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As of January 10th, 2019, NBA player Spencer Dinwiddie will offer bond-backed security tokens involving his NBA contract in a matter of days. Despite a back and forth with the NBA starting in September 2019, Dinwiddie and the league have seemed to finally reach an agreement which would constitute a first-ever for the nascent security token industry.
Spencer Dinwiddie’s Contract Tokenization Explained
Spencer Dinwiddie is a point guard for the NBA’s Brooklyn Nets. In September of 2018, Dinwiddie announced plans to tokenize part of his $34 million contract. The news made significant waves as it had never before been attempted in the NBA — or by a professional athlete in general.
The NBA’s response was initially skeptical. Frankly, it still is, but the situation has improved. The NBA first rejected Dinwiddie’s request to tokenize his contract and went as far as to threaten to kick him out of the league. Original concerns revolved around the NBA claiming the deal would constitute gambling, which would provide cause to terminate his contract with the NBA.
Yet the NBA and Dinwiddie have seemed to reach an agreement as the 26-year-old has announced a token offering involving part of his contract. The offering will launch next week, on Monday, January 13th.
How the SD8 Security Token Marks an NBA First
Here’s how the deal will work: Dinwiddie will sell security tokens, dubbed ‘SD8 tokens’. He will sell the tokens through an SEC Reg D Rule 506(c) offering. Eligible investors must be accredited by the SEC and each token will have a price tag of $150,000.
A total of 90 tokens will be offered, allowing Dinwiddie to raise up to $13.5 million. Since Dinwiddie is currently signed to a three-year contract with a guaranteed $34 million, the SD8 token will constitute a three-year bond. Investors will receive 4.95% base interest each month, with the full principal expected to be paid out upon maturity — February 10th, 2023 — through a bullet payment.
On the announcement, Dinwiddie said,
“I think the prolonged conversation obviously worked out because they recognized I’m not doing anything wrong or anything illegal. They know it’s coming. They didn’t have too much rebuttal for it. There’s nothing in there that’s considered gambling.”
Currently, the NBA is hosting All-Star voting, where fans can vote for the players they want to see at All-Star weekend. Dinwiddie, who averages 22.4 points and 6.2 assists per game, is a legitimate candidate. If he makes the cut, he says he’ll take eight of his investors to the event:
“I’m passionate about blockchain as a whole, decentralized finance as a whole…For the fans, thank you for believing in me. So really it’s just tying everybody together, kinda trying to show the community and fan base, even though the league tried to take a lot of that out, it’s really showing what it means to bring people together because we’re more powerful when we’re together.”
Still however, the NBA remains hesitant to publicly embrace the novel idea. On Thursday, a league spokesman from the NBA released the following statement:
“Spencer Dinwiddie’s advisors provided us today with new information regarding a modified version of their digital token idea, which we are reviewing to determine whether the updated idea is permissible under league rules.”
What are the Limits in Tokenizing Securities?
Though still young, the security token industry continues to impact traditional investments — in both predicted and even largely unforeseen ways. Blockchain technology brings a number of benefits to the table when it comes to asset issuance and management, which are now becoming known by more and more people.
Jurisdictions across the globe saw progress throughout 2019. The industry as a whole is touted to have raised nearly $1 billion through assets to include equity, real estate, investment funds, and fine art. Now, thanks to Dinwiddie, it appears as though professional sports contracts can be added to that list.
“I’m trying to define an asset class and start it. Somebody has to be brave enough to do it. Hopefully it works and we prove that there’s a market for it. Because obviously if the NBA jumps in with both feet, they’ll be able to do some great things with it.”
What do you think about NBA star Spencer Dinwiddie tokenizing his contract and offering 90 SD8 tokens for $150,000 each? We’d like to know what you think in the comments section below.
Image courtesy of the Sport Techie.