What MLB’s Entrance Into Cryptocurrency Could Mean For Sports Gambling

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Crypto Baseball

Major League Baseball is set to launch “MLB Crypto Baseball,” through a licensing agreement this summer, as reported by Yahoo Finance’s Daniel Roberts,

According to Roberts: “In MLB Crypto Baseball, users will pay in to buy digital avatars tied to specific moments in recent games. They can then sell the items, or in some cases, earn rewards and stickers. The game is a decentralized app, or ‘dApp.’”

Think of MLB Crypto Baseball as a type of digital baseball card.

If you are asking who on earth would pay money for an avatar of a moment in a baseball game that they cannot physically hold, you are not alone. However, the blockchain “game,” CryptoKitties, which Roberts cites as a popular game in the same realm, has generated millions in sales, so this may not be a totally outlandish move for MLB.

First, what are CryptoKitties?

CryptoKitties is a “game,” which launched in December 2017, using the Ethereum blockchain network. CryptoKitties are individual avatar caricatures of cats that users can “buy, own, and trade.” Every avatar is unique, meaning that each cat’s value is based on their own individual features, which in theory means that they each possess different values, unlike currencies where two $1 bills each have the same value, no two CryptoKitties possess the same attributes, theoretically differentiating them from currencies.

CoinCentral described the novelty of CryptoKitties as follows:

“The cool thing about CryptoKitties is they’re a demonstration. Of course, they’re fun and cute on their own. However, they also show the potential of blockchain for trading and securing digital assets. This was the driving principle behind the creation of CryptoKitties. In the white paper, the founders discuss the narrow focus of most blockchain projects on payments. Ultimately, they hoped CryptoKitties would help people expand their vision of what a blockchain could do.”

Like many virtual currencies, there will be a finite amount of “Generation Zero Cats” (consider this like the first printing of money). The “White Pa-purr” (yes, that is the name of the document) states:

“At launch, 50,000 “Gen 0” cats (colloquially referred to as “Clock Cats”) will be stored in a smart contract on the Ethereum blockchain. These Clock Cats will be distributed automatically via smart contract at a rate of one cat every 15minutes. Each cat will be sold by auction.”

The claim that CryptoKitties is an asset and not a currency is interesting positioning for a digital item and is likely strategic.

Currencies and assets

The debate over where virtual currencies like Bitcoin and Ethereum fit within existing laws is a debate that has been going on for several years. There has been tremendous debate over whether even the most established virtual currencies are currencies at all, so for CrytoKitties or Crypto Baseball to position themselves as assets is not a step in a totally new direction, a number of scholars consider Bitcoin to be assets or property, not a currency at all.

New York University Finance Professor David Yermack has written that historically currencies have three key components:

Virtual currencies remain largely in a void of uncertainty in regards to regulation in the US, with courts having reached differing conclusions as to their status. While CryptoKitties may well be classified as an asset as opposed to a currency, the move of Major League Baseball to begin exploring virtual assets, and experimenting with blockchain, could serve as an important move in the sports betting universe as well.

A new potential revenue stream?

Back in April 2016, Joshua Brustein and Eben Novy-Williams exposed mainstream America to the world of skins-gambling.

For those not acquainted with skins, skins are garishly painted gun and knife avatars within the video-game Counter Strike: Global Offensive (or CS:GO). The weapons could be traded on the secondary market and as a result of the transferability of the weapons and popularity of the game, a fairly robust gambling market emerged that accepted the skins as a form of payment.

To support the industry, exchange services also popped up that would allow users to extract physical currencies (or other virtual currencies) for their skins. While the secondary skins market served as a fascinating case study for the emergence of a virtual market economy, lawmakers became concerned.

The Washington State Gambling Commission sent a cease and desist letter to CS:GO game-maker Valve, requesting that they “cease violating Washington State gambling laws.” Valve sent demands to various skins gambling sites ordering them to stop transacting in skins, but also fired back to the Washington gambling regulators that it did not believe it was violating any laws and requested the regulators to provide guidance as to what laws they were violating.

While the Valve cease and desist letters to gambling sites chilled the market, they did not shut it down. With additional social games seeming to skirt gambling regulations, there are many questions as to how existing laws apply to virtual assets.

What’s it mean for MLB?

Major League Baseball’s foray into the world of crypto assets raises an important question about just how far the league or others will venture down the crypto path.

One potential revenue stream would be to launch their own sportsbook, which only accepts MLB Crypto Baseball tokens, or some other MLB Crypto coin. This would give MLB complete control over not only what is offered in the sportsbook, but the currency they accept as well. Given the failure of the sports leagues to secure an integrity fee, royalty fee, or any other type of fee, some leagues may consider the viability of going into business themselves.

Obviously, cryptocurrencies possess tremendous risks from not only a value perspective, but also from a regulatory perspective. The legal status of virtual assets remains relatively uncertain, which will likely cause leagues to hesitate before jumping in with both feet at the moment.

But at some point in the future, the leagues will likely seek a more lucrative role in gaming, even as some are allegedly divesting of their current investments in daily fantasy companies. One logical step would be to simply run their own books with their own currencies.