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The history of sports collectibles includes a $10,000 piece of Bazooka gum, a signed urinal and boxing legend Joe Frazier’s jockstrap – all used. So for some fans, shelling out $500 for a digital collectible that might go down the tubes with their team’s record might not be out of the question.
Digital sports collectibles on the blockchain are a relatively new phenomenon, but the impulse behind them is well established. Traditional sports collectibles support an entire industry. At the end of July, 80,000-90,000 people are expected to attend the 42nd annual National Sports Collectors Convention in Atlantic City, N.J., to peruse a sea of sports-curios. NFT (non-fungible token) projects' dreams of that kind of community.
This article is part of CoinDesk's "Sports Week."
NFTs, a way to establish ownership of digital media using a blockchain, served as an important catalyst for crypto adoption in the recent crypto bull market. During the 2021 crypto bull run, sports-themed NFTs drove significant interest with NBA Top Shot leading the way. As with traditional collectibles, buyers included a mix of enthusiasts and pure speculators.
Seeing a growing market, the Golden State Warriors, the championship-winning National Basketball Association team, became the first professional sports team to try its hand at marketing NFTs. The team released its first collection in April 2021 and has been innovating ever since.
“You almost think of it as a Venn diagram, where the circle on the left is Warriors fans and on the right is the NFT community and then they overlap,” Warriors Chief Operating Officer Brandon Schneider said in an interview. “As time goes on, [that overlap] has grown and will continue to grow.”
Located near Silicon Valley, the Golden State Warriors are the tech world’s NBA team. Several characters in the orbit of the team have ties to crypto. Chamath Palihapitiya, who until this month held a minority stake in the team, has publicly advocated for and invested in crypto assets.
Although, in a commercial for crypto exchange FTX, superstar Warriors' guard Stephen Curry flouted his lack of crypto knowledge and a made-for-TV trading account balance of $15,084.93, several of his teammates have been experimenting with digital assets. Longtime Warriors Klay Thompson and Andre Iguadala take a portion of their salary in bitcoin.
The very existence of the Warriors’ first NFT collection was innovative. It was a collection to commemorate the team’s six NBA championships and other moments in franchise history, and marked the first time an NBA team rather than an individual athlete experimented with NFTs.
But other teams quickly followed, and now that iconic collection of static JPEGs of digital championship rings and tickets seem to be standard fare. On the second go-round, the Warriors felt they needed to do something that would separate their collection from the competition.
“I think our fans are not only receptive to new ideas tied to technology, but actually expect it,” Schneider said.
In April, the Warriors released a new collection of NFTs with an innovative twist. The collection programmatically responded to the team’s on-court performance, rewarding holders as the Warriors advanced through the NBA playoffs.
The finance of fandom
Fans and speculators could purchase one of 3,000 NFTs and celebrate the team's wins with wins of their own. The main collection sold pieces for $499.99 each, (higher than the price to buy a ticket to most NBA games). But depending on the rarity of the NFT and the playoff round, holders could win courtside tickets to the finals or other prizes such as merchandise or additional NFTs. All were promised a digital championship ring NFT if the Warriors won the championship.
Perhaps because of a lingering aversion to gambling and its proxies, NBA teams don't typically tie fan rewards to the outcomes of games. Of course, there are small stakes promotions that spice up in-arena action. At Philadelphia 76ers' home games, for example, fans get a free Wendy’s Frosty if an opponent misses consecutive free throws in the second half of a game. Comparatively, the Warriors were dangling free tickets to Game 1 of the NBA Finals to NFT holders, with an average ticket price of $873.
The Warriors NFT gamified fandom, turning a spectator to a speculator invested in the team’s success. While giveaways and other holder benefits are common in the NFT world, the Warriors were the first pro team to tie the benefits explicitly to their success and market that feature as such. But it’s not clear if this model will be the future of NFTs in sports.
See also: How Sports Leagues Can Use Crypto to Engage Fans | Opinion
Dallas Mavericks owner Mark Cuban told CoinDesk over email, “I think it’s one of the worst ideas ever.” In Cuban’s mind, this model could create undesirable speculation and potential losses could lead to disgruntled fans. Not very maverick of this Maverick.
The Warriors' collection didn’t sell out – perhaps due to poor timing or limited interest – but the Warriors did win their fourth championship since 2015 this year. The tokens are now a part of both NFT and NBA history – and perhaps mark the beginning of a new game being played in crypto and sports.
Sports memorabilia and speculation: A long history
Depending on your orientation, sports collectibles and NFTs might be an investment, entertainment, a gamble or a waste of time. But an appetite for sports collectibles is time tested.
Dave Amerman, auction director at Goldin Auctions and longtime collector himself, has seen the sports collectibles market grow over the years. What started out as a cottage industry where people bought and sold playing cards or memorabilia has rapidly become professional.
“It's become a whole lot more than just a love for the passion,” Amerman said. There were people who saw the potential early and invested “tens of thousands of dollars a couple of decades ago” and who have come into “life-changing money,” he said.
Collectors can now open a $5 pack of cards in the hopes of finding a rarity worth $100,000. As the money has grown, the field has attracted an entirely new breed of buyer.
“There's plenty of, we'll call it newer money in the hobby, where there's people that come in purely on spec, big business guys, people that run hedge funds, all sorts of those types of investors,” Amerman said.
Alt, an alternative investment group, recently purchased a stake in a Steph Curry trading card for a then-record $5.9 million valuation
A similar dynamic played out in the crypto bull market during the coronavirus pandemic. NFTs, once a niche market of the already niche digital asset industry, exploded, with sports-related platforms like Top Shot seeing a notable surge in interest.
Both fandom and speculation contribute to the market price for collectibles. Typically, buyers speculate on the existence of a future market for a particular collectible. The Warriors collection of so-called "responsive" NFTs mixed that up by an asset's value to material rewards based on the team's performance. You weren't just betting the NFTs could be sold in the distant future, but whether the Warriors would win an upcoming game.
It’s a ploy with sound reasoning. For as big as the sports collectibles market is (estimated $26.1 billion), the market for sports gambling market (estimated $76.5 billion) dwarfs it. And indirect wagering games like fantasy sports remain hugely popular.
Potential drawbacks
It can be a thorny proposition for a multibillion-dollar sports franchise to attach its brand to an NFT project. And not just because you could make any committed fan angry if they lose money.
There are legitimate concerns that some NFTs that generate profits could be deemed securities, no matter how tightly lawyered the mint was. By specifically marketing the series on wins and losses, NFTs responsive to team success might warrant increased scrutiny.
“There are plenty of ways to gamble" on sports, Cuban said. Sports and NFTs are a natural fit, he said, but it becomes ethically dubious if a team is promoting financial speculation. NFTs can have utility for sports fans: They can be used as mementos, can provide people with backstage access and can record highlight moments from games, for instance.
"We use the NFTS as a free reward for scanning in to a Mavs game. That’s the behavior we want to reward. Coming to games,” Cuban wrote.
That idea is sometimes referred to as "proof-of-attendance" tokens. It's perhaps the digital equivalent of when stadiums hand out commemorative cups or T-shirts as a badge of physical world fandom. Proof-of-attendance tokens are still financial assets that can be traded on secondary marketplaces, but so far, the emphasis has been engaging with teams in a way that’s fan-first, finance-second.
Schneider, the Warriors' COO, discounted the idea of attendance tokens, given the increasingly global nature of sports fandoms. Most people will never be able to mint their proof-of-attendance, even if they are a Warriors die-hard fan.
See also: NBA Top Shot 101
“The reality is 99% of our fans will never go to a game at Chase Center, because they live all around the world,” he said, referring to the Warriors' home arena in San Francisco.
These are the kinds of concerns franchises must consider when diving into NFTs, he said. Although there is a market for autographs, many people are content simply with the sentimental value. Digital collectible can operate in the same way – simply as a meaningful fan experiences. Or they can become vehicles for speculation.
Aligning expectations
The culture of NFTs is the culture of crypto, and therefore filled with hustlers. Investors in NFTs are often buying the idea of a future project or company that has yet to be built. It’s become common parlance on Twitter and Discord for buyers to say “devs do something,” when prices begin to fall.
One buyer of the Warriors playoff collection, Twitter user @jd84722, told CoinDesk he was disappointed in the lack of advertising for the team's NFTs. “They lacked marketing [for] this project big time!" he said.
But for colossus sports franchises, unlike pure-play NFT projects, there is less of an incentive to pull levers to inflate prices. In fact, that may be opening the doors to controversy, regulatory scrutiny and public backlash.
“We would like them to have strong value over time, for sure, because we want people to feel good about the purchase that they made,” Schneider said. But the Warriors don’t want to create an atmosphere where “people think that they can buy and flip them and make money,” he added.
Teams face a similar dilemma with the resale of game tickets, and have developed mechanisms to reduce ticket scalping – especially online. Franchises may one day sell tickets as NFTs, which could help track bad actors, or complicate the matter with crypto’s hyper-capitalist markets.
It’s unlikely that teams will be able to create blockchain bubbles that isolate fans from these flippers and profit seekers. The future of successful and high-value team NFTs may depend on how well teams weed out or tolerate buyers looking to make an easy dollar.
Where now?
There is no playbook on how an NBA brand should execute its NFT strategy. Schneider pushed for the Warriors’ first NFT collection after a staffer texted him about NBA Top Shot. Though the team has been pleased with its early experiments, the business line is a work in progress, he said.
“Will we do another responsive NFT? I don’t know, probably,” Schneider said. “Will we continue to create NFTs that have different utilities? I think so, I think that’s kind of where things have gone and probably where they’ll continue to head.”
In some sense, the team is taking cues from the recent legalization of sports betting in some states. Like crypto, gambling presents an opportunity for fans to engage with sports in a more active way. It also causes concern.
Following a series of scandals, the NBA has pushed for a set of laws that would legalize gambling while ensuring the integrity of the game and secure a portion of the profits for the league.
See also: Tribalism, Meritocracy, Money: What Sports and Crypto Fans Have in Common | Opinion
NFTs and crypto in general are controversial. Many organizations are criticized for simply exploring pilot programs, because of the crypto industry's notable environmental footprint and rampant scams. But Web3 also presents a path to remunerate participants in traditionally profitless activities and to build communities.
Fans built sports franchises into behemoths through emotional and financial investments in their teams. If NFTs present a path for franchises to give back some of that investment, interest would become only stronger. If there’s dignity in fandom rooted in emotional affiliation, money at stake won’t necessarily dilute that.
At the very least, given the appropriate consumer protections, investable entertainment can be a win-win for fans and teams. Except, in this case, for fans of the New York Knicks.