Basketball player Spencer Dinwiddie is heading for a showdown with his employer, the National Basketball Association (NBA), over a token offering which was scheduled to start today and has been postponed by a week.
The Brooklyn Nets point guard’s security token offering (STO) for accredited investors planned to raise $13.5 million by tokenizing part of the income promised from his $34 million, three-year contract. The offering will allow him to earn cash upfront by soliciting funds from investors. In return, they will get “SD$8” tokens, guaranteeing a check and interest from his future earnings. Dinwiddie has earmarked $2.5 million this year as interest payments from his $16 million paycheck.
But the NBA threw a spanner in his plans, claiming that he was prohibited from tokenizing his contract based on the terms of the agreement that he signed with them. Dinwiddie had said that he was willing to sit down and discuss the offering with them. But the deliberations were seemingly unsuccessful. In a series of tweets yesterday, Dinwiddie said he is “moving ahead” with or without the NBA’s blessings.
The main point of contention between the player and his employer are the terms of his contract. The league quoted from Dinwiddie’s contract, stating 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.” But he maintains that his offering does not constitute an “assignment” because it does not give his fans or token holders the rights to either the Nets or the NBA.
“He is not doing any kinds of rights assignment for IP that is NBA-owned,” explained Hassan Ahmed, Director of Finance and Operations at trading platform eToro. “It’s not his revenue (as an asset). It is his take-home income,” he told Decrypt.
That income can be spent by Dinwiddie in any manner.
“If he wants, he can buy a convertible with it or ink a third-party agreement between him and his fans as an independent transaction between two parties outside the purview of his original employer,” said Ahmed.
An offering with potential
To be sure, this is not the first time that individuals have been converted to assets for a promise of future income. Pop star David Bowie paved the way for such offerings by selling Bowie Bonds, that guaranteed a cut of his future royalties to investors, back in 1997. NFL running back with the Houston Texans Arian Foster also attempted an initial public offering in 2015 but had to abandon it amid injuries.
Tokenization of contracts, however, moves beyond the mechanics of a simple offering. If it is executed successfully, the offering holds great potential for everyone involved. Players can liquidate part of their contract for money while the league benefits from engagement with a broader set of stakeholders.
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Ahmed said the offering is unique because it is for an “emotional asset” for NBA fans, the same way that baseball cards or merchandise can generate additional revenue for franchises. “There’s an investment and utility aspect which is really exciting,” he said.
To that extent, a successful offering by Dinwiddie could be a precursor of similar offerings by other personalities in the sports and entertainment industry. Realizing the potential of this nascent industry, Dinwiddie has already launched an offering platform for sports and entertainment folk.
Ahmed said the experimentation with fractionalizing income could also extend beyond high-profile figures to lay persons. For example, recent college graduates could reduce their loan burden by creating offerings for future incomes. “These offerings allow investors to participate in future income streams in a way that is more capital-optimized,” he said.