In the words of Facebook’s COO, Sheryl Sandberg, “if you’re offered a seat on a rocket ship, don’t ask what seat! Just get on.” Since the beginning of 2021, the rocket ship that tech companies, startups, world-renowned brands, and celebrities/athletes have strapped themselves into is NFTs(Non-Fungible Tokens). From Tom Brady to Mark Cuban, the most prominent leaders in sports and business have invested heavily in the possibilities associated with NFTs and the multiple markets they will eventually disrupt. But for most, NFTs are confusing and their revolutionary impact is still up for debate. So we are here to walk you through how NFTs are changing the game and why this rocket ship has nowhere to go but up.
What are they?
A Non-Fungible token(NFT) is a unique, on-chain token representing ownership of an asset. This asset can take the form of anything from a piece of digital art to a sports highlight. But what makes an NFT valuable is an invisible social contract between the company/creator of the token/asset and the people that are willing to buy such an item. The difference between Bitcoin and NFTs is that Bitcoin is a scarce form of cryptocurrency. In theory, an NFT is not scarce as the creator/founder of the product can create more of any item, thus diluting its value. But the value of an NFT comes from a trusted source’s endorsement of these assets and the limited number of pieces of ownership that are offered thus creating scarcity.
Over the past six months, the rise of NFTs has been unprecedented and its versatility has revolutionized several spaces. The first is digital art. The space and niche of art collection formerly focused on collecting paintings, sculptures, statues, historical crafts, etc. But the general idea is that art collection used to be focused on physical pieces of art while the new trend has shifted to digital art collections that leverage NFT technology. Last month, the famous digital artist Beeple designed a one-of-one NFT that sold for $69 million. The tricky thing with NFTs is the value of Beeple’s art is only as valuable as the trust of the community that it is a one-of-one copy.
In another form, NFTs have made strides in the world of sports collectibles. Since the beginning of the pandemic, NBA, MLB, and NFL cards have made a resurgence as the market continues to grow. A sports card’s value relies on a few factors: the first, the physical card condition, and its grade. In the world of sports collectibles, a company known as the Pro Sports Authenticator(PSA) grades cards from 1 to 10. Each grade is determined by the alignment of the card’s image, whether or not the card has been scratched or bent, or if the corners are ruined, among other factors. In turn, cards with PSA 9 or 10 grades are much more valuable than cards graded 5 or 6.
In addition to a card’s condition, a sports card’s value is driven by scarcity, brand association, and the player depicted. For instance, baseball cards from the 1990s made by Upper Deck are of little value because they produced so many of every card. On the other hand, an unopened 2020 Panini Prizm box of Football Cards is worth $150 or 7.5x its face value for three main reasons. First, Panini is the most trusted brand in the space. Second, last year’s rookie class featured several players who project to be perennial all-stars(e.g. Joe Burrow, Justin Herbert, Chase Young). Third, the number of PSA Graded 9 or 10 of each of these players’ rookie cards will be scarce because not every box has a card worthy of a PSA 9 or 10 grade.
Ultimately, the grading, scarcity, and brand association of sports cards have direct parallels in the NFT market of sports collectibles. Most notably, NBA Top Shot is an excellent example of how sports collectibles are being revolutionized. Formerly, a sports card was simply a physical card with a still image of a player that’s value came from a community of collectors. Now, NBA TopShot has utilized the technology behind NFTs to create digital sports cards.
Unlike a traditional sports card company like Topps, NBA Top Shot is an online platform where video highlights called “Moments” replace still images. The company represents a partnership between Dapper Labs, the blockchain technology company that ensures scarcity and the irreplicable nature of the product, and the National Basketball Association, which has stamped its brand to this company making these digital highlights/moments valuable.
In addition, each highlight obtains value from the number of unique moments in circulation, a serial number associated with every moment, and the player depicted. For example, the most expensive sale of any highlight was for $200,000+ in the form of a Lebron James dunk from a regular-season game. Only 59 of these moments exist globally, and this specific moment’s serial number was #12. The scarcity of the moment is significant.
For most packs of highlights, NBA Top Shot creates thousands of every moment. The serial numbers #1 through #100 are far more valuable than all others due to the scarcity associated with receiving a card within that range. This is very similar to a physical sports card’s condition, the value associated with the PSA grade, and the number of cards physically produced that eventually impact each card’s value. Furthermore, NFTs have also taken on another form in sports as individual athletes have created their own.
Two such examples of professional athletes creating NFTs come from Rob Gronkowski and Bryson Dechambeau. In February of 2021, Rob Gronkowski sold a collection of digital trading cards for 1.6 million dollars, with one NFT going for $435,000 alone. Pictured below, these cards are just like a physical trading card as they feature a still image of a player with an artistic twist. Similar to NBA Top Shot, the value of these NFTs comes from the endorsement and sale of the NFT by Gronkowski himself. In addition to Gronkowski, the sport of golf has had its first suitor.
Traditionally, golf cards have never been very valuable compared to sports like basketball, baseball, and football. Nevertheless, Bryson Dechambeau sold four NFTs of himself on the platform Open Sea in the last month. The most expensive being the picture of the NFT on the bottom left, which sold for $40,000 while the others were sold for less than $1,000 each. The sale of each of these NFTs occurred through Ethereum(ETH). One Ethereum is currently worth about $2,000, and the NFT on the left is now being auctioned off for 24.15 Ethereum or just short of $50,000.
Bryson Dechambeau has already exemplified the market opportunity in golf. By attaching his name and approval to these digital cards, he created a market floor for golf NFTs. Yet, the value associated with Bryson’s NFTs does not encapsulate the market as a whole. Instead, the market has two possible forms it could take and each outcome has varying value.
1. A Player-Driven Market – By attracting Brooks Koepka, Rory McIlroy, Dustin Johnson, and several other prominent players to promote a marketplace for NFTs of themselves, the market will be dictated and set by their endorsement. Just as Gronkowski and Bryson did it independently, a marketplace can be created where still image NFTs replace the depleted market of golf trading cards.
2. The NBA Top Shot Model – This model relies heavily upon several factors that made NBA Top Shot possible. First, NBA Top Shot’s most valuable feature is the sponsorship/partnership with the NBA. Second, the mutually beneficial partnership between the NBA and Dapper Labs as the blockchain technology and the NBA’s endorsement work hand in hand with each other. Third, the NBA is the most marketable professional sport due to the nature of basketball highlights and its recognizable players.
For a PGA-sponsored platform, the most direct value would come from historical moments. Imagine the value associated with owning a form of Tiger Wood’s famous chip-in at the Masters in 2005 or Jordan Spieth’s bunker shot to win the John Deere Classic in 2017. The value associated with each of these moments is undeniable. Yet, the third factor that enabled NBA Top Shot to succeed is critical as golf’s popularity and demographic differ from the NBA. Unless historical moments are produced, the value of these NFTs is entirely unknown. In other words, Tiger Woods is the only sure thing that would draw a ton of value as people are sentimental about Tiger.
The main problem with this current market is how many true collectors exist. The value of sports cards comes from the collectors who assign value, believe in the product, and care about owning the physical card. But the NFT sports market’s volatility is an indication that people may just be in it for the money. This is where a general cost-benefit analysis is essential. The market opportunity of creating a PGA version of Top Shot has a tremendous ceiling with unlimited upside, especially if historical moments and highlights can get involved. In contrast, a model based on individual player partnerships could be much more feasible as the number of recognizable golfers pales in comparison to other major sports.
The opportunities with NFTs are limitless, and ownership of these assets does not necessarily need to be an investment. As we have seen in the sports card market for years, there is value in both appealing to the average fan and creating brand loyalty as opposed to simply creating an investable asset. Ultimately, NFTs represent a catalyst for all brands to engage with their audience, and their adoption by Fortune 500 companies as a means of engagement will continue to evolve in years to come.
But beyond their prominence for corporations, Bryson Dechambeau, Rob Gronkowski, and Beeple exemplify how accessible this technology is for the average person. Between Open Sea, Mintable, and Rarible, marketplaces exist in which any individual, any company, or any brand can begin to build brand loyalty or sell their product. This is where the launching pad for NFTs truly exists.