NBA calls foul on Brooklyn Net's star's plan to tokenize his NBA contract
The news that NBA star Spencer Dinwiddie was planning on issuing structured debt securities backed by his NBA player contract on the Ethereum blockchain through tokens called Professional Athlete Investment Tokens (PAInTs) was met eagerly by the blockchain and sporting community.
One of the earliest tokenizations of a star's income potential was the 1997 Bowie Bonds which were created when David Pullman designed a bond for offer which was backed by music recordings owned by David Bowie's former manager and the royalties flowing from those recordings. That offering had the added benefit that David Bowie was raising the money to buy back his earlier recordings so fans were helping him to regain control of his music as well as earning a return in doing so. Despite taking a hit in value from early internet streaming and music sharing / piracy, Bowie Bonds were ultimately redeemed and are considered a successful project.
Mr Dinwiddie planned to use a similar model to the Bowie Bonds, but rather than back the issuance with royalties, he wanted to receive funds up-front and pay part of his ongoing NBA contract income to purchasers of "SD8 Tokens".
Each SD8 token was to be issued for USD$150,000 on terms set out in an Offering Memorandum and only sold to accredited investors (the US equivalent of sophisticated investors). His goal was to raise US$13.5M now from his USD$31m 3 year contract. He event had himself insured so investors would be paid if he was injured. He is expected to earn US$16M this year and would have had to pay US$2.5M to investors (had the issuance proceeded).
However, after tipping the ball and racing to, shall we say, the foul line, the NBA leapt up and rejected Dinwiddie's shot at tokenization. Not on the grounds that his token would be a security, as it was being offered as such, but calling a foul on the grounds of Dinwiddie's player contract, which says (according to the New York Times):
no player shall assign or otherwise transfer to any third party his right to receive compensation from the team under his uniform player contract
Mr Dinwiddie is taking the position that the sale of SD8 tokens is not and assignment or transfer of his right to receive compensation, but it remains to be seen if he is willing to go to war with the NBA over the issue.
Thanks to Louisa Xu for her assistance with the above. Apologies to all NBA fans for misuse of terminology.