The Metaverse and Sport: A Gibraltar Perspective

There is no doubt that it has captured the world’s attention since Mark Zuckerberg rebranded Facebook to ‘Meta’ in 2021 with a focus on bringing the metaverse to life.

The metaverse, however, is not a new concept and can be traced back to 1992 when author Neal Stephenson introduced it into his sci-fi novel “Snow Crash” as a virtual reality space where people could interact with each other and with digital objects. Additionally, games and technologies creating a more reality-based Internet have been emerging for decades.

One industry that is expected to be revolutionised by the metaverse is sports.

This article aims to provide readers with an understanding of what the metaverse is, how it is changing the sporting world and the consequential legal issues that may arise. We will explore the jurisdiction of Gibraltar, a global frontrunner in regulating fintech and the digital asset industry, as a budding jurisdiction for metaverse development.

What is the Metaverse?

Although most of us have heard of the metaverse, it is often misunderstood and for good reason.

There is no universal definition of the metaverse and the technologies underpinning it are evolving at a rapid pace. It is widely accepted, however, that the metaverse is a platform, which blurs the line between the digital and physical world and aims to offer real world like experiences in a virtual world[2]. The metaverse is often described as the next iteration of the Internet or Web3[3], in the traditional online world we are an outsider using a screen in the metaverse and we are being provided with a more immersive experience.  Examples of what one can do in the metaverse are:

1. Create and interact using a customised avatar. This is a digital representation of a user’s identity for use in a virtual world;
2. Invest in Non-Fungible Tokens (NFTs) such as artwork and digital real estate;
3. Collaborate with co-workers and attend workplace meetings;
4. Host and attend virtual events; and
5. Meet and make friends.

If you still find yourself unsure about what the metaverse is, perhaps the best way to understand it is to enter it!

It is worth noting that, at present, not all metaverse platforms are interoperable and the equipment needed to enter them depends on the chosen platform. Some can be accessed using a smart phone or computer, whilst others require a crypto wallet, augmented reality glasses or virtual reality headset. The leading metaverse platforms of 2023 include Upland, Roblox, Decentraland and Sandbox[4].

The Sports Metaverse

The metaverse is predicted to have a disruptive effect on the sports industry and, according to a report by Web3 Studio, the economic value of the sports metaverse is expected to grow to US$80 billion by 2030[5].

The metaverse offers the possibility for fan engagement to be greatly expanded through deeper immersive experiences, the dissolution of real-world limitations and the generation of new revenue streams[6]. After the huge success of e-sports and an emerging generation of tech enthusiasts, it is no surprise that many leading sports teams have seized the opportunity and invested significant funds into the metaverse.

Just a few examples include:

Virtual Stadiums and NFTs  

Imagine never having to worry about tickets to watch your favourite football team’s match selling out again. Not only that, but picture being able to watch a football match from any angle or even walking on the pitch as if you were at the stadium from the comfort of your living room.

This is a reality that the English Premier League Club Manchester City in partnership with Sony is working to achieve by creating a virtual version of the team’s Etihad Stadium. Using a special headset, fans from all over the world will be able to have this experience regardless of where they are physically located. The idea is to give fans a chance to explore the stadium, meet with other fans and footballer avatars and take part in events even outside of match day.[7]

It is not only Manchester City that is creating a virtual metaverse stadium. Just before the Qatar 2022 World Cup, FIFA and Upland agreed to a multi-year partnership, which will allow the Upland community and football fans worldwide to collect, trade and own FIFA NFTs.[8] It was announced that a fully constructed replica of the World Cup Lusail Stadium, branded village and shops would be available at their real-world addresses in Upland for fans to visit virtually[9]

Virtual Training

In 2022, NBA All-Star Game Commissioner, Adam Silver, introduced “Coach Nat”, a metaverse basketball coach. The aim of Coach Nat, voiced by Shaquille O’Neal is to coach the next generation of NBA talent.[10] It was revealed that a VR headset would be required to train with Coach Nat but the success of virtual sports coaching is yet to be seen.

What legal consequences arise?

With all revolutionary technology come regulatory challenges. Although still in its infancy, the metaverse has created legal debates and challenges which will need to be resolved during and well beyond its current teething stages.

The metaverse will, no doubt, test many areas, such as intellectual property, jurisdiction, tax and fintech laws. These will be explored in turn.

It is worth noting that legal issues may depend upon whether a metaverse is centralised, that is, one that was created and is managed by one company; or decentralised, that is, one that is managed and controlled by its users.[11]

Intellectual property

As the metaverse is a space intended for users to collaborate and develop new ideas together, intellectual property issues will create challenges, such as identifying the creator of work which was generated in the metaverse.[12]

Ownership may also depend upon the particular platform’s contractual terms.

We have already seen the beginning of trademark infringement disputes regarding NFTs. In the case of Hermes Int’l v Rothschild[13] in 2023 a Manhattan federal jury ruled in favour of the French luxury fashion brand Hermes International S.A (“Hermes”) which brought a claim against Maison Rothschild for creating and selling unauthorised NFTs depicting colourful fur covered versions of Hermes’ iconic Birkin handbags marketed as ‘MetaBirkins’. Hermes was awarded six-figures in damages, and this ruling will certainly serve as a warning about the potential liability exposure that may arise through the creation of NFTs.

Jurisdictional Issues and Tax

In a decentralised metaverse, a question which will no doubt be raised is which jurisdiction is entitled to tax digital transactions.

When a digital asset is hosted on a decentralised, distributed ledger, such as a blockchain – where is it located? Using a sports scenario, who will have the right to tax activity from a virtual football match? Should it be the jurisdiction in which the match took place or the location of each member of the audience? Other questions include whether certain types of NFTS should be considered goods or electronic services? We will undoubtedly see a global response to these tax and jurisdictional challenges.

The Law Commission of England and Wales, for example, has launched a government-commissioned review titled Digital assets: which law, which court? to be published in the second half of 2023. This aims to provide clarity on private international law rules, such as which courts have jurisdiction to hear disputes, and which law should be applied in cases of emerging technology, such as digital assets and electronic trade documents.[14]

Fintech                                              

Fintech refers to the use of technology for the provision of financial services, such as banking and cryptocurrency trading.

In the metaverse, in order to make purchases users may need a digital wallet and many metaverse businesses offer digital assets and services for sale using cryptocurrencies.

As virtual property and assets in the metaverse may have a real-world value, a legal framework may be needed to protect consumers when it comes to the ownership and transfer of virtual property. Moreover, due to their largely unregulated nature, cryptocurrency transactions in the metaverse may face money laundering concerns and doubts about other types of fraudulent activity.

Gibraltar – a gateway to the Metaverse?

For those who may be unfamiliar with Gibraltar, it is a British Overseas Territory located at the southern tip of the Iberian Peninsula often described as the ‘gateway to the Mediterranean’. Gibraltar has a population of 33,000 and is only 6.8km2 in size with 40% of its land occupied by a Jurassic Limestone promontory 426 meters in height, known as the Rock of Gibraltar.

With a corporation tax of 12.5%, business-friendly culture, robust financial services and gaming industry, Gibraltar has been an attractive jurisdiction for entrepreneurship for years.

In 2018, Gibraltar became the first jurisdiction to introduce a regulatory framework for Distributed Ledger Technology businesses called the Financial Services (Distributed Ledger Technology Providers) Regulations 2017 (“DLT Regulations”). The DLT Regulations use a principles-based approach to provide legal certainty for businesses using DLT technology for the storing or transmitting of value belonging to others.  The framework includes licensing requirements, regulatory supervision and anti-money laundering and counter-terrorism financing provisions.

Following the introduction of the DLT Regulations and Gibraltar’s clear willingness to adapt its legal framework to support investment into new technologies, sports (and other) companies wishing to invest in the metaverse may benefit from considering Gibraltar as a jurisdiction to establish their business. It is clear that the regulatory framework regarding the metaverse must evolve to protect users and businesses alike and, although a global response is needed, Gibraltar’s advancement in the DLT world makes it a promising contender for metaverse development.

Conclusion

Whether one supports the idea of life being further integrated into the digital world or not, it seems inevitable that we will see significant advancements regarding the metaverse over the next few years.

Time will only tell how far the sports industry will evolve but, as it develops, these authors hope that the legal frameworks protecting its users will too.

First Published in the Sports Law and Taxation Journal (March Edition) 

[1]

Website: www.hassans.gi

[2]https://www.leewayhertz.com/metaverse-interoperability

[3]https://www.reuters.com/article/sponsored/the-worlds-interconnected-metaverse-hub

[4]https://metaverseinsider.tech/2023/03/27/metaverses/

[5]https://www.web3-studios.com/blog-posts/venturebeat-web3-studios-sports-in-the-metaverse-report

[6]https://www.accedo.tv/insights-and-news/4-ways-the-metaverse-will-transform-sports

[7]https://www.theplan.it/eng/whats_on/manchester-city-builds-the-first-stadium-in-the-metaverse

[8]https://www.fifa.com/fifaplus/en/articles/fifa-unveils-range-of-new-web-3-0-games-ahead-of-fifa-world-cup-qatar-2022

[9]https://www.sportsvideo.org/2022/11/13/upland-and-fifa-officially-launch-the-fifa-world-cup-qatar-2022-experience-in-the-upland-metaverse/

[10]https://nftevening.com/nba-unveils-new-metaverse-coach/

[11]https://www.lexology.com/library/detail.aspx?g=f4e9e617-ca48-4553-aa6d-4426ea523f3c

[12]

Clifford Chance: The Metaverse: What Are The Legal Implications?

[13]

Hermes Int’l v. Rothschild, No. 22-CV-384 (JSR), 2023 WL 1458126

[14]https://www.lawcom.gov.uk/law-commission-review-to-examine-how-private-international-law-can-apply-to-digital-assets-and-other-emerging-technology/