Last week the story about Spencer Dinwiddie’s idea to tokenize his contract with the NBA’s Brooklyn Nets seemed brilliant. He would create a security token allowing him to offer a portion of his contract ($34.4 million) for an upfront cash “advance.” By monetizing his contract he would thus receive a lump-sum payout allowing Dinwiddie to seek other potential investments immediately. In fact Dinwiddie planned to work with other NBA players to create their own tokens as well. However, the powers that be -- the NBA -- said NO!

Even with some details that would have to be worked out, the “tokenized security” backed by an NBA contract would have been offered only to accredited investors with the principal amount returned to investors plus a few percentage points of interest. In addition, the token may have had the potential to return more than the base amount of the contract if Dinwiddie eclipsed certain performance thresholds and received bonus money, or even became a free agent and landed a bigger and more lucrative contract. Kind of like a guaranteed return call option.

So why did the NBA powers say NO and not share Dinwiddie’s vision? In their own words;

“According to recent reports, Spencer Dinwiddie intends to sell investors a ‘tokenized security’ that will be backed by his player contract. The described arrangement is prohibited by the C.B.A., 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.'”

The tokenization of a contract may be a new twist, but it is really only an updated form of factoring. Remember, David Bowie securitized his music royalties for an upfront payout years ago.  Today, artists can do the same with their works of art, music or even writings.

Participating in a NBA (or NFL, MLB, etc) player’s performance, and secured by a contract, seems like a great idea. Perhaps when the collective bargaining agreements (CBA) come up for renewal, there may be some adjustments. 

Until then, the tokenization of NBA player contracts is a bust for now.

 

 

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