Key Takeaways

  • This September, the NBA’s Spencer Dinwiddie announced a plan for investors to buy shares in his personal cash flow with a private Security Token Offering (STO), but the NBA shot him down, citing the Collective Bargaining Agreement.

  • Others, notably from the NFL, have tried this before using traditional investment vehicles (including IPOs) through equity firm Fantex, but the experiment was a failure.

  • Dinwiddie proceeded with his plan despite the NBA’s position, launching DREAM Fan Shares on October 21.

  • As blockchain tech (and tokenization in particular) make it easier than ever to unlock investment opportunities in traditionally illiquid assets, more athletes are likely to come forward, further pressuring league officials.

  • The current NBA CBA could be up for renegotiation as early as 2023. Will tokenization, STOs, and tokenized IPOs be on the table?

  • Learn more about tokenized IPOs for issuing shares in your asset on the stock exchange.

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By: Jai Waterman, Chief Enterprise Architect

“No player shall assign or otherwise transfer to any third party his right to receive Compensation from the Team under his Uniform Player Contract.” - NBA 2017 Collective Bargaining Agreement, section 13(d)

Spencer Dinwiddie, guard for the NBA’s Brooklyn Nets, presented a novel idea this September: sell tokenized shares (a type of private Security Token Offering, or STO) in the first year of his 3-year deal to investors. The idea was to provide him with more money up front, give accredited (read: already wealthy) investors a low-risk revenue stream, and serve as the proof-of-concept for his new DREAM Fan Shares platform, developed by blockchain-based crypto firm Paxos.

(Did you know? During the height of #KawhiWatch this summer, Blockstation put out an offer to Kawhi Leonard to tokenize his next contract as a publicly traded STO / tokenized IPO on the stock exchange. This opportunity would have been accessible to all of his fans and investors, if Leonard opted to re-sign with the Toronto Raptors. Read the full article)

Anyway, just two days later, the NBA came back with a firm “No,” citing section 13(d) of the league’s collective bargaining agreement with its players. Done deal, right?


Actual footage of Dinwiddie saying "I don't think so." via GIPHY

Dinwiddie launched DREAM Fan Shares anyway and sold tokenized ownership in his contract less than a month later on October 21. And according to a recent article in Forbes, he claims that other athletes and entertainers are interested in following suit.

Clearly, there’s demand for tokenizing high-value contracts among pro athletes. Which means that tokenization might just be on the table the next time the NBA (and probably the NFL, MLB and NHL too) sits down to negotiate its next collective bargaining agreement.

Why sell securities in sports contracts, anyway?

Elite athletes sign deals for huge amounts of money, but like the rest of us, they get regular paychecks for smaller amounts over time. When Dinwiddie sold his Professional Athlete Investment Tokens (PAInTs) to investors through DREAM, he collected $13.5 million up front - far more than the $10 million and change he’ll be paid by the Nets this season.

As he gets the rest of his paychecks, he’ll send some of the proceeds back to investors in principal and interest, mortgage-style, with the potential of a huge windfall for them if he signs a bigger contract in his option year.

For Dinwiddie, it’s more money to invest or spend at today’s value (no inflation). If there’s any drawback, it’s that he can only sell his PAInTs privately to a small pool of accredited investors, cutting everyday fans out of the equation. A tokenized IPO on the stock exchange like what the Blockstation platform enables, on the other hand, would be open to the public, making it even easier for him to raise funds while building stronger ties with his fan base.

Didn’t some NFL players try this already?

Back in 2012, investment firm Fantex tried more or less the same thing as Dinwiddie, only with NFL players and using legacy investment tools - no blockchain or tokenization. Fantex eventually signed 11 stars and even listed IPOs on the stock market for some of them, including Vernon Davis and Jack Mewhort.

Don’t be surprised if you never heard about it though. Fantex called the experiment a failure, took its shares private and stopped signing new athletes back in 2017, just five years after it started.

Part of the problem was cost. There’s a lot of paperwork and reporting involved in maintaining a compliant investment product, and most companies that go public with an IPO need at least $100 million in annual revenue to make it worthwhile. In other words, Fantex needed a lot of athletes and a ton of trading volume if the numbers were going to work.

Tokenization is the key

The good news for Dinwiddie - and any athletes interested in exploring the publicly traded route we proposed to Leonard - is that the blockchain was designed to tackle exactly those issues record-keeping issues. The cost of accessing, organizing, and sharing accurate and trustworthy information drops to almost nothing.

Which means that tokenization is basically the Model T Ford of investing: a way to make safe and compliant capital markets, whether to raise money or invest, more affordable and accessible to more people around the world.

So, is tokenization the future of investing? When it comes to tokenized IPOs on the stock exchange, we think so. (If you’re curious, learn more and see if your offering qualifies.) And when it comes to private equity, it seems that Dinwiddie and Paxos think so too.

Countdown to tokenization in collective bargaining

The NFL didn’t have any issues with its players trying this out back in 2012, but the NBA definitely does today. And who knows? Now that the idea is more financially viable, the NFL might change its tune. CBAs for major sports leagues expire every few years, so we might see tokenization inthe sports section headlines sooner than later:

League

CBA Expiry

NFL

2020

MLB

2021

NHL

2021-2022

NBA

2023-2024

 

Of course, the CBA expiry date is no protection. Thanks to Dinwiddie, the NBA is confronting tokenization a full five years early, a situation that has effectively put every other major sports league on notice. And Dinwiddie isn’t the only game in town, either. While he’s building a wait list of athletes and entertainers curious about a private STO for special accredited investors, Blockstation is in talks with several high-profile stars of its own to explore tokenized IPOs that would be open to their entire fan base.

About Blockstation

The Blockstation platform is an end-to-end solution for listing and trading fully compliant tokenized securities - including IPOs / STOs, Bitcoin and Ether - on regulated stock exchanges around the world.