NBA basketball player Spencer Dinwiddie is planning to convert part of his three-year $34 million contract with the Brooklyn Nets into a security token that will then be sold to investors. Details of the offering, which was first reported by online publication The Athletic, or the amounts involved have not been made public.
Dinwiddie’s token will pay principal plus interest to buyers and will be backed by the point guard’s contract with the Nets. The entire deal will help him raise a lump sum amount for upfront investment. Income earned from Dinwiddie’s investments will help offset the shortfall in his earnings from regular payouts to buyers of his token.
As the New York Post points out, the caveat to this arrangement is if Dinwiddie is handed a conduct card that voids his contract or if he suffers an injury that puts him out of action. Another possible default scenario could be if his expenses skyrocket and the investments don’t pan out as originally planned.
Dinwiddie cryptically tweeted $btc, the symbol for Bitcoin, from his Twitter account. It is unclear if he plans to invest in bitcoin or whether the tokenization process will involve the cryptocurrency in some form.
Other Instances of Securitizing Contracts
To be sure, this is not the first time that a sports contract has been securitized. Arian Foster, a running back for the Houston Texans, attempted to IPO himself with Fantex, a Silicon Valley startup, in 2013. The offering was for 1.06 million shares at $10 per share, raising a total of $10.6 million. Foster was supposed to receive $10 million after the offering. After numerous delays, however, Fantex cancelled the offering citing a termination of its relationship with Foster as reason. The player was nursing an Achilles Tendon injury when the cancellation was announced.
A similar financial instrument was the Bowie Bond, launched in 1997. The bonds securitized future royalty earnings from David Bowie. They had a face value of $1,000 with an interest rate of 7.9% over 10 years. They matured without default in 2007.
Based on the few details available, the only difference between Dinwiddie’s attempt to securitize and other instances is a digitization of the process through the token. Apart from enabling ease-of-use and efficiency in the transaction, it is unclear if tokenization offers additional monetary benefits to investors.