The Advertising Standards Authority (“ASA”) has recently investigated three separate advertisements relating to the promotion of NFTs by each of FC Barcelona, Turtle United and Foris DAX Global Ltd (“FDG”). The ASA considered whether the ads were misleading as they:

• failed to make the risks associated with investing in NFTs sufficiently clear; and
• omitted material information that included significant limitations and qualifications.

Additionally, the ASA considered whether one of the ads was misleading by assuring consumers that NFTs hold significant value.

The Ads

A paid for Google search result for FC Barcelona

The advertisement featured a FC Barcelona NFT which was being sold on the fine art broker website, Sotheby’s. The ad included the following text, “July 29, 2022 – NFT Johan Cruyff. Don’t miss the live auction. The first NFT Masterpiece of FC Barcelona. Premiere July 29th. Johan Cruyff’s ‘impossible goal’ in 1973. Immortalized and offered as an exclusive NFT” (“Ad 1”).

A paid for Facebook ad for Turtle United

The advertisement featured a caption of a man taking a picture of a turtle in a gallery setting, with the following text, “TURTLE DEL GIOCONDO SOLD FOR 7.07 ETH”. The Facebook ad also featured the following text, “Minting Soon: Turtle United NFT. Turtle United is the 1st NFT Project that is creating a powerful movement in the Metaverse – Offering a lot of Value for its Holders… Free VX Collection Airdrop for Holders… Minting on 19th July…” (“Ad 2”).

A paid for Facebook ad for FDG

The advertisement promoted the cryptocurrency trading platform, Crypto.com, and included the following text, “Crypto.com NFT is now available in the Crypto.com App. Mint, collect, and trade NFTs and manage your crypto all in one place…”. The ad also included a video which demonstrated to viewers how to purchase an NFT through the app (“Ad 3”).

(the “Ads”)

Issue

The ASA assessed whether:

1. each of the Ads were misleading as they failed to make clear the risks associated with investing in NFTs (“Issue 1”);
2. each of the ads were misleading as they omitted material information (“Issue 2”); and
3. Ad 2 was misleading as it implied NFTs had an assured significant value (“Issue 3”).

Representations made by FC Barcelona, Turtle United and FDG  

FC Barcelona’s response to the ASA argued that as NFTs are not regulated in the UK by the Financial Conduct Authority the purchase of an NFT should not be considered an investment. As the NFT was being offered as a collectible, it was FC Barcelona’s view that it was not an investment or financial product and should therefore not be subject to the relevant provisions of the Committee of Advertising Practice Code (“CAP Code”). Additionally, FC Barcelona stated that significant information relating to the purchase of the NFT was included in Sotheby’s Conditions of Sale, and the ad itself only appeared for a short time between 20-29 July 2022.

FDG responded to the ASA that they understood the NFTs available on their platform were not financial in nature and were therefore exempt from the relevant provisions of the CAP Code. As their ad only referred to the purchase of NFTs, which did not attract a fee, FDG’s position was that there was no need to include significant conditions related to selling fees. FDG also confirmed the ad was no longer in circulation and was published before the ASA released its recent guidance on the marketing of cryptoassets.

Turtle United did not respond to the ASA’s enquires.

Assessment

The ASA found a breach of the CAP Code by each of FC Barcelona, Turtle United and FDG in relation to the Ads.

Assessment of Issue 1

With respect to Issue 1, the ASA referred to Rules 3.3 (which states that advertisements must not omit or hide material information) and 14.4 (which states that advertisements must make clear that the value of investments varies and, unless guaranteed, can increase as well as decrease in value) of the CAP Code.

With respect to each of the Ads, the ASA’s decision made clear that NFTs are an unregulated cryptoasset, largely volatile in nature and are subject to changes in value which could lead to financial loss. The ASA also noted the following:

• in Ad 2, it was emphasised throughout that there was a previous sale of an NFT at a value of 7.07 ETH, which appeared to market the NFT as an investment product; and
• in Ad 3, it stated “Mint, collect, and trade NFTs…”, which implied that NFTs could be traded like a financial investment product.

As the Ads did not make clear to consumers, by way of risk warnings or appropriate disclaimers, that the value of NFTs can fluctuate, as well as the fact that NFTs are an unregulated cryptoasset, the ASA concluded that each of Ad 1, Ad 2 and Ad 3 were misleading.

Assessment of Issue 2

With respect to Issue 2, the ASA referred to Rules 3.9 (which states that advertisements must not mislead consumers by omitting significant limitations and qualifications) and 3.23 (which states that advertisements must make clear the extent to which a consumer can take advantage of a “free” offer) of the CAP Code.

Turning to Ad 1, the ASA noted that the acquisition of the NFT included the buyer paying Sotheby’s premium (25% of the hammer price), an overhead premium (1% of the hammer price) and a gas fee to transfer the NFT to a digital wallet and sales tax. Additionally, the purchaser of the NFT would not have any intellectual property rights in the NFT, which means the purchaser would be unable to modify or display it for commercial purposes. Because of this, the ASA concluded that Ad 1 was misleading as significant information like restrictions on ownership and the fees associated with the purchase of the NFT was omitted.

With Ad 2, the ASA noted the promise of “Free VX Collection Airdrop for Holders”. The ASA also noted consumers must pay the minting fee of 0.2 ETH (approximately £250), as well as a gas fee. As such conditions are material information that the consumer would need to know before they engaged with the offer, the ASA concluded that Ad 2 was misleading as it did not make clear the level of commitment a consumer needed to take up the ‘free’ offer.

With Ad 3, the ASA noted that minting an NFT on the Crypto.com platform would incur a minimum fee of $3, and consumers who sold NFTs would be responsible for a “primary listing fee” of 1.99%. Additionally, the royalties for the resale of NFTs created directly through the platform were charged at 10%. Although the purchase of an NFT did not incur a fee, the ASA concluded that it was likely that those who minted NFTs would also sell them, and such material information relating to the fees of selling the NFTs is material. Given the omission of this information, the ASA held Ad 3 to be misleading.

Assessment of Issue 3

With respect to Ad 2, the ASA referred to Rule 14.5 of the CAP Code (which states that advertisements must make clear that the past performance of a financial product does not give an indication for its future performance).

As Ad 2 stated “TURTLE DEL GIOCONDO SOLD FOR 7.07 ETH” and “Offering a lot of Value for its Holders”, the ad was deemed to highlight the previous performance of an NFT to encourage the purchase of further NFTs without the necessary qualifications. The ASA also concluded that the ad failed to substantiate the statement implying that the NFT held significant value. In this respect, the ASA held that Ad 2 was misleading.

Comment

Whilst the regulatory position of NFTs remains the subject of debate, the ASA has made clear that it will retain “… oversight of issues of responsibility across all forms of cryptoasset advertising”. These three rulings are a clear sign of the “red alert” the ASA has placed on regulating the marketing of cryptoassets.

More specifically, the ruling on Ad 1 serves as a timely warning to clubs, governing bodies, tournament organisers and individuals across the sports industry who are considering launching their own NFTs. We have previously explored some of the key legal considerations for participants in the sports industry to bear in mind when launching and advertising Fan Tokens. Much of the same analysis applies to the marketing of NFTs – clubs, governing bodies, tournament organisers and individuals should take appropriate steps so as not to fall foul of the CAP Code and ensure they stay up to date on the regulatory landscape for cryptoassets.

A link to the ruling for Ad 1 can be accessed here.

A link to the ruling for Ad 2 can be accessed here.

A link to the ruling for Ad 3 can be accessed here