Perhaps the most 2021 fandom trend is the rise of the NFT. NFTs or Non-Fungible Tokens are a form of ownership of digital assets. A “form of” is the key phrase. As a starting point, the introduction to the Wikipedia article is below:
A non-fungible token (NFT) is a unit of data stored on a digital ledger, called a blockchain, that certifies a digital asset to be unique and therefore not interchangeable.[1] NFTs can be used to represent items such as photos, videos, audio, and other types of digital files. Access to any copy of the original file, however, is not restricted to the buyer of the NFT. While copies of these digital items are available for anyone to obtain, NFTs are tracked on blockchains to provide the owner with a proof of ownership that is separate from copyright.
For supplementary purposes, the description of NFTs from Euthereum.org.
NFTs are tokens that we can use to represent ownership of unique items. They let us tokenise things like art, collectibles, even real estate. They can only have one official owner at a time and they're secured by the Ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT into existence.
NFT stands for non-fungible token. Non-fungible is an economic term that you could use to describe things like your furniture, a song file, or your computer. These things are not interchangeable for other items because they have unique properties.
Fungible items, on the other hand, can be exchanged because their value defines them rather than their unique properties. For example, ETH or dollars are fungible because 1 ETH / $1 USD is exchangeable for another 1 ETH / $1 USD.
The essential aspects of NFTs seem to be:
1) They are digital.
2) They are unique.
3) Ownership is tracked securely and digitally.
4) The “Owner” does not fully own the item.
The “normal” initial reaction to NFTs is that this doesn’t seem real. This reaction raises the question of why do NFTs exist? Why are people willing to invest in something that seems fake?
Maybe it’s a tool for tax evasion? Possible, but many people jumping into NFTs are not looking for a tax scam. They are looking for something different. Interest in NFTs is driven by a couple of essential fan and consumer traits.
Why do fans want to own NFTs?
Let’s start with the fundamental issue of why people want to own these digital assets. It’s a challenging discussion because even the term “own” is misleading and may have varying definitions.
In sports, ownership of a tokenized highlight like LeBron’s first dunk will come with critical limitations. In general, the owner does not have the rights of the “copyright” owner. There may not be a right to put the image on a t-shirt or license the video to an advertiser.
NFT ownership seems only to mean that the owner’s name is connected to the NFT. The value is in being able to connect yourself to a unique digital asset. That’s it.
What NFTs actually offer is unique status. It is collecting taken to the ultimate. The value of the collectible is not in its practical value (think beanie babies and tulip bulbs) but in its exclusivity. This status and exclusivity value is grounded in fandom. Why does a fan want to own an NFT? The NFT makes the fan more of a member of the community. The NFT establishes the fan’s place in the fan hierarchy.
Imagine the NY Giants community. One of the most famous plays in NY Giants was David Tyree’s helmet catch in Super Bowl XLII. What value would a fan get from owning this play? How about the Chicago Bull’s fanbase. What status value would a fan receive from owning Jordan’s shot over Craig Ehlo?
It’s all about Status.
Another issue with the NFT market is that the interesting “objects” seem to be quickly earning inaccessible valuations. The GSW ring NFT sold for 870k, and Jack Dorsey’s first tweet went for almost $3 million. Collectible markets usually have opportunities for the masses. Anyone can invest in beanie babies or sports trading cards. If you were a kid in the 1950s you had a shot at a Mickey Mantle card. An 8 year old in the Bay area has no chance at a special Warrior’s NFT.
While there may be games with special and limited editions, any fan can build a fairly complete collection of trading cards for the current season. This accessibility is critical because there is an entry point for the masses. Regular fans can invest and hope. They can hope that they end up with an asset that is rare and in demand.
The NFT Market
These are the two key aspects that will drive fan interest. NFT value is a function of the psychological utility that comes with ownership status and the potential future economic value of the asset.
The NBA has been the most active NFT creator among the major sports leagues. This article from Forbes highlights the range of NFT offerings.
We see ourselves as one of the most innovative sports franchises that tries to be on the forefront as things evolve going forward,” Whitfield said. “As NFTs have become more and more poplar as of late, our internal team certainly felt like this would be a very unique way that we could continue our extension into being innovative, being creative, trying to touch that next generation of fans, whether it is millennials or Gen Zs that were hoping to connect not only to the Hornets but to the NBA’s brand.”
It will be the second go-round of NFTs offered by NBA teams, with the Warriors having done an auction at the beginning of the month. That was, to put it mildly, done for high-income fans, as one NFT of the Warriors’ six championship rings went for $871,581 (including gold physical copies of the rings). But the Hornets, who proceeded with the project entirely independent of Golden State’s efforts, took a much different approach, making 88 special-edition NFT tickets available at the fan-friendly price of $4.99.
That was a critical element to the Hornets’ project. Whatever the team produced, it had to be accessible to every day fans, not just those who could plunk down six-figure investments. The other important thing was that the project be done as much within the organization as possible, so that the end result truly would be a Hornets product.
The range in offerings is impressive - $870k to $4.99. However, it’s a new trend, and we can expect a lot of experimentation. I think three factors will determine the long-term potential of the NFT sports marketplace.
1. Will fans accept virtual rather than physical ownership?
This topic is one where you can imagine the NFT advocates screeching about how only dinosaur Baby-Boomers and Gen Xers need a physical object. Maybe. I’m not sure. Have we moved beyond being able to physically touch and display items? Will it be enough to display the digital property on some social platform?
I doubt it. I suspect that we are hardwired to be connected to physical objects. Perhaps we are in the midst of a transition to virtual and physical objects becoming more substitutable. The world of social media would suggest this is true as online likes and followers have become currency for younger generations.
I’m reluctant to predict that we are witnessing a fundamental change in human nature, and this is something that the NFT market is betting on.
2. Will NFTs be unique?
The question about the uniqueness of NFTs may seem misstated. However, by definition, NFTs are unique as only one individual can own a specific digital asset.
There are a couple of open issues related to uniqueness. First, we should probably use rarity rather than uniqueness. First, even if items are unique, will they be viewed as rare by consumers. For example, every digital ticket stub may be unique but are they viewed as different from each other?
The second issue is whether every item being unique will help create or will limit the long-term functioning of NFT markets.
According to the PSA database, only six mint condition Mickey Mantle rookie cards exist. With this level of rarity these cards may sell for more than $5 million. Does having a few copies around create a more liquid and more interesting market? A quick look at Ebay suggests that a “fair” condition Mantle rookie card might sell for only tens of thousands of dollars.
It may be that markets function better when there is at least a limited supply.
3. Will there be a robust market? Will there be NFT fans?
When the value of physical collectibles far outstrips the practical value of the item, it is because those participating in the market believe that the item will continue to be valued in the future. Card collectors believe that there will be fans of Mickey Mantle rookie cards and Sneakerheads believe that there will be fans of Air Jordans.
Fan expectations are a critical aspect of the story. To be willing to support these markets, fans must believe that fandom will continue to exist. It’s a gamble, but I suppose that’s part of the appeal. Its a calculated gamble. Owning some attractive digital assets related to Michael Jordan or the New York Yankees is probably low risk. Owning a digital asset related to ticket stub for a regular-season Charlotte Hornets game? Buy it if there is some sentimental value.
And there is always the what if. What if the Charlotte Horncats become the dominant NBA franchise. A scenario where they have a run of Michael Jordan and LeBron James like stars and win many championships. While this is happening imagine that the NBA becomes a truly global league. In this scenario, the Charlotte Bobnets become the Manchester United of global basketball. Suddenly, the first round of NFTs becomes a desired collectible and status symbol for the global fanbase.
It’s not a likely story, but it illustrates how these markets may function.
Last Word.
Will NFT markets continue to thrive and grow? In the short term, I think the answer is yes. There is a lot of excitement around digital assets. There are also plentiful examples of high valuations, and the NFT market comes on the heels of the success of digital currencies.
On the plus side, we have the desire of fans to connect themselves to the games and a genuine FOMO (Fear Of Missing Out) moment. On the negative side, we are likely to see the market flooded with junk that fans can afford and interesting items that are prohibitively expensive.
In sum, risk no more than you are willing to lose.
Listen to our full NFT podcast episode on Spotify, Apple Music, and Stitcher.