a16z Podcast - New Fan Engagement Models for Athletes and Influencers

Episode Date: May 26, 2020

Today’s episode is about a practical application of crypto — namely, the way it can “tokenize” fandom. More broadly, it’s about fan engagement, and the increasingly blurred lines between sports, culture and tech.  We talked to NBA player Spencer Dinwiddie, of the Brooklyn Nets. Spencer created a new platform on the crypto blockchain Ethereum that gives fans the opportunity to invest directly in his revenue-generating potential, through debt securities.  Joining this conversation are a16z managing partner and tech investor Jeff Jordan, who has long followed the evolving relationship between sports and tech. Also joining is Jesse Walden, a former a16z crypto partner and co-founder of Mediachain. He’s also a former music promoter and manager whose focus was on helping artists stay independent.   We discuss the evolution of models for fan engagement; how social media has changed the game; and where technologies like cryptonetworks and blockchains come in.

The content here is for informational purposes only, should not be taken as legal business tax or investment advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hi, welcome to the A16Z podcast. I'm Zorn. Today's episode is about a practical application of crypto, namely the way it can tokenize fandom. More broadly, it's about fan engagement in the increasingly blurred lines between sports, culture, and tech. We talked to NBA player Spencer Dinwiddie of the Brooklyn Nets. Spencer has created a new platform on the crypto blockchain Ethereum that gives fans the

opportunity to invest in him through debt securities. Joining this conversation are A16Z managing partner and tech investor Jeff Jordan, who has long followed the evolving relationship between sports and tech. Also joining is Jesse Walden, a former A16Z crypto partner and co-founder of Media Chain. He's also a former music promoter and manager. manager whose focus was on helping artists stay independent. We discussed the evolution of models for fan engagement, how social media has changed the game, and where technologies like crypto networks and blockchains come in. We begin by discussing the shift of power from platforms to talent. The first

voice he'll hear Spencer is followed by mine and then Jeff's, and then you'll hear Jesse's voice about halfway in when we first start talking crypto. I am obviously pro athlete in terms of just like our ability to generate revenue on the things that we bring to the table as a whole and kind of understanding that power. And looking at the NBA ecosystem, you know, there's usually three parts to a transaction. There's a consumer, there's the asset, and there's the broker. You know, and the NBA, a lot of times like the operate as if it's the asset with all actuality, we are, and they're the broker.

You know, they do a great job of bringing the fan and the player closer together. But at the end of the day, like, we're what's special. And as long as, you know, the consumer continues to say that we are special, you know, and they devote their power and resources to us, then supply and demand, basically. So, you know, pulling all that together kind of is what brought me to, you know, wanting to create the fan shares platform as a whole using myself as the pilot. People bought shares in your contract essentially, and you received most or all of your contract up front. and then your shareholders are paid out over time at a certain interest rate, is that right? Pretty much. I mean, you know, they caught buying into my revenue generating potential instead of buying my contract because if you buy my contract, then the NBA says that, you know,

it's not my contract anymore or whatever. So there's certain, you know, legal phrases behind it that I have to say, but you guys get the quick and skinny. History. There's a precedent in fans owning into sports. You look at the Green Bay Packers and how zealous that fan base is and it's a company that the fans can own a piece of. So this is just updating it for the digital age. Exactly. The other thing that goes along with some of this is new ways of kind of creating fan engagement. The challenge has always been scaling it. There's a lot of startups that hit the rocks trying to do fan engagement. And if it's one-on-one engagement, it's kind of hard to scale. And if it's one to many engagement, it might not have the same authenticity.

So it's one that entrepreneurs continue to try to navigate to figure out the balance. So I don't think that code's been cracked yet. And it's one, I think the players would like to crack and the fans would like to crack. Spencer's, you know, he's out front trying to figure out how to make it happen. And the NBA wasn't thrilled with this, right? You really had to go back and forth with them. You're really upsetting the power dynamic in a way. So what was their reaction and how did you work that out with them? I mean, they definitely obviously said no number one at first. And I also think just in general, you know, they don't want or didn't want liability on their shoulders, which for me I definitely wasn't trying to do.

The liability is on the player at the end of the day. But the NBA needs fan-engagement tickets to you to survive. And if you look at any great regime and this is anywhere throughout history, if you're talking about a dynasty or anything like of that nature, the more they crave power, hold on the power, and try not to let it slip through their grasp, like that's when they start to lose it. You know, they feel like they're too big to fail and they start to lose some of that power because they're trying to hold onto the iron grip.

The more they embrace innovation and let thinkers and stuff grow with them and give ideas, you know, the more likely they are endeared to the same people that, you know, they want to have a control over, you know. So for me, it was never about, like, overthrowing the NBA. It's been a dream of mine since I was three. years old to play in the NBA. You know, I want to partner with them. I mean, obviously, I have some capitalism in my bones, too, so I understand that it would make me a lot of money in the process. But I want to create something that's extremely cool. And, you know, hopefully it makes

them dollars. Like, if they can, you know, create real fantasy sports systems that comply with what the NBA wants to see, why wouldn't I help try to make that happen? So we're seeing this approach going in a lot of different kind of quote unquote asset classes, you know, collectible sneakers or cars or things like this. Are other players expressed interest in following your footsteps? Oh, yeah. No, there's definitely been other players probably about like two dozen that have wanted to do this. And that's across different disciplines as well.

You know, most of my network is basketball, but, you know, I've had some others obviously reach out as well. I think there's going to be a market for a lot of different things. I think we're going to start to see kind of internet of value. You know, there will be a market for collectible, shoes, things like that. But whenever you're able to trade something that truly does have value and, you know, revenue streams obviously are, you know, built on value, they're going to have a little bit more liquidity and a little bit more interest from investors than some other things. I interviewed Joe Montana a number of years back who has his own venture fund.

And he said the players back in his day when he was a player used to talk a lot about investing, because at that point, they had what was considered good money. So they always talked investing. But the biggest change, I think, is that that has gone more from talking about public stocks and stock market investments and buying car dealerships to the tech world. And so there is a lot of interest. There's always been interest in investing now. There's a new playground. So for me, the difference used to be is your brand was kind of defined by a few gatekeepers. And now you get to define your own brand. I think there were huge individual sports brands in basketball before social media took off.

You know, you think of Dr. Jay and Magic and Bird and Jordan. They were global brands. I'm consuming the Jordan mini-series these days on the ESPN, and he was probably the best known player in the planet. But what's different is they used to be able to hide and manage the media, and you just can't hide anymore. And I think it's new and it's different. I mean, it's the intersection of two of my passions. I'm one of like three or four venture capitalists in Silicon Valley who really love sports, and I love technology.

So I get the opportunity to see a lot of the tech-enabled sports concepts. So we've got a couple of direct investments in. One is Fanatics, which is a e-commerce company that offers online licensed sportshoods. So virtually every piece of sports merchandise licensed merchandise from team sites that you can buy on the NBA, NFL, MLB, etc., NHL, all are largely driven by fanatics. I love that intersection. Overtime is a digital media brand and community targeting Gen Z, and that started in basketball, started on highlights of high school basketball players, like Zion before he was that well, you know, really well known, things like that. I think it's doing about a billion and a half video views per month now. And it's the hottest thing

in sports for young viewers, which is a tough market for sports right now. Obviously, social media, is one way to engage with fans. I'm curious in your perspective as a sports fan, seeing this change over the years and fan engagement in general, whether that's kind of a good thing for the sports world or has some negatives. I was emceeing an event for charity where I was interviewing a friend of mine, R.C. Buford, who at that time was general manager of the Spurs. Now he runs the whole organization. And Steve Kerr. And they're good friends from back when Steve played from the Spurs. And so I asked them, what's the biggest change you've seen over your sports career, and they both went right to social media.

And it's just kind of like both as a, the players, it's both empowerment and a huge distraction. Because, you know, it used to be, you know, all they had to worry about when Steve was playing was what the local beat writer wrote. So your world was around, you know, your local newspaper and what they said about you and maybe the wide world of sports or something. And now it is a constant barrage of incoming and outgoing that takes a huge amount. of management. Yeah, for sure. So Spencer, I was looking at your Twitter feed, and I think somebody referred to you as the most interesting man in the NBA because of all your interests and the things

you're opining on. I mean, the other day you had this tweet storm of like a very detailed plan for becoming the GM of the Chicago Bulls. And you've talked about, like, you've proposed an NBA postseason tournament format that was pretty interesting. You're really given some thoughts of this stuff. Yeah, I mean, you know, one of the things I always wanted to do with my Twitter specifically, I wanted you to feel like you were having a conversation with me. I wanted to be authentic. And so that's kind of how I approach tweeting in general. As far as the Chicago Bull stuff, you know, I'm a basketball fan at the end of the day.

You know, so people forget that. They act like just because you're in the NBA, you can't seriously enjoy the game or seriously enjoy the environment and all that other stuff just because we're very competitive. And so when looking at the GM stuff and having a little fun with it, that's along the lines of what I would do. And, you know, in terms of tournament format, it was me if they go out the fans and what would be really interesting for, you know, our ecosystem as a whole and bring people in and have them have fun. Yeah, I think what's really interesting about it is you're giving your fans real skin in the game. And that's something that crypto networks invalidated is a really powerful tool for engagement.

Because, you know, if you go on Twitter and you look up the Bitcoin hashtag, you'll see sort of like an army of people defending the narrative of Bitcoin and sort of advocating or evangelizing it because they own a piece of network. the way crypto networks work, a network like Bitcoin is both owned and operated by the community members as opposed to a company. And when I say community, I mean literally anyone anywhere in the world can download, you know, open source code, run it on their machine and join the network and earn for doing that. And similarly, the intent is very much to allow any fan, anyone in your community to sort of have a real stake, a real ownership stake in you and sort of your network. And to your points earlier, the fact that you're giving fans an opportunity to participate in fandom in this new way is a really exciting way to generate engagement at a time when the league and, you know, players need it most. I think the fact that you're doing it on Ethereum makes it all the more interesting because there's some precedent for this type of financial instrument.

And I think David Bowie in the 80s or thereabouts, maybe it was a little bit later. But he created this thing called the Bowie Bond, which was similarly tied to how his music performed in the market. But, you know, that was done in sort of a legacy way. It was done, you know, using paper contracts. And now there's this sort of new toolkit that I think makes it a lot easier for anyone to sort of do launch a similar instrument. So I guess what about Ethereum sort of caught your attention? And what would you say is the like key advantage to using it to do? what you're doing. I mean, obviously to do this, you need a smart contract. So Ethereum

having the most robust ecosystem in terms of smart contracts, along with having the most wallets while we chose, you know, Ethereum, just the infrastructure is at a different level. But, you know, we're not beholding to any chain. And, you know, as we scale, we'll continue to remain flexible. If, you know, Ethereum 2.0 or Pocod or Tesos or any of the smart contract platforms that are out now are coming out, prove to be the better solution long term, then that's where we'll go. Yeah. And I think one other thing that's interesting about smart contract platforms in general, not only Ethereum, is that essentially like turn all the legal stuff surrounding, you know, financial instruments into code. And so I think one implication of that is,

In the same way that, you know, media became digital and could then move sort of all over the world, you know, at a fraction of the cost and instantly, I think you can start to do the same thing for value. And so I guess I wonder if you agree with that sentiment and sort of the benefits of tokenization versus, you know, creating traditional shares. No, definitely. I mean, that's kind of one of the reasons why we're doing this in the manner that we're doing this.

We are looking to kind of where it scales and we're kind of trying to future proof ourselves. in a sense. Like, we could have walked this back on the tech side a little bit if we really wanted to, but we decide to start to show people where we are and where we can go. So, you know, that's one of the reason why we're using the tokenization. And like I said, with the trading aspect, kind of quote, quote, quote, real fancy sports, you know, it's got to be a lot more seamless to be able to do that, having tokens popping around than trying to list on NASDAQ or something like that. We are seeing, we sometimes internally call it weird finance, where people are trying to fractionalize interests in all kinds of assets,

you know, collectible cars, collectible sneakers, artwork, and there are a whole bunch of energy right now around that in the startup world. Now, the interesting thing is, will these assets appreciate at the rate people hope they do? Some academic studies suggest that actually they're more about personal fulfillment and, you know, scratching an inch than necessarily investment returns. You know, it's almost self-expression. Look at the painting. Look at my Picasso in the house. Now, sometimes they do appreciate over time, but sometimes they go the other way. I don't know if it makes sense for the bonds you're putting out, but in general, just this idea of tokenizing things, tokenizing products, tokenizing, you know, creative works.

There's sort of a whole design space you can explore here. And because you can sort of program the way that value flows in these marketplaces, there's potentially ways to generate new forms of revenue or new revenue streams, you know, for the talent in the marketplace. So one example of that is there's this project called Uniswob, and they tokenized a pair of socks. It was like, you know, some startup swag. But what was interesting is they created this marketplace where those socks were tokenized and you could trade them in this liquid market. So there's limited supply. The price, you know, went up and down based on demand. But each time folks transacted in that market, a secondary, a fee was taken and that fee went back to the company to demonstrate, hey, look, this is a new way that

creators can make money off of their work. And doing something like that, say, in like, you know, the physical retail world would be almost impossible because how would you set up a dynamically priced, you know, market in the first place? And how would you capture a bit of the secondary exchange of those socks, right? So that seems like a pretty cool example of the fact that smart contracts give you this flexibility, you know, to design new ways for value to flow. And to your point revenue is built on value. Now there's a new way to distribute it. And I think your bond makes a good example of how you can start to play around with that. Well, that was saying, then, you know, some of that you're kind of talking about is baked into the secret sauce of

how franchise is going to operate as a whole and some of the value proposition of guys coming on board that we're going to continue to kind of explain to the market. One thing I was curious about is if you could speak to a little bit sort of what the details are of the bond, Like, how does it engage your fans directly and how do you think about that? I mean, obviously, some of this stuff I'm not really allowed to speak about in terms, just like SEC rules. But in general, I mean, you offer a special experiential return in association with being a token holder. And, you know, obviously being able to engage in trading once that stuff starts to come alive and you have certain liquidity, et cetera, et cetera, are all things that, you know, fans will be able to enjoy it. in addition to returns as well, you know, based upon my ability to play this game.

Spencer, what happens if the season gets canceled? Do you still get paid and does the contract still then pay out? Does your syndication continue? Yeah, so, and that's one of the things I think not being 1,000% liable to the league does for the type of bond and talking about revenue streams, the bond still goes on. In terms of the league, it remains to be seen what exactly. which ride they're going to take the doomsday version or the force major or whatever you lose about 20% of the salary of the year that you're currently in but at the same time you know with

the way NBA contracts work you already have 10% out so it looks like it would be another 10% on top of that which obviously doesn't affect the bond too much because when we do all the numbers for the bond stuff like that we already took out taxes we already took out the initial escrow you know And granted, we do normally get the initial escrow back, but we took out all that stuff. We took out any of the, you know, oh, maybe we get it, maybe we don't type of money to come up with the base number of the bond. So this doesn't really affect us too much in terms of going forward. When you started talking to folks about this, like how did people around you react, teammates or people associated with your business team? Were they on board with this?

Or did you have to do some selling of your own to explain what you were thinking? I first just started talking about it I thought it was crazy but this was shoot back 2018 I was talking about this stuff so you know

we're in crypto winter all they know is Bitcoin crashed like and now I'm talking about blockchain this blockchain that they're like man this dude's tripping once it kind of

went forward and I started well it kind of became more public knowledge like in September of you know last year 2019 and people really started to see the like plan and then some people could even start to kind of you know see the vision they were like yo how can we get on how can we be a part of this and so I think people are starting to recognize like how especially it can potentially be

and so that's what's most exciting for me I'm not out here on a ledge anymore uh you know shout at the sky thanks Spencer we appreciate you joining the podcast glad you could do this it's really intriguing thing you're trying to do I appreciate it man other you went to Colorado I I mean, as a Stanford guy, I can't, you know, it's hard that. Trust me. If Stanford hadn't been recruiting me earlier in the process, that'd have been pretty stiff competition for Colorado to be.