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30 September 2019

Market Commentary: NBA Player tokenises his contract

Patrick Heusser

Patrick Heusser

Senior Trader at Crypto Broker AG

About the author

Just before we went into the weekend, an interesting announcement made the round in the professional sports sector: NBA player Spencer Dinwiddie from the Brooklyn Nets has tokenised 40% of his three-year, $34.4 million NBA contract.

The ERC20 investment token “$SD8” (his initials and shirt number) will be issued by Spencer’s company DREAM Fan Shares. His future plans are much bigger than just to tokenise his contract. His vision is to create a platform where professional sports athletes can tokenise their contracts.

The ERC20 token is issued under Reg D which means that it’s only available for accredited investors. The minimum investment is $150,000. It is a sensible move, as this will not stir any regulatory issues. The concept already draws enough attention, which triggered the NBA to issue a first statement:

“According to recent reports, Spencer Dinwiddie intends to sell investors a ‘tokenised security’ that will be backed by his player contract. The described arrangement is prohibited by the C.B.A. [collective bargaining agreement], which provides that ‘no player shall assign or otherwise transfer to any third party his right to receive compensation´ from the team under his uniform player contract.”

Spencer was prepared for it and had already scheduled a meeting with the NBA over the weekend to explain the concept in more detail to them.

So, what is the incentive behind it for investors and for Spencer Dinwiddie?

The way the ERC20 contract is carved out, investors will earn interest on their investment (the interest rate is not yet communicated). Additionally, you own a call option of any upside in Spencer’s career. For example, if his team makes the playoffs and he earns additional money or any other contractual premiums, this income will flow into the ERC20 valuation. The big money investors are speculating on will materialise if he receives an offer from another team in the second or third year with a higher contract value.

On the other hand, Spencer’s incentive is to get some of his salary upfront. It is probably cheaper for him to offer a low interest rate to investors, compared to the interest rate he has to pay for a loan or a mortgage. But obviously, in his personal case, if this concept gets adopted and approved by the NBA, he will make a killing with his DREAM Fan Shares company.

In my opinion, there are still many open questions (a bit like the LIBRA project), but it is very positive push forward for the whole tokenisation space. Not only because this project has a proper use case, but also the way it has been launched and thought through.

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