NFTs are changing the game
Author: Alex Wong
Source: The Toronto Star
Digital tokens are unlocking a new future for sports fans, even if not everyone's sold
In January, Andy Chorlian set his sights on acquiring a LeBron James sports card.
For $50,000 (U.S.), he could become the owner of a serial number 1 card of the Los Angeles Lakers superstar elevating for a reverse double-clutch dunk against the Houston Rockets in February 2020. Keen observers were quick to point out the similarity to a famous throwdown by legend Kobe Bryant, who had died a month earlier in a helicopter crash. As they were compared side-by-side on social media, James' slam became known as the Kobe Tribute Dunk.
Chorlian, a 27-year-old software developer based in New York, wasn't looking to buy a physical trading card, but rather a digital video clip - known as a moment. The highlight was readily available on the internet, but this was different: an NFT sold by NBA Top Shot, a digital trading card platform that has exploded in popularity this year.
Chorlian walked 30 minutes to an Apple Store to pick up a new laptop before making the purchase. By the time he got home, the price had soared by more than $20,000. He ended up paying a record $71,455.
That record was broken an hour later.
At last check, Chorlian was still the owner of the Kobe Tribute Dunk moment. He said there's no rush to sell, despite several six-figure offers.
"I've been offered a good amount for it and have said no," he explained, "but everyone has a price. If someone said 'Here's $10 million,' the answer would be yes."
For the price he paid, he could have bought a brand-new Lexus or put a down payment on a condo. Chorlian chuckled at the suggestion.
"We're becoming a more digital world every day," he said. "There's no reason for collectibles to stay physical."
NFTs, or non-fungible tokens, are one-of-a-kind items that exist on a blockchain - a digital ledger in the cryptocurrency world, tracking transactions while verifying the authenticity of the NFTs on the ledger.
The best way to explain NFTs and Top Shot might be to look at another product for which a speculative market bubbled up decades ago.
In 1995, Beanie Babies were the hot commodity. By deliberately limiting the number of versions and discontinuing old models of the stuffed animals, creator Ty Warner spawned a secondary market where the child's toy became a sought-after investment for adults. After retailing for as little as $5 each, some Beanie Babies fetched thousands of dollars on the aftermarket. Stories spread about parents retiring early and paying their kids' tuition with the profits, increasing demand even further.
At Top Shot, fans sign up and buy digital sports card packs including individually numbered highlight clips: crossovers, hustle plays, buzzer-beaters or other memorable plays such as the Kobe Tribute Dunk. Like Beanie Babies, the market is based on scarcity.
Common moments in a pack of three go for $9. For each of those clips, up to 1,000 digital copies exist with unique serial numbers. More rare moments gain the most traction on the Top Shot marketplace - the only place where users can sell, trade or gift their moments to others.
NFTs have existed since 2014, but didn't burst into the mainstream until the arrival of Top Shot - produced by Vancouver-based Dapper Labs, which opened to the public last October. It appealed not only to those familiar with playing the crypto market, such as Chorlian, but also everyday basketball fans.
Luc Doucet is a freelance video producer, born and raised in Toronto and now living in Vancouver. He signed up with Top Shot early, when it had only a few hundred users. A long-time Raptors fan, his first purchase was a $4 clip of Kyle Lowry hitting a miraculous three-pointer against the Washington Wizards.
Doucet says the moments became a way to communicate his fandom. He later purchased a clip of Vince Carter hitting a three-pointer in the closing seconds of his final NBA game. When Top Shot introduced a challenge - requiring users to collect a set of cards to unlock an exclusive moment - Doucet went on a digital scavenger hunt. He was rewarded with a moment of OG Anunoby's buzzer-beating, game-winning three-pointer against the Boston Celtics in the 2020 playoffs.
"I just picked up players that I like," Doucet explained. "I would start picking up guys who had good seasons for me on my fantasy team. Then at the start of January, things started to take off."
The new NBA season had started in December 2020, later than usual because of the pandemic, and Dapper Labs' marketing push included a partnership with Miami Heat forward Tyler Herro. The product they produced took off, and feature articles by ESPN and the Wall Street Journal spread the word for free.
As more and more fans realized Dapper Labs had an exclusive deal with the NBA and its players association - each digital clip is approved by all partners, who share five per cent of the revenue from every transaction - the company's profile grew inside and outside the game. NBA stars Fred VanVleet, Terrence Ross, Mike Conley, Rudy Gobert and Paul George were among those who signed up for Top Shot accounts.
Fans, cryptocurrency speculators and other investors flocked to the platform. More than 100,000 users in the queue became the norm for every digital pack drop, leading to intense bidding. Rare moments featuring Zion Williamson, Ja Morant and Giannis Antetokounmpo sold for five figures. The Kobe Tribute Dunk, with just 59 copies, was the most sought after.
NFTs had officially hit the mainstream, becoming one of the most searched topics worldwide on Google.
"Saturday Night Live" devoted a skit to the craze: "What the heck's an NFT?"
New York-based designer Jeff Staple partnered with RTFKT Studios to produce and sell a limited-edition NFT digital sneaker.
Kings of Leon became the first major music act to release an album as an NFT.
In late February 2021, more than $46 million in Top Shot transactions were recorded in a single day.
Exponential growth in recent months has the company scrambling to meet demand and respond to user feedback.
Common complaints have been related to the process for withdrawing money on the Top Shot website - too complicated, many users said, an issue that has since been addressed - and how hard it can be to buy a digital pack when demand is so much higher than supply.
Scarcity is what drives up the value of the product, but the risk is shutting out many fans who want to join in on the fun.
The surge in demand created a divide. On the one side were basketball fans like Doucet, who wanted to start a collection. On the other side were shrewd investors and other new users hoping to get rich quick.
Jacob Eisenberg is the community lead at Dapper Labs, responsible for social media feeds and overseeing Top Shot's Discord channel, which boasts over 300,000 members. He admits it's a tightrope.
"It's a tough balance," Eisenberg said. "When we put out too many rare packs, the value goes down. But when there's not enough, people say they don't have a chance to get them. We're still figuring it out."
Not everyone has bought in.
William Chong is the co-owner of Dolly Sports Cards, with multiple locations in Toronto. While the industry is moving toward digital trading cards - Topps and Panini, two of the biggest players in the sports card industry, have dipped a toe into the NFT waters by offering blockchain collectibles - Chong doesn't believe the physical trading card experience can be replicated.
"I'm a collector first, and I have memories of trying to chase down a Michael Jordan rookie card," he said. "There are a lot of memories attached to that card. There's also a nostalgic aspect that is hard to replace. Putting sets together, participating in group breaks and opening packs provides an excitement that opening a digital pack can't replace."
Eisenberg sees Top Shot as a complement to physical trading cards.
"Imagine if 100 years ago I told you I got this piece of cardboard with Honus Wagner on it," Eisenberg said, referring to the holy grail of physical trading cards: the Wagner T206, which sold for $1.2 million in 2019. "Imagine the blank stares you would have gotten in the early stages of the trading card world. We're confident that the more people that are open-minded and give us a look, the more people will understand what digital ownership means."
Dapper Labs is developing a Top Shot mobile game where users can take the moments they own and use them to power up players. Third-party apps - including Moment Ranks and Swyysh (which Eisenberg says the company fully supports) - have also popped up in recent months, allowing collectors to use their moments to assemble fantasy teams.
Eisenberg says Top Shot is still in the "top of the first inning" when it comes to product development.
"We're still so early in the game. We don't look at it as a race to get everything out there," he said. "We look at this as a multi-generation project. We want to crawl before we walk and walk before we run."
Vintage clips are also in the works. Fans like Doucet could soon have a shot at a pack including Carter's performance in the 2000 slam dunk contest or Kawhi Leonard's four-bouncer to beat the Philadelphia 76ers in the 2019 playoffs.
For some, it remains a hard sell.
Dejan Pralica is the CEO and co-founder of SoleSavy, an online sneaker community that helps members avoid the aftersale market and by shoes at retail price. He joined Top Shot last October, but remains hesitant about fully diving into the NFT world.
"There has to be a physical or sentimental value to it," he said. "NFTs should be less about generating revenue for brands and more about engaging and rewarding the audience."
Eisenberg says Dapper Labs has launched discussions with users to make a better connection. And in some cases, NBA players and teams are going straight to the fans.
Recently, Lowry announced his own NFT collection of moments commemorating the Raptors' 2019 championship run, while the team unveiled a collection in late July. It feels like the league is just scratching the surface. Soon, you may be able to exchange Top Shot moments for perks at the arena, such as exclusive access.
Other sports have also been jumping on board:
- Sorare is a digital soccer trading card platform.
- The WWE and UFC, another Dapper Labs partner, recently introduced NFTs.
- The New Jersey Devils are the first NHL team to announce plans for an NFT collection.
- The NFL is discussing ways to get a piece of the action.
If the idea of taking your NFT collection to an arena in exchange for tangible rewards seems far-fetched, consider how many basics of day-to-day life have been changed by streaming, YouTube, GPS and Google Maps, for starters.
A future where digital ownership of NBA moments leads to a more enriching fan experience at the arena seems plausible. Even logical.
The key for Top Shot is to turn a boom into a long-term commitment.
Remember those Beanie Babies?
The speculative bubble burst in a few years. After every toy store shelf had been raided by collectors, supply finally outstripped demand. Buyers were left holding stuffed animals that might fetch a few dollars at a flea market today.
If Top Shot is to continue to succeed, it won't be on the backs of speculators who drive up market prices. The company needs to appeal to the fandom of customers and help them recreate the joys they once extracted from physical trading cards.
J.E. Skeets and Trey Kerby are finding that joy. The co-hosts of the basketball podcast "No Dunks" are avid Top Shot collectors and hosted a YouTube livestream where they opened new packs digitally with a group of fans.
The highlight was a recently released moment of Portland Trail Blazers guard Anfernee Simons pinning an opponent's layup attempt against the backboard, where the ball got lodged - a wedgie in basketball parlance. It doesn't happen often, as has been documented by "No Dunks" over the years.
As they opened the pack to reveal the wedgie moment - the highest selling price for which is currently $4 - there was jubilation and genuine excitement.
It was just like picking up a pack at the store, ripping it open and finding the one elusive card you had spent months looking for.
Except this time, it won't get wrinkles.
This article was written by Alex Wong, a freelance writer with The Toronto Star based in Toronto, and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to firstname.lastname@example.org.