Sorare has updated its operating model in France, and gambling regulator ANJ is yet to confirm whether it meets its regulatory criteria, writes Jake Pollard. However, news that the French government is working to pass new regulations for Web3 "pioneers" shows how important the sector is to the French authorities.
In a statement posted on Medium, Sorare said it had updated its product roadmap as a “temporary solution”.
This decision was taken in accordance with “the French National Gaming Authority [l’Autorité National des Jeux (ANJ)] that creates an optional alternative method of entry for users based in France only”.
Essentially, Sorare has increased free-play access to its fantasy sports leagues for players in France. Even if the French language version of the company’s statement, unlike the English text, mentioned that the new method of entry would be available to players “without blockchain cards”.
A marker of regulatory pressure
Overall, the move by Sorare is a marker of the regulatory pressure ANJ has applied on the group for more than a year.
In December, iGB explained that the group operates by issuing virtual player cards as NFTs, which players purchase through the Ethereum platform and use to create their fantasy teams.
The value of the cards rises or falls depending on the players’ performances on the pitch. They can also be traded on Sorare’s digital marketplace/exchange.
The impact of the players’ real life performances on the value of the cards, which mirrors the factors impacting whether a sports bet wins or loses, is what piqued ANJ’s interest.
As part of ongoing communications between the two entities, ANJ required Sorare to provide players with enhanced access to its free play model and give them equal winning opportunities, regardless of whether they pay to play or not.
The group had until 31 March to update its model. The deadline was later pushed back to 26 May.
New model play
Sorare’s new model allows French players to enter its tournaments without having to purchase NFTs/blockchain cards. ANJ president Isabelle Falque-Pierrotin told Les Echos that this option “neutralises the idea of financial sacrifice (stake), which is one of the criteria to be considered a real money game”.
Had Sorare not altered its model, it could have run the risk of being blocked by ANJ, she added.
However, further scrutiny of the news brings up additional questions, such as:
- Will the new set up only be for new players who don’t already have an account and therefore don’t own any Sorare blockchain cards?
- Does it also mean that existing account holders will not have the option to play without blockchain cards, in free play mode?
“If French users do choose to play with this new method on any given game week, they cannot in the same game week also submit a different lineup that contains NFT-backed cards they own,” Sorare told iGB.
Sorare awaits ANJ verdict
The second question is important; as a French company France is likely to be one of Sorare’s largest markets. According to its response, existing account holders will be able to play either with their NFT/blockchain cards or in free play mode.
This means Sorare can keep on monetising its player base in a country that is likely to be a substantial revenue generator.
“This latest update is an optional, alternative free entry method for all French users,” Sorare explained. “That includes existing Sorare account holders and new users, so long as they are based in France and register a phone number and share appropriate documents to confirm their residence in the country.”
The group however will have to wait to see if ANJ is satisfied with the new set up. The regulator told iGB that it had taken note of Sorare’s new measures, but had “not validated any operational solution” other than the principle that a free play option must offer the same chances of winning as a real money product.
It will now spend time assessing Sorare’s new solution, but did not provide a timeframe for when it will issue its opinion on whether it meets its regulatory criteria.
Web3 legislation
It remains to be seen whether ANJ will be satisfied with Sorare’s tweak to its operating model in this key market. While the group continues to operate in this grey zone and is hoping that its compromise solution works for ANJ, the idea that it might be playing for time takes on new meaning in light of recent tech news.
Indeed, Les Echos recently reported that the government has been working on a project to establish regulations to oversee Sorare and other Web3 companies that operate what it describes as “games with exchangeable digital objects”.
This would include groups such as Sorare, Socios or Binance, but would not subject them to the same regulations as real-money gambling companies.
Per the new regulations, these businesses would not be required to obtain a licence from ANJ. They would avoid the tax on gross gaming revenues applied to real-money operators, although they would be subject to a 20% VAT tax on sales of digital goods.
No consensus from regulated igaming sector
According to media reports, there is no consensus among French gambling groups about the proposals.
Lottery operator Française des Jeux wants Sorare and similar businesses to be taxed as real money operators. Land-based casino groups are mainly concerned with online casino regulation (a draft law was presented to the French parliament last week). Sportsbooks are understood to be split over the proposals.
Tax officials have sent their analysis to the French treasury, who will assess it and propose a draft law, according to Les Echos.
News of the fresh regulations is not surprising. France has made a major play of being a leading European base for French tech and international startups in recent years. As one of the unicorns of the Web3 space, Sorare is a huge symbol of that trend and also seems to have access to the highest levels of the French government.
🇫🇷 is building the tech giants of tomorrow. Our President, our government changed the rules of the game to unleash a wave that will foster 100 000’s of jobs and tremendous value creation. Web3 & Sports will lead the way. I’ve had the honor to chat about it with @EmmanuelMacron pic.twitter.com/PjUgatJ8xL
— Nicolas Julia (@ni2las) December 8, 2022
Numbers game
Sorare doesn’t break down its players by country, but it has three million registered customers worldwide and, according to this website, generated sales of around $300m in the past 12 months.
Comparing those numbers with the wider French online sports betting industry, ANJ-licensed operators enjoyed a record 2022 as gross gaming revenues rose 2.5% to nearly €1.4bn and stakes came in at €8.3bn, thanks in large part to the World Cup in Qatar, with the event alone generating €597m in wagers.
In its annual report ANJ said the sector was stabilising following the historic post-pandemic activity levels of 2021.
For all that, much now rests on how ANJ views Sorare’s new freeplay set up in France and whether it gives it its approval. It would also be interesting to get an idea of the tenor of the discussions that will take place between ANJ and the higher echelons of the French government.
It will be fascinating to see what kind of final regulatory framework the authorities devise to supervise companies that offer “games with exchangeable digital objects”. In the meantime, news of those forthcoming regulations must have come as a blessed relief to Sorare.
