The Advertising Standards Authority (ASA) of the United Kingdom has concluded that the advertising of the NFT of Johan Cruyff (known as the “Flying Dutchman”), coined by F.C. Barcelona, is misleading. The British ruling should lead us to be extremely careful when coining, advertising and offering NFTs. The regulatory framework in Spain and the EU is in the process of being defined and while this process is still ongoing, precautions should definitely be taken.
The Advertising Standards Authority (ASA), which is the equivalent of Asociación para la Autorregulación de la Publicidad (Autocontrol) in Spain, considered that advertising of the NFT of Johan Cruyff, coined by F.C. Barcelona and sold at Sotheby’s for almost US$700,000, was misleading and recommended that it not appear again in its current form. The ad referred to the NFT of Johan Cruyff’s so-called “impossible goal” in 1973, an exclusive item, identified as “In a way, immortal” (link).
Specifically, the decision of December 22, 2022 concluded that the advertising of the NFT was misleading for three reasons which we analyze below.
- The advertising did not make clear the financial risks associated with NFTs
In this regard, the ASA held that the NFT coined by Barça was an investment and as such, advertising of the product had to make reference to its volatility as required by Rule 14.4 of the CAP Code, in relation to financial products. The decision expressly concluded that “Given the risks and complexities associated with cryptoassets the ASA considered this was material information that consumers would want to know before engaging with NFTs.”
The decision made reference to the defense put forward by F.C. Barcelona which had primarily argued that NFTs are not investment products but rather collectibles. However, the ASA considered that although for some consumers the motivation might be to collect NFTs, for other consumers the motivation might be to acquire the NFT as an investment opportunity given its expected increase in value. From this standpoint, the ASA considered that even if NFTs are not advertised as an investment, they are in all cases highly volatile products, subject to frequent changes in value which could potentially lead to large losses and as a result, the seller must be warned of the associated risks.
The conclusion therefore reached was that because the ad did not include any risk warning making consumers aware that the value of NFTs could go down as well as up, or that the NFT in question was an unregulated cryptoasset, the ad was misleading and breached CAP Code Rule 14.4 .
- The advertising did not include warnings of the costs associated with an auction, such as auction house fees, sales tax and a gas fee to transfer the NFT to a digital wallet.
In this regard, the CAP Code considers that ads that omit material information in relation to the total price of an NFT are misleading. Specifically, a warning was not given of the obligation to pay the auction house a 25% premium, an overhead premium of 1% and the gas fee to transfer the NFT to the buyer’s digital wallet.
F.C. Barcelona argued that there was not enough space in Google’s ads to include this information. However, the ASA did not accept this argument, and said that the suitability of such ads should have been assessed and the conclusion reached that they were not the correct medium for promoting this particular NFT.
It therefore considered that CAP Code rules 3.1 and 3.3 had been breached, fundamentally misleading advertising due to omission of information.
- The ad did not make clear that there were significant restrictions on ownership rights
Finally, the ASA underscored that buyers should have been warned that acquiring the NFT did not involve an acquisition of intellectual property rights for the image, the possibility of displaying it for commercial purposes or the ability to modify the image in any way.
F.C. Barcelona contended that that the limits of ownership rights were explained in the terms and conditions of sale, but the ASA dismissed this on the grounds that this was material information that should have been included in the ad.
It therefore held that CAP Code rules 3.9 and 3.10, had been breached, basically not stating significant limitations and qualifications.
This is undoubtedly an interesting case, especially if we bear in mind the recent regulations in Spain and the discussion of cryptoassets at an EU level. At a national level, we consider that the advertising of NFTs is governed by general legislation on advertising and consumption which effectively prohibits misleading advertising (by action or omission).
In addition, if it the advertising of the NFT is considered to be of a cryptoassets which is an investment item, National Securities Market Commission Circular 1/2022, of January 10, 2022, on the advertising of cryptoassets would be applicable. This Circular determines the rules, principles and criteria to which advertising of cryptoassets is subject, but we insist, provided that they are considered to be advertised as an investment item. In fact, the Circular states that “the advertising of cryptoassets that are unique and not fungible with other cryptoassets, where they represent collectible items, works of intellectual property or assets whose sole purpose is to be used in games or competitions, whereby they are not offered on a massive scale as an investment item, shall not be considered advertising activity in respect of cryptoassets and shall therefore be excluded from its scope”. However, if the Circular is applicable, it would be mandatory, among many other requirements, to warn recipients of the advertising of the risks implicit in these assets, by including the following qualification: “The investment in cryptoassets is not regulated, it may not be adequate for retail investors and could potentially lead to the loss of the total amount invested”.
The moral of the story is that NFTs require a prior analysis of the specific activity that is going to be pursued and of the purpose of coining and offering cryptoassets. Indeed, the fact is that we cannot rule out the possibility, in certain circumstances, of NFTs being considered financial assets and even if they are not, in view of the manner in which they are advertised, of them being considered an investment product. The debate on the nature and purpose of NFTs is far from settled in the EU. Therefore, while the rules are being established, it is advisable to take all possible precautions.