Yesterday, the NBA informed Spencer Dinwiddie that his plans to tokenize his $34M contract earnings violates the league’s collective bargaining agreement. According to a statement issued to The New York Times:

Spencer Dinwiddie intends to sell investors a ‘tokenized security’ that will be backed by his player contract. The described arrangement is prohibited by the C.B.A., which provides that ‘no player shall assign or otherwise transfer to any third party his right to receive compensation from the team under his uniform player contract.

Earlier this week, Dinwiddie announced his intention to offer investment tokens that represent rights to a percentage of his earnings on his three-year $34.4 million NBA contract. With this, investors can essentially bet on Dinwiddie’s performance with the payout being larger bonuses or even a bigger contract. 

Dinwiddie came back and responded to the NBA in a tweet on Friday night:

The plan is to offer the security token on Ethereum with the goal of raising anywhere between $4.95 million to $13.5 million. The offering is limited to accredited investors with the minimum. The offering plans to distribute interest payments in the form of Paxos Standard ($PAX), a 1:1 USD-backed stablecoin. Ultimately, Dinwiddie hopes to bring added fan engagement to the different players and teams in addition to liquidity for team owners through this offering.

In Dinwiddie’s mind, this is just the beginning. With this announcement, Dinwiddie also launched his company, Dream Fan Shares. Dinwiddie, a fan of decentralized finance (DeFi), intends to empower athletes, artists, and influencers to take control of their financial destiny by offering tokenized debt securities to prospective investors.

In the future, fans will be able to invest in the success of their favorite athletes, and more. While selling shares of future earnings may seem cutting edge, the concept is actually nothing new. In 1955, Milton Friedman wrote about this inThe Role of Government in Education:

 [Investors] could “buy” a share in an individual’s earning prospects: to advance him the funds needed to finance his training [or work] on condition that he agree to pay the lender a specified fraction of his future earnings. In this way, a lender would get back more than his initial investment from relatively successful individuals, which would compensate for the failure to recoup his original investment from the unsuccessful.

We’ve largely seen these types of contracts in the form of student Income Sharing Agreements (ISAs) where students agree to pay out a percentage of their income in return for tuition at the university. 

However, tokenizing human capital can be generalized beyond athletes. In reality, any individual could tokenize their future earnings in return for capital upfront. This could be predominant for entrepreneurs, influencers, esports/streamers, musicians, and other prominent individuals.

Imagine a serial entrepreneur seeking capital for his next venture. The entrepreneur may have had a few previous small exits and has built a solid resume and network. He may not know exactly what his next venture is going to be but his peers and past investors know that whatever he does, it will be good. Venture capital is all about investing in the founders after all. The entrepreneur could seek investment capital in the form of a tokenized debt security in which investors would receive x% of his income or exits over a fixed period of time. In a tokenized fashion, the “shares” in the agreement could be traded among private and/or public markets where the value is based on the expectation of future cash flows.

Human Capital Agreements (HCAs), also dubbed PAInTs by Dinwiddie’s company, create a completely new asset class where prominent individuals can value their future worth and raise capital for it from prospective investors. These types of assets are core to the notion of DeFi as individuals can now take advantage of decentralized networks to empower their financial futures and have more skin in the game.

If the NBA does clear the sale of the tokens, we’ll likely see a surge of other players across the NBA and other organizations taking advantage of this opportunity.

But for now, Dinwiddie and company will have to undergo discussions with the NBA to clear this offering and pave the path forward for this emerging asset class.