By Dario Hernandez
The great David Bowie was far ahead of his time. Ziggy sold rights to his future royalties from his music to a group of investors in order to form a “Bowie Bond.” Much like how companies raise capital by issuing bonds, Bowie raised millions that he later used to buy back the rights to all of his music. Despite being under pressure to produce results, the Bowie Bonds never defaulted, and overtime were viewed as a viable investment.
Taking a page out of Bowie’s playbook, NBA player Spencer Dinwiddie, guard for the Brooklyn Nets, is looking to securitize his contract. Dinwiddie has recently concluded negotiations with the NBA, which ended in the NBA’s acquiescence to Dinwiddie’s request to tokenize his contract shares.
If you’re worried that you missed the shot and have no idea what this all means, here is an assist. Professional athletes usually enter into these multiyear multimillion-dollar contracts, which translate into a payout every year from the total contract value. Athletes are given a piece of their contract every year until the contract term is over and the full amount has been paid out. Dinwiddie is hoping to change that process by raising money through the sale of blockchain-based securities. Investors can purchase one of the 90 tokens available for $150,000. Each token represents a share of Dinwiddie’s total contract amount. These digital securitized tokens will pay investors a 4.95% interest every month and fully pay back the initial investment on the date of maturity, which will be in 2023. The NBA player is hoping to raise $13.5 million upfront as a business loan that he can put to good use.
While most players wait until their contracts are fully paid out to begin making larger investments that can sustain them after their athletic career, Dinwiddie is ahead of the game as he seeks to capitalize on the value of his contract early on. What he is essentially doing is structuring and issuing debt instruments in a securitized form to raise money that can be used in how he sees fit. Ultimately, it functions as a form of collateral, where the contract and its value serve as the collateral, and the money raised is the debt the players can use to begin building their business ventures.
The NBA quickly called foul. The league disagreed with Dinwiddie given that it viewed his decision as a means of circumventing the collective bargaining rights already established with the Player’s Association. Dinwiddie attempted to market his digital tokens as a growing investment that could payout even larger amounts due to his ability to get traded to another team and potentially break his contract. The NBA blocked this move given that it could open up an onslaught of broken contracts and uncertainty surrounding player’s contracts. Angered with Dinwiddie’s decision, the league even threatened to terminate Dinwiddie’s contract. Both parties were brought to the negotiation table but the concerns loomed large over this potential opportunity to change player’s contracts.
As a compromise, the NBA star may sell his securities, although they cannot be traded for a whole year, so long as he remains in compliance with the SEC’s Regulation D, Rule 506(c). This particular rule ensures that the issuers of securities take reasonable steps to verify investor’s accreditor investor status as well as filing the required notices and forms with the SEC. Additionally, Dinwiddie has to remove mention of a potential severance of his original contract with the Brooklyn Nets. Given the compromise brokered during the negotiations between the player and the league, it appears that the plan to securitize his contract is still on. It remains to be seen if this will alter the way professional athletes do business but there is hope that this will bring forth a new change to sports. While most NBA players want to be like Mike, it appears Dinwiddie is aspiring to be like Bowie.
Student Bio: Dario Hernandez is a staff member of the Journal of High Technology Law. He is currently a 2L pursuing his JD/MBA at Suffolk University Law School and holds a B.A. in Sociology and Theology from Boston College.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.
