Would you buy stock in your favorite athlete if there was a chance at earning a great return? Would you buy stock in the future earnings of a friend that is on a meteoric rise? These sound like theoretical “bar talk” questions, but they‘re actually serious. One athlete is exploring a way to sell shares of his contract and if it goes smoothly, then others will likely follow suit.
Spencer Dinwiddie – the indisputable leader of the Brooklyn Nets while Kyrie Irving and Kevin Durant are struggling with injuries – is in the process of offering shares of his contract as an investment opportunity.
Dinwiddie is tokenizing part of his $34M contract and selling it as bonds on the Ethereum Blockchain. He is offering 90 tokens at $150,000 each to accredited investors through DREAM Fan Shares. Depending how it goes, 15-40% of his contract will be “owned” by investors.
The SD8 coin will be a three-year bond expected to pay out 4.95% base interest on a monthly basis, with the entire principal being paid at the end of the period. Also, the token can be traded after one year.
The sale went live on January 13th, 2020. However, I haven’t been able to find out how it went.
In theory, a move like this could change the course of how players make decisions and assess risk. Others worry that this could cloud a player’s judgment and take away from their ability to be players.
What do the parties each gain from this?
- Publicity as a Pioneer
- Instantly liquid – cashes in $13.5M of his contract upfront
The investors in his coin:
- Etch their name in a groundbreaking moment in sports
- Get a 4.95% ROI, if everything goes smoothly
- Possible upside if Dinwiddie earns bonuses. It’s still unclear how the coin will carry over into his next contract or if he redeems his player option.
- Possible downside if Dinwiddie violates his Nets contract – making this agreement null and void.
It’s hard for me to say who is the clear winner of this deal. It’s a lot of risk for investors and there are other ways to get a greater return. But it’s an interesting thing to be a part of nonetheless.
Dinwiddie isn’t new to going against convention. He went his own way – like Marbury, Wallace, and Wade (to an extent) – to create his own signature shoe line apart from the major brands. He’s self-described as “Just a Tech guy with a Jumper”. Overall, I’m fascinated by his ingenuity.
Dinwiddie might be the first to do this type of investment with cryptocurrency. But others have done similar things before.
Around 2013, there was a budding market for athletes to start offering their future earnings as stocks. The company leading the charge was Fantex.
The company said its initial public offering will be for Houston Texans running back Arian Foster. Fantex is paying Foster $10 million for a 20 percent stake in his future income, including contracts, endorsements and other related business revenue.Darren Rovell, ESPN
It was the start of a marketplace where fans could buy stock in their favorite athlete and hope to cash in on their career and most importantly their post-career endorsements. Other athletes joined such as Vernon Davis, Mohammed Sanu, Alshon Jeffrey, among about a dozen other golfers and baseball players. And The Motley Fool discussed in detail how these investments could, in theory, pay off.
Ultimately, Fantex’s platform shut down in 2017 due to low consumer interest in the idea. And naturally, another company (Globatalent) has filled its shoes.
The true pioneer of Celebrity Bonds, though, was David Bowie and the Bowie Bonds.
Bowie Bonds are asset-backed securities of current and future revenues of the 25 albums (287 songs) that David Bowie recorded before 1990.Wikipedia
Issued in 1997, the bonds were bought for $55 million by the Prudential Insurance Company of America, or about $87.6 million in today’s dollars. The bonds paid an interest rate of 7.9% and had an average life of ten years, a higher rate of return than a 10-year Treasury note (at the time, 6.37%). Royalties from the 25 albums generated the cash flow that secured the bonds’ interest payments.
The Bowie Bonds were a little ill-timed since we were just about to experience the rise of MP3 sharing, digital music, and music pirating. And the music royalties would feel that pain. Still, the Bowie bonds liquidated in 2007 as originally planned, without default, and the rights to the income from the songs reverted to Bowie.
And thus, we were given the first look into how a celebrity could leverage their future earnings in a way that didn’t sacrifice their overall trajectory.
In totality, this paints an intriguing picture of unconventional investments in people.
Investing in a Person’s Future
Are we looking at the change from a metaphorical to literal meaning of “investing in a person’s future”? Parents, grandparents, close friends. They’ll all happily invest in their kids’ future by paying for their college and putting them into extracurricular activities.
But what if you could literally invest in the future earnings of someone? Anyone?
Income Share Agreements (ISAs) were first proposed by Milton Friedman in 1955. They offer an interesting alternative to student loans where students are given free tuition and then pay the school (or loaner) a portion of their earnings.
Make School, for instance, gives students the option to do a partial or full ISA. After you graduate and find a job, you:
- Repay 20% of your gross salary for 30 months (Partial ISA)
- Or repay 20% of your gross salary for 60 months (Full ISA)
I’m particularly drawn to this style of investment because it incentivizes the investor to help the borrower find a great job. Traditional scholarships do no such thing. And student loans aren’t a great way to kick off adulthood.
I’m curious if ISAs could even exist outside of education.
For instance, if I have a friend that I know is going to excel in life but is hurting for cash right now, I’d happily give him money so that he could focus on his big endeavors – not getting a part-time job.
I’m wondering if a company like Securitize (who’s doing the Dinwiddie coin) could facilitate this opportunity. And could they turn this Investing in a Person’s Future into a marketplace?
Overall, I’m a firm believer that investing in human capital pays the best returns. And finding more ways to make investing in people possible will only make society a better place.