating and executing a smart contract involves several steps. First, the program itself is recorded on the blockchain, which gives it a blockchain’s characteristic permanence and censorship resistance. Second, the program can itself control blockchain assets – i.e., it can store and transfer amounts of cryptocurrency. Third, the program is executed by the blockchain, meaning it will always execute as written and no one can interfere with its operation.[vi] The overarching interest in smart contracts results from this secure and instant contract execution. Instead of costly litigation to solve problems, a smart contract stops execution — i.e. someone does not get paid if pre-determined conditions are not met. In the alternative, if said conditions are met, the smart contract will automatically execute, thus preventing any withholding of payments.[vii]

EXISTENCE OF BLOCKCHAIN IN THE SPORTS INDUSTRY

i. eSports Industry

eSports is a somewhat unregulated sector that is gaining traction throughout the world. There are usually security issues with eSports financial transactions, such as how entry fees are paid and logged or prize money is delivered. In the context of eSports, various terms might be placed as code into a blockchain, resulting in a’smart contract’ that can define the conditions and responsibilities of a transaction. Gamers may be able to use these smart contracts to register for the competition and pay entrance fees. It may also make it possible for players to get awards as soon as they win games. Prizes might be in the form of cash or virtual currency that can be used to buy things in the virtual world.

ii. Wearable Technology

Blockchain can also be used to aid and benefit more traditional sports. It is possible and increasingly common to track an athlete’s performance by the use of wearable technology. Most elite sports teams now use such technology daily so that they can track their user’s activities, heart rate, diet and performance. Such data is then used by the clubs to see how a player’s performance can be improved. Such information can be very sensitive and by using blockchain technology, the data can be securely stored, verified and transferred.

iii. Anti-Doping

Doping scandals are a big problem in a number of sports, and they may have a significant impact on the validity of the sport as well as an athlete’s career. When a doping scandal arises, sponsors flee the scene, while regulatory authorities investigate the matter and, if wrongdoing is revealed, punish an athlete or a team. Any investigation requires access to a suspected athlete’s accurate and verified medical documents. The use of blockchain technology to medical records can assist to improve their security. Such records may contain information regarding an athlete’s test results and drugs used. The authenticity of the information is validated by the computer network system before it is published to the blockchain, exactly as in a typical blockchain transaction.

iv. Broadcast Data and Interaction

The adoption of a blockchain network can also assist broadcasters who are increasingly accustomed to offering information in a variety of ways as customers’ watching habits continue to evolve. A smart contract can be used to allow payment when such material is supplied via on-demand services, for example. Sports teams may be able to employ blockchain technology to communicate with their supporters in new ways. Blockchain has the potential to build a safe and reliable ticket exchange for fans looking to sell real tickets. The clubs may have a stake in the scheme, which might help curb unlawful resale of tickets.

v. Potential Developments

SSome analysts have speculated that in the future, blockchain may allow sports clubs to launch their own cryptocurrency. Gujarat Titans debuted their team logo and uniform in their virtual universe today, making them the first Indian sports team to do so. They are also the first Indian major sports team to establish a dedicated virtual environment for its worldwide community of fans and players. This will very certainly pave the way for other clubs to open up a slew of new revenue streams, which will have major legal ramifications. This virtual space would be used to purchase tickets, merchandising, and other benefits, all of which would necessitate a clear agreement to ensure that all stakeholder rights are protected. Sponsors may want to join in on the action as well, since accepting cryptocurrency may allow them to interact and transact with fans. There may be some distance to go to achieve all of this, since such cryptocurrencies would need to be subjected to an appropriate regulatory framework inside their operating jurisdictions. The usage of Blockchain technology in connection to owning a portion of an athlete’s IP rights is an intriguing trend in the sports sector. Various blockchain firms are working with athletes to promote them and provide investors the ability to hold a portion of their IP rights, subject to third-party ownership constraints.

LEGAL ISSUES

i. Application Under Traditional Contract Law

Smart contracts’ distinctiveness and complexity make it challenging to determine whether and how they belong inside traditional contract law’s legal frameworks. Smart contracts have yet to be fully reviewed by courts and legislators, making it impossible to incorporate them inside a regulated structure. No court has yet issued advice on the enforceability of smart contracts, and no smart contract market with defined standards has emerged. The lack of authority and direction leads to differing perspectives on the enforceability of smart contracts. Traditional contracts provide a commitment for the parties to execute in the future. Since neither party is legally compelled to take action after the contract is formed, smart contracts do not establish a future duty.

ii. Unauthorized Practice of Law

Smart contracts raise the possibility of an unlicensed legal professional system. In various jurisdictions, l awyers are prohibited by professional conduct from assisting in the unlicensed practice of law. Unauthorized practise of law, would encompass a non-attorney computer programmer,  drafting a will or contract on behalf of a party to the contract, or deciding which provisions to include in a legal agreement on behalf of a party to the contract.[viii]

iii. Jurisdictional and Choice-of-Authority Challenges

Contract law differs from jurisdiction to jurisdiction and is a significant area of comparative research. The best practise in picking a governing authority when dealing with traditional contracts is for parties to include a choice of law clause, although this does not always apply to smart contracts. Traditional contracts include intricacies of jurisdictional power that are radically different from smart contracts. In contrast to regular internet transactions, participants using blockchain-based smart contracts that run on a decentralised network are usually recognisable. Since there is no physical location for the blockchain, traditional choice of law principles cannot be applied to a smart contract in which at least one transacting party remains anonymous.

iv. Questions of Liability

In most cases, human participation may result in a major or minor mistake in the drafts of the contract. Now in case of Smart Contracts, the humans will themself write the software code that notifies the smart contract of the criteria that must be met in order for it to execute the agreement. A software programmer might make a mistake, or an operator could infect the code with a virus, causing the smart contract to be misled. Courts have not yet had the opportunity to address these liability problems, but it is probable that they will do so in the future. A hacker, on the other hand, may find a hole in the smart contract and exploit it for their own gain. Parties should distribute risk in a prior agreement or in the smart contract itself to avoid misallocation of responsibility in a smart contract. The way the parties allocate risk will depend on whether the contracting parties or a third party attribute to the coding error. This prior agreement would allow the parties to introduce extrinsic evidence to determine the intent if there were a dispute over the intended function of the code without the mistake.

ANALYSING SMART CONTRACTS IN SPORTS

The overarching interest in smart contracts results from their secure and instant contract execution. Therefore, implementing smart contracts into the sports industry, specifically standard player contracts and third-party sponsorship deals, will be extremely advantageous to all parties involved. Disputes between agents, general managers, sponsors, and coaches are typical in the industry. Not only will the implementation of smart contracts help solve these issues, but smart contracts will also simplify the contract drafting process, and eliminate contract disputes in the sports industry. For instance, disputes can be eliminated with the enforcement of smart contracts depending on the predetermined conditions actually being met.[ix] Since smart contracts are self-executing based on predetermined conditions, once those conditions are met, payment is transferred automatically. Conversely, if the pre[1]determined conditions are not met, the transaction will not be initiated or completed.

Instead of costly litigation to solve these problems, a smart contract stops execution—i.e. someone does not get paid if the predetermined conditions are not met. Thus, the automatic execution of smart contracts based on predetermined conditions will help prevent parties from withholding proper payments and will deter parties from demanding invalid payments. The use of smart contracts will streamline the athlete contract process, allowing for a secure way of transacting large amounts of money. Further, the decentralized ledger will allow athletes to have immediate access to their funds upon completion of the predetermined condition. Fraud can easily be detected because the open-source nature of the ledger provides a safety measure that enables every transaction to be recorded and uploaded to the blockchain. Blockchain and smart contracts can decrease the chance of fraud, and players and agents can be assured that transactions are secure.

Finally, since a smart contract can replace a traditional contract associated with a professional athlete in practically any situation of the business, smart contracts can assist with general contractual obligations that the agent handles including, player insurance agreements, player endorsement deals, marketing deals, and other additional terms. Thus, smart contracts will fast track the professional athlete contract process, allowing for a secure way of transacting large amounts of money in standard player contracts and third-party sponsorship deals.

By replacing the traditional contract with the use of smart contacts in standard player agreements, player incentive contracts, and sponsorship deals, the automatic transfer allows the athlete to have access to his or her funds instantaneously once the predetermined condition is met, rather than waiting weeks or months to receive payment.

The automated contracts avoid the pitfalls of agents and general managers manually filling out heaps of forms, and the higher efficiency of smart contracts result in more value-generating transactions processed per unit of time. Smart contracts can drastically cut down on efficiency lost to gaps in communication between the agent and general manager; and the transparent, autonomous, and secure nature of the self-executing agreement removes any possibility of manipulation, bias, or error.

Finally, smart contracts can offer protection to agents and sports management leaders who currently lack the time, financial resources or knowledge to access the traditional legal system for petty issues. However, Agents and attorneys will still be in high demand to help the draft standard player and third-party contracts, and negotiate the terms with professional teams and sponsors on behalf of their clients. Additionally, each player contract that the agent handles may be dealing with millions of dollars with individualized contract terms depending on the quality and projected valuation of the player. Thus, there will still be a need to personalize these smart contracts depending on the athlete’s desired terms of the deal, and to negotiate these terms with the team’s general manager and owner. However, by implementing smart contracts into the agents business practices, transactions will be processed digitally, instantaneously, and automatically, allowing for the player to focus on his or her athletic performance on the field, court, or ice; while enabling the agent to provide a secure and streamlined process for his or her client.

CONCLUSION

Smart contracts have evolved remarkably over time, beginning as simple computer verification processes and progressing into sophisticated, self-executing programs with the potential to transform industries as a result of blockchain technology. Blockchain and smart contracts are distinctive, multifaceted technologies that generate much-needed innovation. Blockchain offers new sources of growth for the sports industry. All stakeholders in the sports ecosystem stand to benefit from this technology. Many organizations are looking to blockchain to increase fan loyalty, find new revenue streams, and engage a global market in ways that were unimaginable years ago. Traditional contracts have played a vital and historic role, if the sports industry wants to continue to grow, leaders should look to incorporate smart contracts. Smart contracts align with the goals of the sports industry: to increase profits, efficiency, and success. By incorporating smart contracts into the business of sport, players can continue to focus on their performance, while agents, organizations, and third parties, can protect the players’ assets, alleviate disputes, and revolutionize a trillion[1]dollar industry. Clubs and organizations can optimize their business models. Blockchain brings increased efficiency and automation which will lead to significant cost-savings. Blockchain will also allow teams to tap into new revenue streams through fan tokens, digital memorabilia, and data monetization.

---

[i] Stuart D. Levi & Alex B. Lipton, An Introduction to Smart Contracts and Their Potential and Inherent Limitations, Harvard Law School Forum on Corporate Governance, (May 26, 2018), https://corpgov.law.harvard.edu/2018/05/26/anintroduction-to-smart-contracts-and-their-potential-and-inherent-limitations/

[ii] 2. Nigel Gopie, What are smart contracts on the blockchain?, IBM, (July 2, 2018), https://www.ibm.com/blogs/blockchain /2018/07/what-are-smart-contracts-on-blockchain/.

[iii] Id.

[iv] Roger Aitken, Smart Contracts On The Blockchain: Can Businesses Reap The Benefits?, Forbes, (Nov. 21, 2017), https://www.forbes.com/sites/rogeraitken/2017/11/21/smart-contracts-on-the-blockchain-can-businesses-reap-thebenefits/#20a5cdaa1074

[v] Reggie O’Shields, Smart Contracts: Legal Agreements For The Blockchain, 21 N.C. Banking Inst. 177, 179

[vi] Josh Stark, Making Sense of Blockchain Smart Contracts, CoinDesk (2016), https://www.coindesk.com/making-sensesmart-contracts/

[vii] Terry Brock, Business advantages of blockchain smart contracts, bizjournals.com (2017), https://www.bizjournals.com/bizjournals/how-to/technology/2017/09/business-advantages-of-blockchain-smartcontracts.html

[viii] Decrypting the Ethical Implications of Blockchain Technology, Legaltech News 1, 1 (Nov. 13, 2017), https://jenner.com/system/assets/publications/17556/original/Storino%20Steffen%20Gordon%20 LegalTech%20Nov%2013%202017.pdf

[ix]  Joshua Bernstein, SMART CONTRACT INTEGRATION IN PROFESSIONAL SPORTS MANAGEMENT: THE IMMINENCE OF ATHLETE REPRESENTATION, 14 DPLJSL 88, 90 (2018)