NBA Top Shot: Evolution of Sports Card Trading For Digital World

Via Sportsnet, an interesting summary look at NBA Top Shot and the emerging digital evolution of sports card trading:

Jesse Schwarz is laughing before the question is finished.

“I got a couple of messages like, ‘Have you lost your mind?’” he says from Los Angeles. “Someone tweeted at me, ‘You could have a small family home, but cool.’ But I love it…. It’s like day-trading-meets-sports-meets-fantasy.” 

Last week, Schwarz created big-time buzz when he purchased a LeBron James “moment” on NBA Top Shot for $208,000. If that sentence sounded like sixth-century Cappadocian to you, here’s a basic explainer: This is the evolution of sports-card trading for the digital world. Instead of a physical card, we’re talking about virtual highlights. The ones you can find online for free are being turned into a limited number of “moments” for sale.

Live break some #NBATopShot packs, featuring NBA players @joshhart@T_Rozzay3@Dami0nLee & @TyHaliburton22
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— NBA Top Shot (@nba_topshot) March 1, 2021 

A Montrealer until his mid-20s, Schwarz displayed an entrepreneurial bent as a teenager, culminating in the creation of the Yo’Dough cookie company during his final year of university. He came up with unique flavours and sold them to stores.

“It was before the time of Uber Eats and that kind of thing, which would have been great for that business,” he says. It did get him cover treatment in the Montreal Gazette, which led to friends nicknaming him “Front Page.” Hence the title of his latest venture — Front Page Projects.

That background makes his cliff-dive into this space even more interesting.

“I think LeBron James is the greatest athlete of all-time across any sport…. And, from an investing standpoint, I really think he’s underrated. The way I see value with something like Top Shot, with the prices changing so fast, it’s really about comparing across the different ‘moments.’ Zion Williamson (New Orleans Pelicans), Luka Doncic (Dallas Mavericks), Ja Morant (Memphis Grizzlies), these guys are priced sometimes 60-80 per cent the price of a LeBron.

“They obviously have huge potential, but LeBron already is a legend. If he retired tomorrow, that card is going up. If Zion got hurt and had to stop playing tomorrow, that’s the end. And then he never even reached one per cent of LeBron’s career. So, it’s a value play. I thought it was undervalued … even though it was the highest purchase of all time. I think it’s already worth seven figures.”

Is it a fad without staying power? Is it safe and secure? The answers have major implications for the NHL, the NHLPA and the alumni.

In 2019, the NBA and its Players’ Association signed a multiyear licensing agreement with Vancouver-based Dapper Labs, creators of Top Shot. There are two ways to acquire moments. One is to buy them from someone else. The other is through a “drop” — an online reveal of new ones.

Caty Tedman, Top Shot’s head of marketing and partnerships, said Monday that total marketplace transactions are above $270 million since June 15, 2020. “Drop” sales go to the company, which also keeps five per cent of all user-to-user transactions. The NBA and NBPA get an undisclosed percentage on each.

This is an enormous shift from traditional memorabilia collection. Previously, royalties were paid on the initial sale. Once items went to the secondary market, it was out of a league’s or a players’ association’s control. Not anymore.

In the blockchain/cryptocurrency world, these moments are a class of digital assets known as “Non-Fungible Tokens” (NFT). Each NFT contains information unique to it, making it traceable and verifiable. In Top Shot, you can see the sales history of each moment. Code can be created that locks in the NHL, the players, the alumni, whoever, in every sale — not just the first one.

It’s massive, going well beyond collectibles.

“NFTs could turn into a top-three revenue source for the NBA over the next 10 years,” Dallas Mavericks owner Mark Cuban wrote to USA Today in an email.

As everyone recovers from the pandemic pounding, it’s impossible to ignore this stream. UFC announced a deal with the company last Friday. Tedman indicated work is being done on an extension with the NBA.

According to multiple sources, the NHL (with the NHLPA and Alumni) is one of several leagues discussing/exploring a marriage. Tedman, a New York Rangers’ fan and a manager in the NHL’s social media department from 2012–14, wouldn’t give anything away. But she smiled, pointing out that being Canadian-based might mean Dapper Labs is interested, too.

One source explained it as being similar to the Apple Store. Once a company establishes itself as the leader in its field, you want to be part of its family, not elsewhere.

You don’t need to find a spare $200,000 in your couch to get involved in this particular enterprise. Toronto-based hockey fan Justin Fisher made a $23 investment in a couple of “packs.”

“It went to $800, to $1,200, all the way to $2,800 before it came back down,” he said.

Fisher showed me how to look up his username on the site and check current value. It was at $1,673 on Sunday evening — in the top 28 percentile.

“I treat it like a stock portfolio,” Fisher says. “I’m going to wait and ride it out.”

(He told a great story about how he got a $3 Fred VanVleet moment for his mother, Wendy, a huge fan of the Raptor guard. She told him he’s not allowed to sell that one.)

Popularity is so high that it’s not uncommon to have 100,000 people online trying to snare a supply of 10,000. If you’re not high enough in line, good luck.

Dapper Labs’ initial foray into this space was called “CryptoKitties.” Users created and traded animated cats. One early rendition sold for $170,000. In May 2019, The Wall Street Journal reported on the fading of that fad, with the median price at $12.30. Tedman believes that sports are different, thanks to the enormous passion of its fans.

“We learned that people are interested in this,” Tedman said. “They wanted to engage in cryptocurrency in a way that wasn’t just currency speculation. We also learned it had to be credit-card-payment based. People were not interested in putting a digital wallet on their chrome extension, then worrying about password recovery. Eighty per cent of our payments are through credit cards.”

That answers one huge question about Top Shot. In researching everything from demand to security to the blockchain technology behind it, there’s a lot of, “I have no (expletive) idea what this is, but you can’t ignore it.” I asked Schwarz and Fisher if they were worried about losing their investments/profits if Top Shot lost its league licences, went bankrupt, etc.

“(The site) is rough — they point out they’re in ‘beta’ (tech speak for still in testing),” Fisher said. “But their partnership with the NBA, the company making five per cent on trades…. I just think this blew up too quickly on them. Once they catch up with demand, I think there’s more of a chance they do something special than burn out.”

“I don’t think the NBA would put their name on anything they weren’t planning on sticking with long term,” Schwarz said. “And, if another company took over, that means the world of digital collectibles becomes so big that someone else does it, and these would still be the original ones. That’s how I see it.”

“Once you own it, you own it,” Tedman said. “We can’t go into your wallet and take it away from you. That was very important to the NBA.”

(Schwarz also likes that Dapper Labs created the blockchain for this, called “Flow.” “It’s not all different projects on the same chain. This one is their own.”)

What also stands out is NBA players and owners pushing it, with force. Miami’s Andre Iguodala, an early investor in Zoom, jumped on this train last August.

“We’ve had player-management groups reaching out to us,” Tedman said. “Players sliding into our DMs.”

“Some people might complain that I can get the same video on the internet anywhere any time and watch it,” Cuban wrote in January. “Well, guess what, I can get the same picture on any traditional, physical card on the internet and print it out, and that doesn’t change the value of the card.

“That’s not to say the digital goods and CryptoAssets markets are perfect — they are not. Transaction costs can be high. The markets can still be moved by a few big players (whales), and … can be influenced by narratives that may or may not be true. But the bottom line is that there are a growing number of investors and traders who think that the digital goods and CryptoAsset marketplaces are better than old-school physical markets and the stock market, and most of them are young.”

Another who weighed in? Ted Leonsis (owner of the NHL Capitals/NBA Wizards): 

.@nba_topshot. Top Shot. Top Shot. $50 m week. Boffo.

— Ted Leonsis (@TedLeonsis) February 21, 2021

“I thought about sports cards the last two years,” Schwarz said. “But to (buy a card), have it shipped, have it graded, where to store it — I don’t want to hold a $200,000 card in my room. I know a lot of people who do invest in traditional cards and they have them locked up somewhere. They’ve never seen their collection. They know on paper what they’ve invested and they know the value they’ve invested. They buy and sell and never even touch anything. This is the same concept, but you don’t have to do any of that.”

This is very different, indeed.

This entry was posted on Wednesday, March 3rd, 2021 at 5:42 am and is filed under Blog.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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