Why NBA player Dinwiddie’s token offering wasn’t a failure, just a stepping stone
By Vanessa Malone
According to the Form D filed with the SEC on July 22, 2020; NBA’s Spencer Dinwiddie of the Brooklyn Nets has raised $1.35 million through a security token offering backed by his basketball contract.
The goal was to sell 90 bond tokens priced at $150,000 per token. Out of the 90 tokens available, 9 were sold. This means the offering raised just 10% of Dinwiddie’s $13.5 million target.
Headlines are honing in on the missed target raise and citing the outside sources responsible including the initial battle with the NBA, the unlikely cancellation of most of the NBA season due to the COVID-19 pandemic, and Dinwiddie himself testing positive for the coronavirus and opting out of the rest of the NBA season.
While these outside factors surely played a role, it can be argued that one of the biggest reasons for the lower than expected turnout was the target audience.
Offering to the wrong crowd
When the announcement initially came out in September of 2019 that Dinwiddie was launching Dream Fan Shares, the messaging tailored around giving fans the opportunity to invest in the success of athletes.
The excitement turned into some backlash when it was revealed that the investment vehicle Dinwiddie would be utilizing for his token offering was Regulation D. In a Reg D offering, only high-net-worth individuals, or accredited investors, are able to participate. This severely limited the pool of sports fans who were interested and able to invest in Dinwiddie’s token offering.
There aren’t definitive reports but across several sources it’s estimated that only around 10% of U.S. households meet the requirements for what constitutes being an accredited investor.
Now imagine instead if the opportunity was offered to the general sports fan base through a crowdfunding offering targeting investors of all levels.
Dinwiddie has 244,000 followers on Instagram alone. If even 10% of his fans converted into investors at a reasonable investment minimum it could’ve created the potential for Dinwiddie’s token offering to create 25,000 proud, loyal shareholders with a vested interest in his entire professional basketball career.
Further, what blocked investment interest from traditional investors could’ve enticed fans to invest. Especially at a time when COVID-19 has taken away the joy of crowded sports arenas and large viewing parties, an investment opportunity like this could present fans with a new way to engage and interact with athletes. It could’ve turned into an incredible fan engagement play.
Don’t worry, it’s not even half time yet
It is worth noting that opportunities for fans to participate in securities offerings tied to athletes’ future earnings have to date been limited to high-net worth individuals as was the case for Dinwiddie’s token offering.
We are still in the beginning stages of these new types of sports investment opportunities, but a combination of the pandemic, favorable regulation, and advances in fintech are paving a path for these types of investment opportunities to make their way to the general public sooner than we think.
In response to COVID-19 and the subsequent cancellation of games, sports teams and athletes are actively seeking new revenue streams. While some are turning to private equity funds or accredited investors, we may see them turn also to their fans who could provide a strategic capital raising solution.
In March, the SEC proposed amendments to the Reg A+, Reg D, & Reg CF exemptions. The amendments would increase the maximum amount an issuer can raise in a Reg CF offering from $1.07 million to $5 million, and from $50 million to $75 million in a Tier II Reg A+ offering. Additional changes are proposed to reduce friction and better investor eligibility requirements. This could make Reg A+ and Reg CF more viable solutions for athletes and teams.
Lastly, technology has completely evolved the way fans experience sports. Social media, fantasy sports, live streams, forums, in-game betting, and more have taken the sports viewing experience out of the stadium and into the hands of fans.
Dinwiddie’s token offering was a major stepping stone for the future of fan engagement and fintech. Using issuance and trading technology like Horizon’s one-stop-shop, these sports investment opportunities can be more seamlessly executed in the future.
To learn more about Horizon’s one-stop-shop for securities offering technology, please visit https://www.horizonfintex.com/.