An NBA star plans to turn his contract into digital tokens and sell them
January 13, 2020 7:30 AM Subscribe
According to this article, they (the NBA) thought it amounted to gambling up until at least late last week. The theory being, he has a 3-year guaranteed contract, but with a player option on the 3rd year, so he could go to a different team that makes a higher offer, thus increasing the return to his "SD8" token, contingent on unknown future events. It strikes me as a bit much to call this "gambling" in a way that is problematic for the game or league, but whatever.
However, this (NYU IP / entertainment law blog) gives a bit more detail and the TL;DR appears to be that he's offering a return of 2-3% for the "investors" who buy this thing. The advantage for him is he gets his contract money up front, and this is a much lower interest rate than he would have to pay, e.g., on a line of credit or personal loan from a bank. And for the fans, it's much higher risk than any sort of bond with a comparable payout structure. So it seems like very nearly a scam he's pulling on fans.
I don't know. I suppose in theory his fans could be just so stoked to be associated with him that they are genuinely willing to take on a huge risk for minimal return, but then again I could also see that as something the league has a legit interest in preventing.
And that's setting aside the cryptocurrency aspect of it! Which I will let others opine on at length.
posted by Joey Buttafoucault at 8:38 AM on January 13, 2020 [2 favorites]
However, this (NYU IP / entertainment law blog) gives a bit more detail and the TL;DR appears to be that he's offering a return of 2-3% for the "investors" who buy this thing. The advantage for him is he gets his contract money up front, and this is a much lower interest rate than he would have to pay, e.g., on a line of credit or personal loan from a bank. And for the fans, it's much higher risk than any sort of bond with a comparable payout structure. So it seems like very nearly a scam he's pulling on fans.
I don't know. I suppose in theory his fans could be just so stoked to be associated with him that they are genuinely willing to take on a huge risk for minimal return, but then again I could also see that as something the league has a legit interest in preventing.
And that's setting aside the cryptocurrency aspect of it! Which I will let others opine on at length.
posted by Joey Buttafoucault at 8:38 AM on January 13, 2020 [2 favorites]
I imagine their concern is a lack of control and risk (gambling risk being a major one)
I can imagine all sorts of issues if he is unable to play / is dropped from the league for any issue / if he dies unexpectedly or takes the cash up front and blows it. Let alone all the scam coins that will be issued that will try and dupe folks if this becomes common. I mean I’m sure people have thought that through. But I am sure there are other risks - where if it all blows up people go after the party with the deep pockets (the NBA or the individual team) to be made whole (especially if they are seen as endorsing this). Let alone weird risks like some billionaire somewhere buying all the tokens up for multiple players and having undue influence on a team or teams without being part of the league.
posted by inflatablekiwi at 8:50 AM on January 13, 2020
I can imagine all sorts of issues if he is unable to play / is dropped from the league for any issue / if he dies unexpectedly or takes the cash up front and blows it. Let alone all the scam coins that will be issued that will try and dupe folks if this becomes common. I mean I’m sure people have thought that through. But I am sure there are other risks - where if it all blows up people go after the party with the deep pockets (the NBA or the individual team) to be made whole (especially if they are seen as endorsing this). Let alone weird risks like some billionaire somewhere buying all the tokens up for multiple players and having undue influence on a team or teams without being part of the league.
posted by inflatablekiwi at 8:50 AM on January 13, 2020
If this takes off, I imagine it wont take long for other players to follow suite. Personally I cant wait for the great NBA PlayerCoin crash of 2035 when the Warriors 3xETF takes a nose dive after the players all attend the same holiday party with bad crab cakes. The Vanguard whole market NFL salary ETF will be a sure fire retirement investment!
posted by KeSetAffinityThread at 8:54 AM on January 13, 2020 [5 favorites]
posted by KeSetAffinityThread at 8:54 AM on January 13, 2020 [5 favorites]
Apparently the agreement has significantly changed. The FPP link (from 01/10) says (emphasis added):
posted by the legendary esquilax at 9:09 AM on January 13, 2020
Dinwiddie told Forbes that the league’s biggest objection related to the third year of his contract, which gives him leeway to opt out and pursue a more lucrative one. He had promised investors “significant dividends” in the case he did land a richer deal in the third year. Apparently the NBA opposed that aspect, calling it gambling. Dinwiddie has removed this element from the plan and is convinced that the NBA will now let it move forward.The first article Joey Buttafoucault links to above (also from 01/10) references an article from The Athletic that says (emphasis added):
After months of discussion with the NBA, Dinwiddie, on Jan. 13, will launch his digital investment vehicle, The Athletic has learned. Dinwiddie has made changes to his product and has no longer tied the platform to his NBA contract, according to sources.Unfortunately that The Athletic article is behind a paywall and I can't read the whole thing, but it sounds like the nature of the investment vehicle is now totally different.
posted by the legendary esquilax at 9:09 AM on January 13, 2020
Ha! So now it's backed by nothing. Aroma of scam: increasing...
posted by Joey Buttafoucault at 9:11 AM on January 13, 2020 [1 favorite]
posted by Joey Buttafoucault at 9:11 AM on January 13, 2020 [1 favorite]
"And in market news today, Russell Westbrook coins (ticker:OUTFITZ) were up 4 points on the back of the announcement of his new-spring fashion catalog, while Steve Adam coins (ticker:GRIZ) crashed when he announced he'd been appointed as NZ's Ambassador to the USA, and would now only make infrequent appearances for the Washington Generals."
posted by inflatablekiwi at 9:46 AM on January 13, 2020
posted by inflatablekiwi at 9:46 AM on January 13, 2020
Maybe this didn't work out, but I wonder if this points the way to the (grim, as usual) future. In the near-future setting of Mary Doria Russell's excellent sci-fi novel The Sparrow, investors can provide money and resources to promising children in return for dividends from their work as an adult, a kind of neo-indentured servitude. Maybe we're heading in that direction and it will look something like what Dinwiddie is trying to do here. I thought I had even read about an actual program along those lines but can't seem to find it. It's not the Thiel Fellowship, which seemed like it but doesn't have the guaranteed return element.
posted by the legendary esquilax at 9:49 AM on January 13, 2020 [2 favorites]
posted by the legendary esquilax at 9:49 AM on January 13, 2020 [2 favorites]
I just can't imagine getting paid that much and wanting to get still richer by questionable means. He's no different than any other capitalist in that regard but yikes.
posted by klanawa at 9:51 AM on January 13, 2020 [1 favorite]
posted by klanawa at 9:51 AM on January 13, 2020 [1 favorite]
Why are use the word “tokenize” instead of the word “securitize”?
posted by Jon_Evil at 10:02 AM on January 13, 2020
posted by Jon_Evil at 10:02 AM on January 13, 2020
Token people are fighting hard not to have tokens classed as securities. A largely losing battle, to date, but not one the promoters of any given scheme are going to give up on up front, I don't think.
posted by praemunire at 10:35 AM on January 13, 2020 [5 favorites]
posted by praemunire at 10:35 AM on January 13, 2020 [5 favorites]
Why are use the word “tokenize” instead of the word “securitize”?
"Tokenize" comes from the "tokens", and that's a dogwhistle for dumbasses who will set their money on fire without a second thought because they think they are getting in on something like bitcoin. You use the word "securitize", and all of the sudden you attract people who perhaps don't want to set their money on fire (in fact, they even want more money back than they put in! Imagine that!), and all of a sudden you can't just spending other people's money.
Also, like praemunire alludes to, saying "tokens" is the gold fringe on the American flag equivalent for these dudes, because somehow saying "tokens!!!!" over and over will prevent the SEC from stepping in and prevent you from defrauding your rubes.
posted by sideshow at 10:47 AM on January 13, 2020 [2 favorites]
"Tokenize" comes from the "tokens", and that's a dogwhistle for dumbasses who will set their money on fire without a second thought because they think they are getting in on something like bitcoin. You use the word "securitize", and all of the sudden you attract people who perhaps don't want to set their money on fire (in fact, they even want more money back than they put in! Imagine that!), and all of a sudden you can't just spending other people's money.
Also, like praemunire alludes to, saying "tokens" is the gold fringe on the American flag equivalent for these dudes, because somehow saying "tokens!!!!" over and over will prevent the SEC from stepping in and prevent you from defrauding your rubes.
posted by sideshow at 10:47 AM on January 13, 2020 [2 favorites]
what happens if hes suspended or otherwise disciplined in a fashion that includes not getting his game checks?
posted by Exceptional_Hubris at 10:52 AM on January 13, 2020
posted by Exceptional_Hubris at 10:52 AM on January 13, 2020
> klanawa: I just can't imagine getting paid that much and wanting to get still richer by questionable means. He's no different than any other capitalist in that regard but yikes.
Keep in mind that the average NBA career is only 4.5 years.
posted by Rock Steady at 11:05 AM on January 13, 2020 [1 favorite]
Keep in mind that the average NBA career is only 4.5 years.
posted by Rock Steady at 11:05 AM on January 13, 2020 [1 favorite]
I wonder how deeply in debt some players go In order to get the training and access they need to even have a shot at a plum NBA contract
posted by Jon_Evil at 11:48 AM on January 13, 2020 [2 favorites]
posted by Jon_Evil at 11:48 AM on January 13, 2020 [2 favorites]
I'll gladly pay you Tuesday for a hamburger today.
posted by SonInLawOfSam at 12:06 PM on January 13, 2020
posted by SonInLawOfSam at 12:06 PM on January 13, 2020
Tokens or not, "Spencer Dinwiddie" is an amazing name.
posted by danjo at 12:44 PM on January 13, 2020 [2 favorites]
posted by danjo at 12:44 PM on January 13, 2020 [2 favorites]
what happens if hes suspended or otherwise disciplined in a fashion that includes not getting his game checks?
So most NBA contracts are (by and large) guaranteed (I guess there are a few partially-guaranteed ones around, according to this blog, no player currently in the league is on one) , which means they still get paid in event of injury or if the team cuts the the player.
In the event of a disciplinary matter, such as a suspension or a fine, that would directly impact the salary of the player I think, and is probably why the limit on what is being raised here is $13.5M (90 tokens at $150,000 each) on a full contract value of $34 million (assuming the 3rd year option is exercised); the total payout over 3 years at a 3% rate of return would be $13.91 million or so if my math is right. Provided that Dinwiddie is responsible with his money, there should be a buffer in place to handle any short term payment issues that might be caused by an interruption in salary.
To me, the wager here was on Dinwiddie not getting himself over-leveraged with whatever other financial investments he makes with the capital raised by this move. However, seeing now that he apparently isn't backing the investment on his contract, the whole thing starts to feel weird.
posted by nubs at 12:51 PM on January 13, 2020 [1 favorite]
So most NBA contracts are (by and large) guaranteed (I guess there are a few partially-guaranteed ones around, according to this blog, no player currently in the league is on one) , which means they still get paid in event of injury or if the team cuts the the player.
In the event of a disciplinary matter, such as a suspension or a fine, that would directly impact the salary of the player I think, and is probably why the limit on what is being raised here is $13.5M (90 tokens at $150,000 each) on a full contract value of $34 million (assuming the 3rd year option is exercised); the total payout over 3 years at a 3% rate of return would be $13.91 million or so if my math is right. Provided that Dinwiddie is responsible with his money, there should be a buffer in place to handle any short term payment issues that might be caused by an interruption in salary.
To me, the wager here was on Dinwiddie not getting himself over-leveraged with whatever other financial investments he makes with the capital raised by this move. However, seeing now that he apparently isn't backing the investment on his contract, the whole thing starts to feel weird.
posted by nubs at 12:51 PM on January 13, 2020 [1 favorite]
It seems that the agreement described in the FPP has changed, but wouldn't tanking be a huge concern here? I don't know enough about finance to say for sure, but if you can short these 'tokens', then you could orchestrate a deal with a player where they go from being good to being bad in a contract negotiation year.
posted by codacorolla at 12:57 PM on January 13, 2020
posted by codacorolla at 12:57 PM on January 13, 2020
Bloomberg's Matt Levine is always fun to read. Here's what he says about this deal:
I know, I know, “tokenized investment vehicle,” who can resist, but it is maybe the most boring financial innovation I’ve ever written about. It’s a rich guy taking out a low-interest payday loan from his fans. He has no particularly good reason to borrow the money. Really the way professional sports careers work is that you make a ton of money every year for a relatively short time in your youth; you should emphasize saving that money to spread it out over a long post-NBA life, not accelerating it to spend even more of your salary up front.
The fans have no especially great reason to lend him the money; 4.95% is not exactly a bad return on three-year money, but it is a novel and illiquid instrument, and the rate is comparable to what you get from, like, LendingClub.
There is just a halo of blockchain blockchain blockchain that makes all of this a little bit more valuable to everyone. Dinwiddie gets a pointless loan, but it’s tokenized. The investors get a pointless investment, but it’s tokenized. They all get some utility from, like, telling people about their tokenized NBA player deal. On the blockchain.
posted by chavenet at 1:12 PM on January 13, 2020 [1 favorite]
I know, I know, “tokenized investment vehicle,” who can resist, but it is maybe the most boring financial innovation I’ve ever written about. It’s a rich guy taking out a low-interest payday loan from his fans. He has no particularly good reason to borrow the money. Really the way professional sports careers work is that you make a ton of money every year for a relatively short time in your youth; you should emphasize saving that money to spread it out over a long post-NBA life, not accelerating it to spend even more of your salary up front.
The fans have no especially great reason to lend him the money; 4.95% is not exactly a bad return on three-year money, but it is a novel and illiquid instrument, and the rate is comparable to what you get from, like, LendingClub.
There is just a halo of blockchain blockchain blockchain that makes all of this a little bit more valuable to everyone. Dinwiddie gets a pointless loan, but it’s tokenized. The investors get a pointless investment, but it’s tokenized. They all get some utility from, like, telling people about their tokenized NBA player deal. On the blockchain.
posted by chavenet at 1:12 PM on January 13, 2020 [1 favorite]
He's not thinking big enough....rapper Akon just founded his own crypto city in Africa.
posted by inflatablekiwi at 1:29 PM on January 15, 2020
posted by inflatablekiwi at 1:29 PM on January 15, 2020
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posted by explosion at 7:37 AM on January 13, 2020