Spencer Dinwiddie & Contract Tokenization: The Next Generation of Finance

“The spirit of a people, its cultural level, its social structure, the deeds its policy may prepare—all this and more is written in its fiscal history, stripped of all phrases. He who knows how to listen to its message here discerns the thunder of world history more clearly than anywhere else.”

– Joseph Schumpeter

Are you not entertained?

Pick any historical period and you will see that most forms of marginalization has been built on economic systems that establish and sustain asymmetric distribution of capital and profits. Spencer Dinwiddie’s goal of tokenizing his NBA contract foreshadows a monumental shift in how money and power are distributed by leveraging the power of blockchain technology. I start with a brief introduction of how legacy power structures have been formed and present why us in the blockchain community believe so strongly in the technology.

The Roman gladiator era demonstrated the ability of emperors and powerful aristocrats to sustain their wealth via manipulation and exploitation of common day citizens. By expending slave and prisoner lives for entertainment, these powerful forces leveraged their vast resources to simultaneously create fear in breaking the law and satisfy the subconscious bloodlust of the masses. Society was not only entertained but became obsessed – so much so that the sweat of gladiators was believed by some to be powerful aphrodisiacs. Control of public entertainment (and underlying propaganda) allowed those in power to influence the masses into accepting and then desiring the image of the gladiator, reinforcing a tyrannical grasp on the Roman population.

The economic system underpinning the gladiators allowed the elite to (i) finance the construction of arenas via taxation and war and (ii) popularize a distraction to the cruel and anti-democratic principles they had set in motion. Essentially, assets from the working class were stolen and re-appropriated to maximize gains of the elite; ultimately culminating in the demise of the middle class, increased animosity amongst the starving population, a constant state of war, and the demise of the most powerful state the world had ever seen. Sound familiar?

History has been defined by people trying to optimize government and social institutions in order to maximize happiness. Humanity’s institutional relationships have changed quite substantially since the Romans. Subsequent government structures were built by the elite in all flavors – monarchy, theocracy, dictatorship, etc. Ultimately, the ability to maintain dominance was bolstered by principles of instilling fear of breaking rules while providing the bare minimum societal benefits to prevent rebellion.

The French Revolution was a watershed moment where the culmination of extreme poverty, war, massive government budget deficits, and uncontrolled spending mobilized the French population to push for radical reform. This period of enlightenment was grounded in creating momentum for democratic institutions to take hold; the movement espoused key tenets reflected even today in the US Constitution’s Bill of Rights. Technology was at the heart of the rebellion. Improvements in printing and records retention contributed to the reduction in the cost of production and allowed French citizens to better store, organize, and disseminate information. The spirit of the revolution also manifested a renewed interest in science, technology, and philosophy. The French government, fearing the rebellion, eventually began to require the registration of printing presses and filter their own propaganda through their media network. Ultimately, the revolution also paved way for Napoleon to take control as communication technologies were coopted and gave power to those that could wield it the best. As Malcom X said:

“If you’re not careful, the newspapers will have you hating the people who are being oppressed and loving the people who are doing the oppressing.”

The cycle of a paternalism continues even today despite each new advancement in communications technology (the postal system, telegraph, telephone, etc.) as the elite were able to exploit the tech to maintain control. However, for the first time, blockchain technology allows people to be their own banks and gain trust in trading with partners around the world in a seamless fashion. While these industries are still in their infancy, the hesitance of the NBA to approve SD8, the US government’s reluctance to accept Bitcoin, and trillions of dollars in negative interest rates all prove that we are doing something right. All these events are part of the same underlying story – people are becoming more powerful and that scares legacy power structures that have been engrained in society for generations. Not only can we now call bullshit easier, we have the power to do something about it.

“Basket Ball and Dance”

The Black Fives era was rife with all-black basketball teams; most notably, the New York Rens and their 83%-win rate over a 25-year period (including an 88-game win streak)! Since introduction of basketball to African Americans in the early 1900s, the sport served as a microcosm of the struggle for equal rights and to redeem a culture that for generations had been coopted and destroyed. The games, however, manifested a community ethos to social change. Organizing and promoting Black Fives basketball among all American communities was a battle focused on challenging the identification of the African American as depicted by the mainstream media.

Funding for creating teams and organizing games were often sponsored by cultural organizations such as churches and social clubs (e.g., the Y). Games were opportunities for activists, musicians, poets, and religious leaders to assimilate. It was a place everyone could come together to share ideas for improving their communities and to dance the night away. Coming together was a necessary endeavor to continue the fight against a bigoted system hell bent on keeping their boots firmly planted on the neck of emancipation movements. Basketball was a tool for minorities to fight cultural imperialism by reclaiming their identity, and it worked.

As the Black Fives games became increasingly popular, the NBA *reluctantly* allowed African Americans to play in the NBA. Over the next 7 decades, the NBA was morphed into an institution that is now trying to remove the term “Owner” given negative historical connotations. Hundreds of millions of dollars are now paid to black athletes in the form of sponsorships and salary. A good piece of that capital has been successfully filtered back to local communities through both investments by the NBA and coaches/players. NBA Cares promotes the well being of local communities across the country and soon, around the world.

Still, substantial work needs to be done. While ~70% of NBA players are identified as African American, MJ was finally named the first black majority team owner in 2004. The NBA, despite the claims of its positive effects on urban development resulting from the construction of basketball arenas, has not been able to foster statistically significant growth in these cities. In fact, the construction of sports arenas has shown to have a negative economic impact. How, with all the development and capital flowing to an economy, does that happen? Discretionary income as a percentage of income is somewhat constant over time (many would argue that this ratio is decreasing for certain populations); therefore, spending in these zip codes is just redistributed more to arena owners rather than local businesses. When teams and owners use public financing or receive favorable tax incentives, the problem is then accelerated as the taxpayers become financially responsible for construction and maintenance of the stadium, as well as the painful debt service that will last decades. The profit motives are then juxtaposed against necessary local government services such as schools, libraries, parks, etc. in the short term with the promise of improved economics (which doesn’t occur). Furthermore, development of the surrounding businesses are often national chains rather than local businesses. Sure, that means more jobs (potentially), but the massive profits are asymmetrically allocated to just a few large corporations and sucked out of the local economy.

DREAM Big

“The contemporary tendency in our society is to base our distribution on scarcity, which has vanished, and to compress our abundance into the overfed mouths of the middle and upper classes until they gag with superfluity. If democracy is to have breadth of meaning, it is necessary to adjust this inequity. It is not only moral, but it is also intelligent. We are wasting and degrading human life by clinging to archaic thinking.”

-Martin Luther King Jr.

The beginning of a monumental shift in the power structure of contract negotiations started with ‘The Decision’. Although widely mocked as an arrogant display of LeBron, the next generation of superstars benefited from the sudden transition of power from teams to players (also important to note that, even if he was arrogant, he backed it up). With the new collective bargaining agreement in place, players now enjoy more earnings potential and flexibility than ever before. Rather than deemed as assets ‘owned’ by a team, players are reshaping the equation and ‘renting’ their talents to the highest bidder or best opportunity at hand.

Further, leaders like LeBron and Spencer are today crafting ecosystems to ensure player’s voices are heard and finances are taken care of (about 60% of NBA players declare bankruptcy 5 years after retirement). The focus is shifting away from just earning a high salary to maximizing the value of one’s talents and career. This new generation of athlete entrepreneurs born in impoverished urban centers across the US over a century ago speaks to the tremendous success of grassroots movements and dedicated leaders pushing relentlessly through some of the darkest times in our country’s history.

As LeBron did for disrupting the relationship between ‘owners’ and players, Dinwiddie’s SD8 token will alter the relationship between ‘owners’, players and fans. Bringing liquidity to contracts enables players to invest better, plan, and more easily repay fans for their loyalty. Leveraging blockchain technology builds transparency into the process and minimizes rent-seeking in today’s outdated financial system. Finally, a key advantage of the SD8 securitization is the uncorrelated returns (relative to the general market). Placing faith in the talents of players is an attractive hedge against the macroeconomic background of our unsustainable central banking system. The uncorrelated nature of the SD8s will perpetuate demand for and continue to shift power in favor of the players, reversing the age-old wisdom that ‘owners’ create value for the NBA.

Tokenization of talent and skill can accelerate the process of democratization through replication of the SD8 process for various industries. The concept could help lift both the future computer scientist that lacks the ability to afford a laptop and the local artist that can’t afford a new easel. Blockchain technology empowers people to tokenize their talents and seamlessly raise capital from around the world and contribute more positively to society. The world’s trend towards a gig economy will likely further decentralize talent away from larger organizations as people are learning how to leverage their unique talents to make a living on their own. These increasingly positive trends point to a social system that can be deconstructed and rebuilt by and for the people. The next generation of civil rights leaders will no longer be labeled rebels and hosed in the streets; they are respected thought leaders with a global voice.

“Every individual… neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

-Adam Smith

Sources:

Black Fives Foundation. “The Black Fives Era in Perspective.” https://www.blackfives.org/about/

Bowen, Fred. “In its early years, NBA blocked black players.” February 15, 2017. The Washington Post. https://www.washingtonpost.com/lifestyle/kidspost/in-nbas-early-years-black-players-werent-welcome/2017/02/15/664aa92e-f1fc-11e6-b9c9-e83fce42fb61_story.html

Brangan, Mallory. “Why do taxpayer’s pay billions for football stadiums.” January 31, 2019. Vox. https://www.vox.com/2019/1/31/18204471/football-stadiums-cost-taxpayers-billions

Brooking, Doug. “The Role of the Press during the Revolutionary Period.” https://pdfs.semanticscholar.org/2254/bf9e4058d4ee789a90ed771f791fbda6e87e.pdf

De, Nikhilesh. “Spencer Dinwiddie Could Decentralize Pro Sports – If Accredited Investors Want In”. September 28, 2019. https://www.coindesk.com/spencer-dinwiddie-could-decentralize-pro-sports-if-accredited-investors-want-in

Feinstein, Brad. “Blockchain in Sports: Fractionalized Fan Ownership and Athlete Crowdfunding.” July 9, 2019. https://media.consensys.net/blockchain-in-sports-fractionalized-fan-ownership-and-athlete-crowdfunding-4aa246886f9

Istrate, Emilia and Harris, Jonathan. “The Future of Work: The Rise of the Gig Economy.” November 2017. National Counties. https://www.naco.org/featured-resources/future-work-rise-gig-economy

MIT Technology Review. “An NBA star plans to turn his contract into tokens and sell them.” January 10, 2020. https://www.technologyreview.com/f/615034/an-nba-star-plans-to-turn-his-contract-into-digital-tokens-and-sell-them/

Neuharth-Keusch, AJ. “NBA teams ‘moving away’ from using ‘owner,’ says commissioner Adam Silver.” June 24, 2019. USA Today. https://www.usatoday.com/story/sports/nba/2019/06/24/nba-commissioner-adam-silver-teams-moving-away-using-owner/1545041001/

NPR Code Switch. “Before the NBA Was Integrated, We Had the Black Fives.” March 15, 2014. https://www.npr.org/sections/codeswitch/2014/03/15/290117181/before-the-nba-was-integrated-we-had-the-black-fives

PBS News Hour. “Why should public money be used to build sports stadiums.” July 13, 2016. https://www.pbs.org/newshour/nation/public-money-used-build-sports-stadiums

Propheter, Geoffrey. “Are Basketball Arenas Catalyst of Economic Development.” Journal of Urban Affairs. November 30, 2016. https://www.tandfonline.com/doi/abs/10.1111/j.1467-9906.2011.00597.x?journalCode=ujua20

Sage, George H. “Sport and Social Resistance.” February 15, 2007. The Blackwell Encyclopedia of Sociology. https://onlinelibrary.wiley.com/doi/abs/10.1002/9781405165518.wbeoss238

Sprung, Shlomo. “Spender Dinwiddie Discusses Digital Tokenization Plan, Happening Against the NBAs Wishes.” October 17, 2019. Forbes. https://www.forbes.com/sites/shlomosprung/2019/10/17/spencer-dinwiddie-discusses-digital-tokenization-plan-happening-against-the-nbas-wishes/#63bf5f466dc0

Streeter, Kurt. “Is Slavery’s Legacy in the Power Dynamics of Sports?” August 16, 2019. The New York Times. https://www.nytimes.com/2019/08/16/sports/basketball/slavery-anniversary-basketball-owners.html

Teicher, Jordan. “America’s Black Basketball Pioneers.” April 17, 2014. Slate. https://slate.com/culture/2014/04/the-new-york-historical-societys-exhibit-the-black-fives-highlights-early-black-basketball-stars-photos.html

Thomas, Vince. “Basketball’s Forgotten (Black) History.” March 10, 2010. The Root. https://www.theroot.com/basketballs-forgotten-black-history-1790878850

Tisdale, Julie. “Publicly Funded Stadiums.” https://www.johnlocke.org/policy-position/publicly-funded-stadiums/

Torre, Pablo. “How (and Why) Athletes Go Broke.” March 23, 2019. Vault. https://www.si.com/vault/2009/03/23/105789480/how-and-why-athletes-go-broke

Winck, Ben. “The NBA is reviewing Brooklyn Nets player Spencer Dinwiddie’s revised plan to turn his contract into a digital investment vehicle.” January 14, 2020. https://markets.businessinsider.com/news/stocks/nba-reviewing-spencer-dinwiddie-plan-brooklyn-nets-contract-crypto-token-2020-1-1028816903

Zimbalist, Andrew and Noll, Roger. “Sports, Jobs & Taxes: Are New Stadiums Worth the Cost?” June 1, 1997. The Brookings Institute. https://www.brookings.edu/articles/sports-jobs-taxes-are-new-stadiums-worth-the-cost/

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