The Viability of Athletes Issuing Tokens on the Blockchain
In 2019, NBA player Spencer Dinwiddie set out to do the unthinkable: convert his guaranteed, three-year, $34 million dollar contract into investible tokens backed by the Ethereum blockchain. The tokens would act like any other fixed-income investment, where investors would receive their principal back in monthly installments, plus interest. At a base interest rate of 4.95%, the tokens offered a significantly better return than the 1–2% rates offered by banks and other fixed-income issuers at the time, especially given the fact that Dinwiddie’s contract was guaranteed. The incentive was also straightforward for Dinwiddie as well: he would receive up to $13.5 million of his contract upfront, which he planned to use to invest in venture capital, an asset class uniquely available to him due to his status as an accredited investor. Since the top quartile of VC funds has an average annual return ranging from 15% to 27% over the past 10 years, Dinwiddie would have had a very high likelihood of being able to pay back his investors, and then some. For everyday individuals who were barred by law from investing in the riskier asset classes like venture capital, Dinwiddie’s tokens offered a unique way to invest in a seemingly low-risk security offering sizeable returns.
However, things began to complicate.
The first protestation came from the NBA, which upon hearing the news of Dinwiddie’s plan, quickly conveyed their disapproval by citing a provision of the Collective Bargaining Agreement 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.” The NBA flagged Dinwiddie’s proposal by claiming that the legal obligation by Dinwiddie to pay his tokenholders was tantamount to assigning the right to be paid under the contract to these tokenholders. Dinwiddie went back to the drawing board and recalculated his plan, working with DREAM Fan Shares on a solution to offer tokens that were not explicitly tied to his contract.
The next protestation came from the SEC. Under Regulation D, Rule 506(C), Dinwiddie was only allowed to offer his securities to accredited investors in the United States. So rather than allow everyday individuals to buy a stake in his contract, the tokens were thus limited to 90 individuals who could afford the $150,000 token price.
Despite these hiccups along the way, on January 13, 2020, Dinwiddie officially launched his SD26 tokens. But with the NBA and the government’s fears mostly out of the way, Dinwiddie faced another roadblock: he ended up selling just 9 of his 90 available tokens, raising just $1,350,000 (one-tenth of his $13.5M target).
Calaxy: A New Approach to Monetization
But the persistent Dinwiddie did not stop after his lackluster token sale in January 2020. Just a few months after, he began working on a new venture: Calaxy, a portmanteau for the Creator’s Galaxy. Dinwiddie realized that tokens don’t need to be backed by a tangible asset like a contract, instead, celebrities can issue tokens that can be used to pay for engagements on social media, buy exclusive merchandise, or even have a say in what decisions that celebrity makes.
Calaxy, which is built on Hedera Hashgraph, is a social platform where “creators”, defined loosely by Dinwiddie as any content creator or celebrity with a public following, can issue their own social tokens. As fans purchase these tokens, they get access to particular experiences. Creators decide their own pricing and features include: paid monthly subscription programs, paid live events and jam sessions, video calls, Cameo-style video messages, special requests (cooking classes/personal training), paid follows/shoutouts, NFTs, etc.
Despite Calaxy’s traction so far (the startup has raised $7.5M from investors), Dinwiddie still has his sights set on contract tokenization. Dinwiddie has frequently spoken about using the functionality of Calaxy to allow for broader asset tokenization, including the ability for influencers to leverage a contract or a similar tangible asset.
Why Social Tokens Make Sense for Athlete Investors
With the rise of the athlete tech investor, more and more athletes are becoming aware of the opportunity for massive wealth creation that venture capital poses. While athletes from the past may have invested in stocks, real estate, or the occasional small business, investing in startups has become the biggest trend for the modern athlete. Rudy Cline-Thomas, an investor known for connecting athletes like Andre Iguodala and Steph Curry with Silicon Valley startups looking for investors, is at the forefront of this shift.
“[Athletes] make more money than they’ll be able to spend, most of them,” Cline-Thomas told Insider. “There’s a responsibility for them to be educated in what’s going on around them. They obviously have a keen interest in this and learning something new, but it’s the education to the broader public — I think that there’s just so much we can do in having that microphone.”
In what began as a trend for athletes to join deals as individual angel investors, now we are seeing athletes form powerhouse venture capital firms, learning from and sometimes even competing with the top players in Silicon Valley for the hottest deals. Along with Cline-Thomas’ and Iguodala’s Mastry Ventures, Kevin Durant (Thirty Five Ventures), Serena Williams (Serena Ventures), and Carmelo Anthony (Melo7 Tech Partners) are just a few athletes with widely successful investment firms.
As these firms grow and gain access to more and more deals that they want to invest in, eventually there is only so much of an athlete’s salary that can be invested. This is where the innovation that Dinwiddie brought to the table can help up-and-coming athlete investors. With social tokens, backed by either a contract or even less-tangible obligations to fans, these athletes can use their unique status as public figures to redefine the traditional VC funding model. Instead of going to a traditional limited partner like a pension fund or a university endowment, these athletes can raise a new round from a group they know best: their own fans.
Will fans invest? While Dinwiddie’s 2019 case study might make some weary, most signs from the past few years point to an increased likelihood that everyday investors would want in. In recent years, we have seen a rapid rise of crowdfunding. With new rules surrounding laws like Reg CF, Reg A, and Reg D in the past year, crowdfunding has become a much more viable investment strategy due to firms like Republic. Companies like Republic have helped de-risk and de-stigmatize private investing for the middle class, and the growth of crowdfunding as a whole has been markedly drastic.
The next inevitable shift for modern crowdfunding will be the incorporation of blockchain technology. https://www.bbvaopenmind.com/en/economy/business/how-blockchain-is-revolutionizing-crowdfunding/
Fundraising, a traditionally arduous task that takes away from the joys of investing, can be as simple as launching a token issuance on Calaxy or the next best creator token app.