DIGITAL THE REVOLUTION
NFTs ARE CHANGING THE WAY PEOPLE INVEST IN ART AND SUPPORT MUSIC. IT WON’T BE LONG BEFORE THEY IMPACT THE WAY HOCKEY FANS COLLECT. ARE YOU READY?
As a conceptual artist, Mike Winkelmann probably wasn’t front of mind for many hockey collectors. Neither was his most significant work, a collage of 5,000 individual images which were made one-per-day over more than 13 years.
But everything changed when that piece of digital artwork, titled
Everydays - The First 5000 Days, sold for nearly $70 million at a Christie’s auction on March 11, generating headlines around the world as the first sale by a major auction house of a piece of art that does not exist in physical form.
This was no minor event limited to a deep-pocketed group of art connoisseurs. More than 22 million people tuned in on the Christie’s website for the final moments of the auction, with would-be buyers from 11 countries taking part in the furious bidding. A company spokesman later called it “a milestone for digital art collecting,” leaving many people to wonder, “What’s digital art collecting?”
Fair question. Winklemann’s art changed hands in the form of a non-fungible token, or NFT. NFTs – and this is the key – exist only online. And in just a few short months, these virtual assets have become a transformative product.
“I do believe this is where the world is going by any means necessary,” said artist and musician Steve Aoki after 11 of his mixed media NFTs were auctioned off for a total of $4.25 million in early March. “NFTs are a juggernaut that cannot be stopped. It will soon be normalized and be a structural pillar in our culture.”
Licensors like the NHL and NHLPA certainly hope so. Because it’s not just the stunning price or the curious properties of the piece that makes this sale such a game-changer. It’s what comes next: Thanks to blockchain technology, Winkelmann can claim royalties of 10 percent of the sale price each time this piece is transferred to a new owner in the future.
“I do really think that this is going to be seen as the next chapter of art history,” he said.
It’s more than that. It’s the next chapter in the history of entertainment and collectible commerce, including sports memorabilia. At least, that’s how one industry insider sees it.
“It’s going to change the hobby,” they said. “It won’t happen overnight, but it will happen. And it’s going to be big.”
Here’s why.
WHAT IS AN NFT?
Essentially, NFTs are a type of digital asset similar to cryptocurrencies like Bitcoin or Ethereum, but instead of money the tokens hold art, music, concert tickets, or sports collectibles.
NFTs operate on a blockchain which, according to IBM, is a publicly accessible and immutable online ledger for recording transactions, tracking assets and building trust. That means anyone can see the details of any and all NFT transactions – an element that makes tracking rises and falls in value fully transparent, similar in some ways to the stock market.
While NFTs may seem nebulous when compared to physical trading cards, it just requires a certain mindset to understand that they’re no less real or collectible.
Consider that Bitcoin was greeted with widespread skepticism when it debuted in 2009 as a peer-to-peer electronic currency. Today, it’s well established as the favorite digital asset of investors, with the value of one Bitcoin pegged at more than $50,000 at press time. But what makes NFTs so appealing to collecting communities is the certainty they offer to both buyers and sellers.
“They’re super versatile,” Maria Paula Fernandez, an advisor to the Golem Network, told the CBC. “But the main benefit is the certificate of provenance and authenticity.”
That solves a problem central to digital assets: how to establish unique ownership of something that could otherwise be easily duplicated, avoiding the devaluation that occurs when something like a popular song or film is downloaded and shared freely.
HOW WILL IT WORK FOR SPORTS COLLECTIBLES?
NFTs might seem like a totally different experience from trading cards, but there are many elements that will feel comfortably familiar to modern hobbyists. Many in the hockey hobby already have experience with a digital collecting tool. While it doesn’t operate on blockchain, Upper Deck’s e-Pack harnessed unique token technology to link digital pack pulls with physical card counterparts more than five years ago. That program’s popularity opened the door to online collector engagement.
NFTs will be the next evolutionary step. Instead of buying a pack of traditional hockey cards featuring cardboard photos of top stars and rookies, collectors and investors can buy NFTs with short video clips featuring memorable on-ice moments. It could be something like Sidney Crosby’s 2008 Winter Classic shootout winner, or Mathew Barzal’s 2021 through-the-legs beauty against Buffalo, or Alexis Lafreniere’s first NHL goal. Anything that makes for a good viral video could be collected on an NFT.
Of course, that leads some skeptics to wonder what would prompt someone to pay good money for a video clip that can be found easily online. Dallas Mavericks owner Mark Cuban, a big believer in NFTs, offered in USA Today a clear rebuttal that any collector can grasp.
“Some people might complain that (they) can get the same video on the internet anywhere any time and watch it,”
Cuban wrote. “Well, guess what, I can get the same picture (seen) on any traditional, physical (trading) card on the internet and print it out, and that doesn’t change the value of the card.”
He makes the point that, ultimately, NFTs are like any other collectible item. They’re only worth what people are willing to pay for them. Like traditional trading cards, supply and demand will ultimately determine the market. And early indications suggest that there is a growing number of collectors, many of whom have been spending heavily on high-end graded singles, willing to invest significant sums into these next-generation collectibles. But even Cuban admits he has concerns. “That’s not to say the digital goods and CryptoAssets markets are perfect,” he said. “They are not. Transaction costs can be high. The markets can still be moved by a few big players (whales), and … can be influenced by narratives that may or may not be true. But the bottom line is that there are a growing number of investors and traders who think that the digital goods and CryptoAsset marketplaces are better than old-school physical markets and the stock market, and most of them are young.”
NBA AND NFTS
Partnering with Canadian-based Dapper Labs, the NBA was first to market with Top Shot, a digital marketplace where fans can buy, sell and trade fully-licensed highlight videos called Moments. Each highlight is numbered, encrypted and safely stored and tied to a buyer’s credit card. That means that, unlike Bitcoin, owners don’t have to worry forgetting passwords and losing access to virtual wallets.
While the project is still in Beta, it’s been an undeniable success. Since launching in June, 2020, multiple reports have Top Shot registering more than 100,000 buyers and racking up more than $270 million in sales.
While collectors are lining up for a chance to buy packs in “drops” – and often missing out due to excessive demand – the real action is on the secondary market. The interest in Moments serial numbered in the thousands would stun traditional hobbyists who seem disinterested in anything printed in quantities greater than 10. And there’s some big money changing hands. One Moment featuring a a dunk by LeBron James sold in February for more than $208,000.
But what makes NFTs like Top Shot such a slam dunk is the unique way that the revenues are distributed. Money from the initial drops goes to Dapper Labs, with traditional royalties going to both the NBA and NBPA.
But thanks the the unique advantages of blockchain, the revenue stream doesn’t end there. Dapper Labs takes a five percent cut of all future user-touser transactions. The licensors also get an undisclosed percentage on each future sale.
That’s an enormous shift from current licensing agreements, with the technology creating the potential for a significant new cash flow.
“That’s the game changer,” one industry source said.“Everyone’s happy when a Connor McDavid Rookie
Card sells for $1,000 (on the secondary market), but (the licensors’) financial involvement ended with a royalty rate pegged to the original unopened product. They got the same rate whether that pack had 10 commons or that $1,000 card. Now they can negotiate a cut of all secondary market sales of an NFT, where every sale is trackable, and their cut is guaranteed.”
That potential for revenue in perpetuity has the everastute Cuban seeing dollar signs.
“NFTs could turn into a top-three revenue source for the NBA over the next 10 years,” he wrote.
That potential is burnished by the involvement of the players themselves. Several, including Andre Iguodala, Spencer Dinwiddie, Josh Hart, and Tyrese Haliburton, have either invested in Dapper Labs directly, broken packs on social media, or purchased their own Moments in the marketplace.
“When fans see the players involved, it makes them feel like they’re part of something special,” the insider said. “It gives them real legitimacy.”
WHEN ARE NFTS COMING TO THE NHL?
At this point there’s no telling, but representatives from both the league and the PA say they are in the due diligence phase.
“Safe to say that the Top Shot program has caught a lot of people’s attention,” said Dave McCarthy, Vice President, Consumer Products for the NHL. “We are exploring the opportunity, meeting with both incumbents and prospects.”
NHLPA Senior Manager of Licensing Marty McQuaig said the union “has had discussions with developers” and talks are ongoing.
Dapper Labs did not respond to a request for comment, but as McCarthy noted, they are just one of many pos
sible companies with which the NHL and NHLPA could partner. Still, their early success with the NBA, the performance of the company’s proprietary Flow blockchain, and their Canadian base of operations make Dapper a favorite to bring NFT collectibles to hockey.
e motivations for licensors like the NHL, NHLPA, and even the NHL Alumni Association to embrace NFTs sooner than later are obvious. A er losing a full year of gate receipts and merchandise and concession sales, they’re open to exploring any option that stops the financial bleeding. As Cuban suggested, this particular stream could prove to be very lucrative.
Bottom line aside, there will be some who greet the concept of the league leveraging videos with a cocked eyebrow, given the NHL’s tangled history with online highlights. ere was a time when the league actively sought to shut down YouTube channels and Twitter accounts that appropriated game highlights because they were considered protected content. en, it reversed course and allowed those same highlights to be widely circulated, counting on a logical but undefinable benefit when moments went viral.
Now, thanks to NFTs, the NHL could monetize those same highlights in a way that will appeal to the sensibilities of owners, fans, and players.
It also could help the team-obsessed sport address a glaring need for more effective promotion of individual stars. As with the NBA, that push could come from the players themselves. McQuaig says the PA already has had feedback from members who are interested in the technology behind the NFT collectible market, and would love to see something with game-action highlights on the blockchain for the NHL. It’s easy to imagine what it would mean to the market if social media savvy players like Roberto Luongo, P.K. Subban or Quinton Byfield got involved.
And it doesn’t have to stop with the NHL. It’s easy to envision the CHL getting involved as well, with collectors speculating on highlights featuring players like Shane Wright, Matthew Savoie or Connor Bedard, young phenoms who could become the next big thing in the hobby.
ere are, however, some key issues to be addressed, the environmental impact chief among them. According to the CBC, “most NFT transactions at the moment are happening on the ethereum blockchain, and at current rates, the typical ethereum transaction currently uses about 50 kilowatt hours worth of energy to verify and process. at’s enough to power the typical Canadian home for about two days.”
at massive energy consumption would stand in direct conflict with NHL Green, a league initiative launched in 2010 that is “committed to promoting more sustainable business
practices across the League as well as preserving the environment,” according to a policy site.
According to the CBC, NFT backers argue that electrical costs will come down as the system gets more efficient, and will be less damaging as renewable energy makes up a greater share of the power grid. Until those projected efficiencies are in place however, that’s an issue the league may have to reckon with.
It’s also worth asking whether the licensors would allow clips featuring fighting, an element of the sport they’ve assiduously avoided in trading cards but have regarded more liberally with other products like video games.
HOW WILL NFTS IMPACT THE HOBBY?
ere have been many attempts over the years to carve out a slice of the hobby pie with new types of collectibles. While many had their moment, few had a lasting impact – anyone remember phone cards or POGs?
at checkered history leads to fair questions about whether NFTs are truly the next big thing in the collectibles industry, or just the latest unsustainable bubble.
e more pressing issue though is whether or not a hobby steeped in nostalgia and tradition would be willing to accept en masse a nouveau concept like NFTs.
John Avagyan says that history suggests some collectors won’t want anything to do with them. And that, he says, is okay.
“If you’re old enough, you remember the resistance to CDs from music fans who were comfortable with vinyl,” he said. “en there were people who refused to try streaming (music). NFTs won’t replace the trading card hobby. Cards aren’t going away. It’s just another option, something new to collect.
ere will always be people who want to have physical cards, just like with physical media. You can stream anything you want all day long for nothing, but millions of people still buy vinyl albums. at’s what they like and that’s cool.
“Change is inevitable. is is the new thing. People can ignore it if they want, but they can’t stop it.”
Avagyan, an early NFT adapter, believes the experience of owning NFTs is both familiar to a long-time collector, as well as uniquely rewarding.
“Maybe it’s not the same (experience) as a card that you can hold and admire and show off on your Instagram,” he said. “But (each NFT is) perfect. You don’t have to deal with shipping or getting them graded or authenticated. You don’t need a safety deposit box or a safe or insurance for your best pieces. ey can gain or lose value like a traditional card, and they’re easy to sell or trade. And every single transaction is recorded in a way that everyone can see, so there’s no questioning what it’s worth.
“I mean, this is it. is is the future.”
But that future isn’t here quite yet. With that in mind,
Aoki offered a word of encouragement to people just learning about NFTs.
“If you’re reading this now, you’re early. ( ere’s) time to build, innovate and disrupt the entire space,” he said.
at disruption is coming. It’s only a matter of time.