Sorare fantasy sports startup faces regulatory pressure

Lea Hogg September 27, 2024

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Sorare fantasy sports startup faces regulatory pressure

The fantasy football start-up Sorare, backed by SoftBank, is now embroiled in a significant legal dispute with the UK Gambling Commission, which alleges the platform has been operating without a licence. The regulator’s rare move to challenge the Paris-based company in court highlights growing friction between innovative tech firms and traditional oversight bodies, as platforms like Sorare blur the boundaries between gaming, financial speculation, and digital assets.

Founded in 2018 by Nicolas Julia (pictured above) and Adrien Montfort, Sorare has been a disruptive force in the sports entertainment industry, blending blockchain technology with fantasy sports in a way that captivated millions. But success often breeds scrutiny, and the regulator’s concerns highlight a broader issue: are Sorare’s digital transactions a game of skill, or are they, as the Commission alleges, a form of gambling that requires oversight?

The next court hearing for Sorare, regarding its alleged provision of unlicensed gambling services in the UK, is scheduled for 4 October, 2024 at the Birmingham Magistrates’ Court. Sorare is facing charges under the UK’s Gambling Act 2005 for operating without a proper licence. The UK Gambling Commission has brought these charges based on the belief that Sorare’s fantasy sports model, which involves trading digital player cards for real money and competing for prizes, constitutes a form of gambling.

UK Gambling Commission does not understand business model, claims Sorare

Sorare, however, disputes these claims, arguing that the UKGC has misunderstood its business model, which it asserts does not fall under traditional gambling regulations?

The legal process will begin with this initial hearing, where both parties will present their arguments. Depending on the complexity of the case, it could involve multiple hearings or settlements before a final decision is reached. If found guilty, Sorare may face significant penalties, including fines or restrictions on its UK operations.

Blockchain, digital assets and NFTs

The case rests on whether Sorare’s business model — trading non-fungible tokens (NFTs) tied to football players — qualifies as gambling under UK law. These NFTs, which fans use to build fantasy football teams, can be bought, sold, and traded, with their value tied to real-world player performances. The UK Gambling Commission is questioning whether the speculative nature of these digital assets transforms the platform into an unlicensed gambling operator.

Sorare, unsurprisingly, has pushed back hard, stating that its product is misunderstood. The company argues that it’s a blend of sports fandom and cutting-edge technology, not a gambling operation. Asserting that the UK Gambling Commission has overreached, Sorare has pledged to challenge the charges. In a statement, the company emphasised that it “firmly denies any claims that Sorare is a gambling product under UK laws.”

The upcoming court hearing will put these arguments to the test. While it may seem like a niche regulatory spat, the outcome has the potential to set significant precedents for other companies operating in the intersection of digital assets, fantasy sports, and online entertainment.

Sorare’s rise to stardom

What’s at stake here is not just the future of Sorare, but the larger question of how regulators will treat similar platforms that integrate elements of financial speculation and gaming. Sorare’s ascent has been nothing short of meteoric. Valued at $4.3 billion following a $680 million SoftBank-led investment round in 2021, the company has signed high-profile partnerships with some of the world’s most prestigious football leagues and sports organizations.

The company’s ability to secure licences with the English Premier League, Spain’s La Liga, Germany’s Bundesliga, and Italy’s Serie A reflects the growing appetite for innovation in how fans engage with sports. The English Premier League, in particular, sees significant potential in Sorare’s platform, going so far as to secure an option to acquire an equity stake in the company as part of a four-year licensing deal. Sorare’s partnerships extend beyond football — the company has also collaborated with the National Basketball Association (NBA) and Major League Baseball (MLB).

These alliances have allowed Sorare to build a global brand that appeals to both sports fans and investors. High-profile athletes like Rio Ferdinand, Gerard Piqué, and Kylian Mbappé have publicly backed the platform, helping to cement its reputation as a major player in the fantasy sports and NFT space. But this rapid rise also attracted the attention of regulators, who now must decide whether Sorare’s innovative business model fits within existing gambling laws.

Broken regulatory framework?

Sorare’s legal troubles highlight a larger issue in the UK’s regulatory approach to gambling and gaming. The UK’s gambling laws, largely written with traditional betting and casinos in mind, have struggled to keep pace with the rapid evolution of digital platforms like Sorare. In response to growing concerns over the social impact of online gambling, the UK government has proposed stricter rules, including caps on slot machine stakes and measures to protect vulnerable players. However, these regulations often fail to address the complexities introduced by digital assets and blockchain-based platforms.

The fundamental question at the heart of Sorare’s case is whether the ability to buy and sell NFTs — which fluctuate in value based on real-world player performance — constitutes gambling. In traditional fantasy sports, player selection and performance are usually considered a game of skill, which generally exempts them from gambling regulations. But when digital assets with real-world financial value are involved, the lines begin to blur.

Should the court rule against Sorare, it could force the company to seek gambling licences in multiple jurisdictions — a process that would complicate its business model and increase operational costs. Moreover, a negative ruling would send shockwaves through the broader digital asset ecosystem, potentially subjecting similar platforms to tighter regulatory scrutiny.

Global implications for blockchain and fantasy sports

The Sorare case is not just a UK issue. With its growing international footprint, the legal decision could influence how other jurisdictions approach fantasy sports platforms that incorporate blockchain and NFTs. Countries like the US, where Sorare has partnered with major leagues like the NBA and MLB, are closely watching how the UK handles the regulatory challenge.

Sorare’s business model sits at the confluence of gaming, entertainment, and finance, sectors that are increasingly converging as blockchain technologies mature. The case’s outcome could have profound implications not just for Sorare, but for other companies pioneering new models that combine fan engagement with digital assets. In many ways, this is a litmus test for how traditional legal frameworks adapt to the digital economy.

If Sorare prevails, it could embolden other companies to push the boundaries of gaming and digital assets without fear of being dragged into court over gambling regulations. But if the court sides with the Gambling Commission, it could force a reckoning across the industry, where platforms integrating NFTs, tokens, or other speculative assets will need to tread carefully.

A ruling against Sorare in October would not only impact its ability to operate in the UK, but also potentially complicate its relationships with leagues, investors, and other stakeholders worldwide.

The court hearing will offer a glimpse into how regulators intend to deal with the growing influence of blockchain-based platforms, and whether Sorare’s fantasy sports model is a taste of the future or a step too far into the gambling sphere. Regardless of the outcome, the case underscores the challenges that come with innovation — particularly when it happens faster than the law can keep up.