⚽️ Sorare Deep Dive - Building the Next Global Entertainment Giant
Overlooked #90
Hi, it’s Alexandre from Eurazeo (ex. Idinvest). I’m investing in seed & series A consumer and consumer enablers startups all over Europe. Overlooked is a weekly newsletter about venture capital and underrated consumer trends. Today, I’m sharing a deep-dive on French unicorn Sorare. It’s a post that I co-wrote with Justin who is a friend and who has a great newsletter called Sorare Intelligence on the Sorare’s ecosystem.
Sorare is not your usual startup.
In September 2021, it raised a massive $680m series B led by Softbank at a $4.3bn valuation. It’s the largest funding round ever raised in the French tech ecosystem. It’s also the fastest startup to reach a unicorn valuation in France - in less than 3 years.
Sorare commercialises a weird product combining in a single experience soccer, NFTs and fantasy gaming. It has created a unique category that has uncapped potential and Sorare has the potential of becoming a global entertainment giant.
Sorare is also a commercial success with 500k active users, 50k paying users (bought at least one card) and 200+ licensed clubs. In 2021, it will generate €200m in transaction volumes and €100m in net revenues. It’s a profitable company that has also spent most of the year with less than 20 employees.
With Justin, we tried to write a comprehensive deep dive on Sorare to give the company the coverage depth it deserves. In this post, we will cover the following sections:
Part 1 - What is Sorare? Digging into its product, model, history and traction
Part II - What are the key success factors behind Sorare’s success?
Part III - What will Sorare look like in 5 years? Building the next global entertainment giant from Paris
Part I - What is Sorare?
Product
Sorare combines in a single product soccer, non-fungible tokens (NFTs) and fantasy gaming. Players will purchase NFTs trading card games which represent soccer players and they will use them on a bi-weekly basis into a fantasy football game.
Cards are represented by NFTs which give them specific attributes:
Unique: each NFT has unique characteristics. Sorare’s cards have different attributes (representing a player, a club, a season, and a degree of scarcity) and a unique identifier.
Scarcity: for the 1st time in history, digital items can be unique. You can prove your ownership with certificates recorded on the blockchain which is accessible to anyone.
Ownership: when you purchase a NFT, you will own it for as long as you want. A centralized entity cannot delete it or modify its attributes.
Portability: players can decide to sell their cards to anyone inside or outside the Sorare ecosystem. Moreover, players can reuse their cards into other experiences not powered by Sorare.
We’ll break down the product into 3 key components: the onboarding, the acquisition of your first cards and the fantasy soccer game.
A. Onboarding
When you sign-up to Sorare, you will be asked to create your own club. All your cards will be associated with the club and your club will participate into different fantasy football leagues.
Next, you will pick your favorite soccer clubs. Sorare will grant you 11 free common cards from these clubs. You will be shown a tutorial and at the same time you will create your first team to participate in a league.
At the end of the onboarding, you have a good understanding of how to play Sorare, you have 11 free cards with players from your favorite clubs and… you have never heard of crypto or NFTs.
Having done 100+ consumer app onboardings for AppFuel, I believe that Sorare combines several ingredients of a great onboarding:
Favoring explanation over speed: Sorare does not optimize its onboarding process to reduce the number of steps, but to educate and hook users on the platforms.
Balancing friction and rewards: in total you get 11 free common cards during the Sorare’s onboarding but you have 4 different moments in the onboarding at which you are granted cards.
Educating users: at the end of the onboarding, you have understood the key elements of Sorare (a club, a card, a league) and you have already submitted a team to participate in your 1st game.
Abstracting complexities: Sorare does not give all the details about the depth of its experience. Nowhere during the onboarding process will you be told about blockchain, payments to play the game, how to scout players, the open ecosystem, etc.
B. Buy a Card
Cards are being auctioned by Sorare and sold on average every 3 seconds on the primary market.
Once sold, a card can be sold on the secondary market. The NFTs are listed at a certain price for 48 hours. Managers can also bid at another price, try to negotiate, or offer other cards in exchange. At the moment, Sorare does not take any commission on these sales, and even pays for the underlying fees required to operate the transaction on the blockchain.
As of today, 1,111 cards maximum can be minted for a given player, every year.
1,000 Limited (yellow)
100 Rares (red)
10 Super Rares (blue)
1 Unique (black)
These rules are written in the blockchain and can’t be altered. Sorare has two levers to manage supply:
Choose not to release the full 1,111 cards if there are not enough gamers.
Release a new scarcity when there are too many gamers. That’s what happened this summer, when Sorare released the Limited scarcity.
C. Play the Fantasy Soccer Game
Sorare cards are used to build line-ups of 5 players and compete in fantasy leagues that take place twice a week. Thousands of virtual teams compete based on statistical performance of the selected players in actual games. Sorare has partnered with Opta Sports, a leading data-provider, to build its own scoring system. Each card scores between 0 to 100 points, which is then multiplied by a bonus factor.
There are 6 different leagues: All Star, Under 23, Champion Europe, Challenger Europe, America, Asia. You can compete in different divisions within each league. Each division has its own requirements, based on the scarcity (Limited, Rare, Super Rare, Unique) of the cards that are authorized.
Each competition rewards the best managers with Ethereum or/and cards. Core users can compose up to 25 teams every 3 days, which represents more than 100 cards to play with. These users perform extensive research on their players trying to avoid a DNP “Do Not Play” that could be caused by an injury, a suspension or a technical decision. Some users also do extensive scouting to spot great opportunities on the market. This includes watching games of very young players, scrolling Twitter to catch transfer rumors or fans’ comments. This research competition is really a game within the game.
In contrast with other NFTs projects, Sorare cards' utility is what gives them the most value. The reward system has been designed in the following way:
15% of minted cards are not sold on the primary market, but rewarded
10% of Sorare’s revenues are redistributed
Other underlying aspects such as collectibility, or speculative value are also determinant. Users not only seek rewards, they also want to build their hall of fame that they can showcase, or prove their expertise by buying young prodigies. Here’s an analytical framework to better understand how to value a Sorare card.
Model
Sorare’s model is based on 3 key pillars:
Clubs: Sorare is signing licensing deals with soccer clubs (e.g. Juve, Real, PSG) and leagues (e.g. Bundesliga, Liga, etc.) to be able to exploit their rights (club logo, football jerseys, pictures of players). Sorare does not disclose a lot of information on these agreements. In an ideal world, Sorare would strike multi-year contracts with clubs and leagues to build a barrier to entry for new entrants. Clubs and leagues will earn royalties (estimated between 10-20% for primary sales and between 1-2% for secondary sales). They also request advances in these royalties - which partly explains why Sorare did massive funding rounds.
Technology: Sorare is built on top of the Ethereum blockchain and to avoid scalability issues related with Ethereum (high gas fees and low transaction speed), it has implemented a layer 2 on top of Ethereum with Starkware. Sorare’s main achievement has been to hide this complexity for the end user to the point that you don’t need to understand anything about crypto to use Sorare.
Fantasy soccer game: we covered it in the previous section.
Over the long run, Sorare will end up having two main revenue streams: primary sales when Sorare mints new cards and secondary sales when players sell cards to each other. This second revenue stream is not live yet and will debut the day Sorare starts to take a cut on secondary transactions.
We did our own estimates to compute Soare’s unit economics today and in the mid-term when the game will have gained massive scale. We believe that Sorare generates a 50% gross margin on primary sales. Moreover, as Sorare absorbs gas fees and gives 100% of the card value to sellers in secondary sales, the company loses money on every secondary sale.
At scale, unit economics will improve with reduced gas fees, lower payouts for rewards and the introduction of a cut on secondary transactions. In the mid term, Sorare should also end up generating more revenues from secondary sales than primary sales because it has a capped number of cards it can emit every year if it does not want to break its in-game economy.
History
In Sep. 2018, Nicolas Julia (CEO) and Adrien Montfort (CTO) co-founded Sorare.
Adrien Montfort was previously VP Engineering at Stratum where he built and managed a team of 10+ blockchain engineers.
Nicolas Julia was previously VP Operations at Stratum where he scaled operations and signed large commercial deals.
In Oct. 2018, Sorare announced that it signed its first partnership with the Belgium soccer league.
In May 2019, Sorare raised a €500k pre-seed round with Seedcamp, Kima, Consensys and business angels.
In Apr. 2020, Sorare migrated its infrastructure from Loom to Ethereum to reduce its dependency to Dapper Labs (Loom’s developer who is also the owner of direct competitor NBA Top Shot) and to be on an ecosystem with many layer 2 solutions to solve blockchain scalability issues.
In Jul. 2020, Sorare raised a $4m seed round led by Headline with the participation of Partech, Fabric Ventures, Semantic Ventures and Cygni. At the time, Sorare had already onboarded 70 soccer clubs (inc. Juventus, Atletico Madrid, and Olympique Lyonnais) and had been operating the beta since Mar. 2019.
In Feb. 2021, Sorare raised a $50m series A led by Benchmark with the participation of Accel as well as angels like Antoine Griezmann, Rio Ferdinand, Oliver Bierhoff, Alexis Ohanian and Gary Vaynerchuck.
In Mar. 2021, Sorare launched One-Shot League in partnership with Ubisoft which is a 3rd party game in which you could use Sorare cards. This game has different rules: you have 25 players that can only be used once in a team during 5 different games. This game does not exist anymore because it did not gather sufficient traction.
In Jun 2021, Sorare announced partnerships with several national teams during the Euro 2021 tournament (inc. France, Belgium and Germany).
In Jul. 2021, Sorare announced that it implemented a new scaling solution on Ethereum called Starkware to avoid massive gas fees and long transaction times.
In Jul. 21, it also released a dynamic reward system to link the number of rewards to the number of players participating in a given game week.
In Aug. 21, Sorare introduced Limited Cards which is a new degree of scarcity to make the game even more accessible to new players. Every season, 1k limited cards will be minted for each player in Sorare (vs. respectively 100, 10 and 1 for the other scarcity degrees).
In Sep. 2021, Sorare raised a $680m series B at a $4.3bn valuation led by Softbank with the participation of existing investors Accel, Headline and Benchmark and new investors like IVP, Atomic, Bessemer and Eurazeo. At the time, Sorare had 600k registered users, had 150k MAUs (buying a card or building a team), was already working with 180 football clubs, and had already generated more than $150m in sales in YTD2021. The funding will be used to double down on the soccer category, to expand into other sports, to increase the team size and to expand in the US with a local office.
In Sep. 2021, in partnership with Kosmos Studios, Sorare launched Legends XI to bring 50 soccer legends as NFTs into the game. Each card will represent a player in one of his most successful seasons. In parallel, exclusive interviews of the players will be published to relate historical moments in their careers.
In Sep. 2021, Sorare signed a five-year partnership with La Liga - the Spanish national league. It will bring the 20 Spanish clubs to Sorare.
In Oct. 2021, Sorare signed a partnership with German national championships Bundesliga and Bundesliga 2. It also announced the release of Sorare NFT Moments which is a way to purchase as NFT a specific highlight in a game. Bundesliga Moments will be released in 2022.
Traction
We can break down Sorare’s growth into three phases:
2019 - February 2021: Preparing the rocket. User base grew slowly while the product was being built. Most of the users progressively became very engaged users, with 45% of the paying users being owners of at least 10 Sorare Cards. Sorare signed major clubs: Juventus FC, Bayern, PSG, Real Madrid and Liverpool.
February 2021 - September 2021: The Takeoff. Sorare made the blockchain invisible from the user experience through the integration of Ramp which allowed users to buy cards with their credit card. An important funding of $50m was announced at the same moment the NFT industry experienced its first craze. The number of paying users increased from less than 5k in February to 30k in September.
September 2021: Sorare going mainstream. Once the migration to Starkware was completed, Sorare released Limited cards, a new scarcity, making the game more accessible. LaLiga and Bundesliga partnerships were announced, and they released new kinds of NFTs: Sorare Legends and Sorare Moments. Finally, the record $680m funding was announced. Sorare closed October 2021 with €17.5m sales on the primary market, reaching an all-time high. It's 35x more compared to October, 2020.
Sorare’s traction is characterized by user retention... Since Sorare's full-launch in December 2019, the number of paying users (owners of at least one card) grew from 500 to 55k (x110) while the monthly sales on the primary market increased from €10k to €17m (x1700). At the Series A announcement, Sorare publicly shared that they had a 70% 3-month retention, a Netflix-like rate.
… and user re-investment. Let me share a personal fact: I helped a dozen of friends to get started on Sorare. Each time I asked them a budget they wanted to invest at first. Half of them ended up investing 10x their initial budget one year after their registration on Sorare. The company is now on track to reach €200m in sales with 50k paying users. That’s a €4k average revenue per user, a never-seen figure in the gaming industry.
Sorare achieved this growth, managed to become profitable and all that with almost no-paid marketing. Virality comes from club announcements, and football player’s posts on social media (many of them are using Sorare, and big names are also investors - Andre Schurrle, Antoine Griezmann, Rio Ferdinant, Cesar Azpilicueta).
Sorare also designed a referral program (if you want to join Sorare, use Justin’s link), the referrer and the referee receive as a reward a card each after 5 purchases on the primary market. And there is an affiliate program for influencers that is driving more and more Twitch streamers towards the game. Affiliates can get up to 10% commissions on every purchase brought.
Part II - What are the key success factors behind Sorare’s success?
Sorare has created a unique category combining in a single experience crypto, fantasy soccer and card collections. Sorare is not a copycat nor a non-crypto experience brought to the crypto world. As a result, as a business Sorare has an uncapped potential. The platform appeals to different audiences. Some are crypto enthusiasts, interested by the collectible aspect. Others are Sorare traders very active in the marketplace, trying to spot market inefficiencies. The last part of course are casual football fans focused on the fantasy game.
Sorare is a play to earn game which is a business model innovation that is disrupting the gaming industry. It's as big as the introduction of free to play and game as a service which are replacing single copies. With play to earn, gamers can generate real revenues by being engaged in the game. This incentive mechanism makes it easier to create an ecosystem around your game with the game developer, creators for the games (e.g. skin builders) and players. Moreover, more people can generate money from their gaming passion with crypto-based play to earn games (before that you either needed to be a pro player in an e-sports team or a famous gaming streamer).
Sorare has a super strong engineering team. In May 2020, Sorare was forced to migrate from the Loom blockchain to Ethereum, which was a major technological switch. In Jul. 2021, with Ethereum gas fees reaching an all-time high, Sorare integrated layer 2 Starkware. Both technological shifts were hard to execute but necessary to bring Sorare to the next level.
Sorare manages to sign licensing agreements with clubs and leagues at an incredible pace. At the seed stage, Nicolas Julia had already signed 58 clubs on his own with great brands like Napoli, Valencia, AS Roma, OL, etc. 18 months later, Sorare has attracted top clubs like Juventus, Madrid and Liverpool. It has also struck deals with two major European leagues (Bundesliga in Germany and La Liga in Spain). These achievements are incredible compared to Sorare’s human resources.
Sorare created an open ecosystem that brought the power back to the gamers. The NFTs can be re-sold to generate profits, or held and used across seasons and even in side-games. Public and transparent transactions also paved the way for the creation of Sorare Data, sort of Bloomberg for Sorare, that is used by most gamers to make better decisions. Sorare even participated in SorareData’s seed round, led by Seedcamp, which is also an early investor in Sorare.
Sorare made blockchain invisible for the user. Although this technology is vital for the project, Sorare users don’t need to understand it. All cards can be bought by credit card, through the integration of the Ramp solution. Cards transfers are almost instantaneous thanks to Starkware. And even more importantly: Sorare covers all gas fees.
Sorare has found the perfect recipe to reach a Netflix-like engagement rate. Boris Golden, investor in Sorare, wrote in March 2021 that Sorare had a 70% 3-month retention. The fantasy game is constantly running, with a well-thought progression system, and a wow effect when you get a reward. With cards being auctioned every 3 sec, and a liquid secondary market, the FOMO is real for Sorare traders. Basically it became unimaginable to watch a football game without being connected to Sorare simultaneously.
Sorare is a community-led product. There is a direct communication between players, ambassadors, and the Sorare team on Discord. Almost all features were ideated there, and submitted in the “feedback-ideas” channel or in an AMA. They did make some mistakes, for example when they were iterating on the reward system, but immediately listened to the community, took a step back, and addressed the issue quickly.
Sorare is easy to explain to a mainstream audience. The collectible aspect and emotional charge can be compared to Panini / Topps cards that all generations know. The fantasy game mechanics can be easily approximated by Football Manager or Mon Petit Gazon (French fantasy football game). The trading part is known by every Fifa Ultimate Team gamer. The value of Sorare is also very easy to emphasize with this methodology. Contrary to Panini Cards, your cards can’t be deteriorated, reproduced or lost. Contrary to Football Manager or MPG, you can monetize your expertise. Contrary to Fifa Ultimate Team, you can re-use your cards every year.
Part III - What will Sorare look like in 5 years?
Bull-Case
Building the definitive augmented soccer experience. Sorare is well positioned to become the go-to-place for any fan who wants to follow soccer. You can imagine Sorare as an experience re-bundling in a single platform soccer game, a news website, a streaming platform, the biggest soccer worldwide community and a ticketing platform. It can leverage both its relationships with soccer clubs & leagues as well as its unbeatable engagement metrics to build this unique place for soccer fans.
Building a Twitch-like experience for soccer games. We won't be surprised to see Sorare purchasing broadcasting rights from national leagues to stream soccer games. It will be able to augment them with both a social layer similar to Twitch and a gaming layer integrating Sorare NFTs.
Building a suite of tools for soccer clubs to engage and monetize their audience. For the 1st time in their history, soccer clubs are able to significantly monetize their online presence. It's a position that Sorare can leverage to sell them additional digital services and to help them build an omni-channel audience engagement platform. On top of an annual subscription to attend the games of your favorite teams, you could get access to additional digital perks like NFT cards, access to specific games or communities, etc.
Building an open ecosystem leveraging Sorare's NFT cards. So Rare NFT cards are portable in other experiences. As a result, an ecosystem has naturally emerged mixing soccer games and tools to become better at Sorare. At some point, Sorare will be detrimental in building this ecosystem as it gives grants to projects in the ecosystem. I believe that we will also see Sorare NFT cards used in non-sport gaming experiences. For instance, you will be able to have a gallery with your Sorare cards or you will be able to use a Sorare NFT as an avatar for other gaming experiences.
Sorare will make women’s football mainstream. Sorare’s fantasy game has the superpower to change habits. Minor leagues present in Sorare as the Jupiler League (Belgium) or J-League (Japan) are already seeing a brand new and sticky audience. We predict that the same phenomenon will happen for women’s soccer.
Expanding towards other sports, and then other industries. Sorare's latest funding will be used to open new geographies and new sports. A new office is being opened in New-York, and top executives are being hired. Our guess: they will start with hockey, baseball, basketball and tennis. “Sorare” is also too general to believe they’ll stick to sports. Sorare will be the brand that transposes scarce realities to digital scarce items in the metaverse. It could be sneakers, experiences or even endangered species.
Creating and sponsoring its own real competitions. Instead of playing friendly matches at the beginning of the seasons, clubs will compete in a friendly Sorare tournament, where the Sorare community will have VIP rights.
Bringing fans closer in the physical world. We imagine Sorare bars broadcasting the long-tail football games, where fans would meet, watch games, buy digital cards and real shirts, and discuss their players' performances. Physical experiences will be part of the reward system, payments will be made from their Sorare wallet.
Bear Case & Main Challenges
Sorare is still indexed to Ethereum. As a player, the value of your cards are constantly indexed to Ethereum which remains a volatile cryptocurrency. This is deterring players from joining the game and it pushes some players to sell the cards when Ethereum is booming to crystallize some of their gains.
There is room to make the game even more mass market. If you want to start earning rewards, you need to buy at least 4 limited cards. Today, to build a competitive team, you need to spend at least a few hundred euros, and if you want to progress in divisions, it becomes thousands. The free-to-play game has some room for improvement.
Scaling the team. Sorare had the luxury to take the time to recruit its core team. Today, only 30-35 people are currently working in the company which is ridiculous compared to its valuation and growth trajectory. In 2022, we can expect the team size to grow by 4-5x but in the meantime it has given rise to some bottlenecks like for customer support.
It’s hard to progress in the game as a newcomer. Early believers who started to play in 2019 are capturing most of the wealth generated by Sorare either through card value / ETH appreciation and rewards. They represent a significant portion of the top 1% in the game which controls over 45% of the wealth - a figure way higher than what we see in traditional economics. Sorare already communicated that they are working on a new progression system, in which users will accumulate points as they play the game, and raffle rewards when they reach different levels.
Uncertainties around the long term economy. First, Sorare’s economic rules are not decentralized. We believe that it’s key to find the right balance in the first years of operations but at some point the game will have to issue a governance token owned by the community to decide the evolution of the rules in a decentralized fashion. Second, at scale, a sound economy must stabilize itself. The value of the cards will stop to constantly increase and some players will lose money while playing the game. This may hurt the engagement rate as a portion of the Sorare’s user base is just here for speculative reasons.
Potential conflicts of interests. Many Sorare’s investors (VCs, angels and soccer players) are also Sorare’s players which raises questions about information asymmetries between privileged and mainstream players.
Regulations issues. Sorare is starting to face investigations from regulators like the UK Gambling Commission, which is involved in a big scandal after the Football Index. The game can be associated with sports betting which is highly regulated in many countries to prevent addiction. There is also the concern that Sorare cards be considered and taxed as financial assets - which we don’t believe is fair as Sorare’s cards have a real utility value contrary to many other crypto projects.
Thanks for reading this post. We did our best to write an extensive deep-dive on Sorare. If you have any questions or if you have a different view on the bull/bear case for Sorare, please do ping us on Twitter (Justin / Alex). Thanks to Thomas, Boris, Julia for their insights and precious feedback, Andrew and the whole SorareData team for their help in the data gathering.
Ressources
Sorare’s Series A funding deck (Jul. 2020)
Europe’s largest B Round: Why we invested in Sorare (Headline, Sep. 2021)
Tech 45 avec Nicolas Julia (Sébastien Couasnon, Sep. 21, 🇫🇷)