Despite league opposition, Brooklyn Nets star and cryptocurrency enthusiast Spencer Dinwiddie hasn’t given up on plans to tokenize his $34.4 million contract and sell it to investors on the Ethereum blockchain.
On September 26, Dinwiddie announced plans to offer tokens worth up to $13.5 million of his three-year contract to investors, trading up-front cash for his per-game payments. His contract is guaranteed, so investors would not lose their money if he is injured.
The next day, the NBA told Dinwiddie that the plan violated the league’s collective bargaining agreement with the National Basketball Players Association, which says a player cannot “assign or otherwise transfer” his salary, the New York Times reported. Dinwiddie told the paper that he intends to meet with the league to change its mind.
Dinwiddie, whose Twitter account @SDinwiddie_25 identifies him as “Just a tech guy with a Jumper,” took to Twitter shortly after the NBA decision to say that the plan was designed specifically not to be an assignment.
“The news tonight is disappointing because all it does is inspire #FUD [fear, uncertainty, doubt] in the birth of a previously unrealized asset class under the assumption that I’m breaking a rule that I’ve been clear I’m not breaking in multiple conversations,” he added.
In announcing the deal, Dinwiddie said it was good for both players and fans. “Through DREAM Fan Shares, we can create terms that work better for us, while also giving supporters the chance to invest in our futures and share in our successes,” he said in the September 26 announcement. “It’s a win-win situation.”
The deal’s rejection attracted plenty of attention from cryptocurrency fans on Twitter, with blockchain-friendly Democratic presidential candidate Andrew Yang chiming in. “I think @SDinwiddie_25 selling interests in his professional earnings is genius and am disappointed the NBA is disallowing it,” he tweeted on September 27. In July 2018, Yang became the first Democratic primary candidate to accept cryptocurrency donations.
Binance cryptocurrency exchange CEO Changpeng “CZ” Zhao replied to Yang on September 28, writing, “[c]ouldn’t agree more. People should be allowed to enter into mutually agreed on commercial contracts.”
He later tweeted to Dinwiddie, “Let’s tokenize you, not the NBA contract. One of the first person[s] to be tokenized, ever.”
That’s not without precedent, replied Gregory Rigano, Esq., founder and CEO of IKU, a firm that seeks to tokenize pharmaceutical research funding. “This was tried with Arian Foster a few years ago, but without a blockchain…,” tweeted Rigano, who is an advisor to Stanford Medical School’s SPARK program.
In 2013, The Houston Texans running back announced an initial public offering for 20% of his career earnings for $20 million, CNBC reported. His injury-plagued career kept the IPO from ever happening.
Dinwiddie worked with Paxos and DREAM Fan Shares to securitize his salary with the SD8, his own professional athlete income token (PAInT), according to the September 26 release.
It was to be offered only to accredited investors, with a minimum buy-in of $150,000.
Along with level monthly payments and interest, investors would have the right to income from the second and third year of Dinwiddie’s contract. That was the real pull, as his contract is considered a bargain, the Times reported. Dinwiddie may be able to land a much richer deal in 2021, causing the value of the SD8 tokens to grow substantially.
It’s not Paxos’ first involvement with professional basketball. The New York Knicks Hall-of-Famer and former New Jersey senator Bill Bradley (D-N.J.) is on the Paxos board.
DREAM Fan Shares planned the SD8 token sale as the first of many PAInT token sales, expanding from professional athletes to entertainers. Noting that the terms of each PAInT would be different, the company said, “[h]olders may also be entitled to special premiums based upon the financial success of the athlete or entertainer.”
The SD8 token was to have been launched under the U.S. Securities and Exchange Commission’s (SEC) Reg D rule, exempting securities sold only to accredited investors—essentially institutions or wealthy individuals—from standard reporting requirements.
Other PAInT token sales may use the SEC’s Reg A, which allows securities offerings to retail-level investors under certain conditions, as long as they are for under $50 million total. The first SEC-approved initial coin offering (ICO)—for dApp payments firm Blockstack—was approved on July 10 under Reg A.