NBA Top Shot’s 3rd Birthday- A Celebration or a Wish🕯?
New avenues for revenue and engagement, NFTs come at a cost
In 2021, the first tweet from Twitter CEO Jack Dorsey was sold as a non-fungible token living on the Ethereum blockchain for 2.9 million dollars. At the time of the purchase, the buyer linked the digital value to its uniqueness and association with a valuable company like Twitter. This price tag does not even come close to some of the most expensive NFTs ever sold like The Merge, which closed for a whopping $91.8m. As the NFT market draws more curiosity, is it worth it for brands like the NBA to get in on the action of a hot market cooling down?
Understanding NFT
Non. Fungible. Token. If you purchase a tee shirt from an online retailer for $20, that particular retailer might make hundreds of tee shirts sent out to stores, that are identical to the rest. You might not mind what specific shirt they send you, as long as it’s your size. If the tee shirt is identical to the rest, it is considered fungible or replaceable because it’s an item or good that can be exchanged because it carries the same value. Examples of fungible goods would include a hundred-dollar bill that can be exchanged for five twenty-dollar bills, soccer balls, barrels of oil, and most stocks or bonds. However, if you have an original tee shirt that has emotional value or significance, it is considered non-replaceable or non-fungible because its value is in its scarcity. In plain English, NFTs are a form of expression represented digitally. Examples of this expression would be digital music, drawings, characters, and videos. A token represents ownership of these digital assets with a certificate of authenticity that confirms it’s real and one of a kind. The details are recorded on a digital ledger on a blockchain and cannot be copied. This is why these assets are referred to as “cryptographic” assets.
Encountering scams
Wash trading is a financial scam in which consumers sell assets to themselves for a higher price to artificially inflate the value of an asset. According to a 2022 report from Chainalysis, wash trading drove $44 billion in sales in the NFT market in 2021. Another scam, “rug pulls” is when a new cryptocurrency project solicits funds from investors and suddenly drains the funds from the projects, leaving the initial investors to take the loss.
Seeing smaller audiences
By experimenting with NFT projects, the NBA might realize which demographics are showing interest in digital assets. It is possible that tokens are appealing only to a younger, wealthier, cryptocurrency-holding audience of affluent customers who understand the NFT industry and have become wealthy through technology. Adding to audiences a “safety component,” Martha Bennett, vice president and principal analyst at Forrester used the NBA as an example of a brand that is collaborating with companies that facilitate NFT transactions not publicly accessible to everyone. In this case, the NBA is trying to create a “sealed-off” environment for its audience.
Receiving pushback from environmental agencies
Sadly, blockchain technology physically relies on computers that do heavy computing nonstop, which as of 2022, have used over 30 terawatt hours of electricity. I would go into the size, scope, and conversions of a terawatt but let's just say it's equivalent to the amount of power an actual country uses. The power consumption of the blockchain is becoming a real issue in our society because of its ties to carbon emissions. It will be interesting to see how politics plays out around this issue and the debates on using energy to create tokens or get people from point A to point B.
NBA should stay in the NFT market
First, I think for sports, specifically the NBA where individual players drive the brand, NFTs work well because fans want collector items so the engagement could benefit. Also, it can be hard to tell if an autographed baseball or jersey you are buying was really signed by that player so the idea of using a digital token as proof of ownership can be used to solve this problem of authenticity of merchandise. Second, the way people value things is shifting because of technology. NFTs will be a tool for retailers to capitalize on the hype and attract customers. Nike has capitalized on this already making $185 million off of NFTs. Third, NFTs have enhanced media exposure, and the NBA is practically a global media business. Since an NFT is programmable, the NBA can create exclusive access to something digital, something online, an event or to preview a catalog. The NBA should stay the course but also take precautions like choosing the right collaborations with NFT project companies, and being clear to consumers if individuals are purchasing rights to a piece of digital content or just accessing some sort of content-related perk in exchange for buying a token. Also, I’d include an FAQ section on the Top Shots website to answer questions about collecting highlights. If I am purchasing a piece of digital artwork or highlight video and I see there are 632 left in the pack, where is the sense that I own something original or unique? Isn’t that where an NFT retains its value as a rare item released to capture the timeless element of sport? NFTs are here to stay and I’m sure phases of consumer education are expanding as the marketplace develops.
