NBA Top Shot: Fad or Future?
Yesterday, I tried and failed to spend $999 on a digital pack of NBA players making a highlight play on a website called NBA Top Shot. If you are thinking that is absurd, and "why would you do that?", then you are probably in the majority. But if I told you that there was a 99% chance that I could immediately sell every "Moment" I received to other collectors and turn a profit, I would not be lying (Proof on that later). You would likely be intrigued then, and hopefully now you want to know more. You also logically are likely wondering where the value is having ownership over a video clip that one can access for free, whenever they please, on YouTube or Instagram. That was definitely my question when I first learned about NBA Top Shot from one of my housemates who showed me an ESPN+ article written by Brian Windhorst about a man who bought an incredible rookie Zion Williamson block for $100,000 back in mid-February.
Via: NBA Top Shot
But let us backtrack a for a moment. What exactly is NBA Top Shot? That is a difficult question to answer. At its most basic level, Top Shot is an officially licensed, digital marketplace where avid NBA fans can buy packs during "pack drops", and then collect, showcase, buy, and sell the highlights (called "moments") received from the packs. This marketplace (although it is so much more than a marketplace) was built through a collaboration between the NBA and Dapper Labs, with the NBA providing their officially licensed products, and Dapper providing the blockchain technology that NBA Top Shot runs on. These "moments" are Non-Fungible Tokens (NFTs). NFTs have been the talk of the town for a couple of months now as they have exploded in popularity in 2021. Essentially, they are digital collectibles which are constantly authenticated by the blockchain, which means they cannot be replicated. However, as the CEO of Dapper Labs, Roham Gharegozlou, puts it in an interview with Fast Company, "No one even cares about the technology [Top Shot] is based on. It’s more that it’s never been possible to have digital collectibles at this scale before, and at so much lower friction." Right now, these Moments's only uses are to build the greatest collection anyone has ever seen, or to flip them for profit, either immediately or in the long run (if you are bullish on Top Shot). In the same article though, Gharegozlou goes on to explain that Dapper is developing many features to make collecting more desirable as a long-term objective. There will be a mobile game where you can use your collection. Maybe more notably, collectors may even gain special perks when attending games in person.
The nearly endless future possibilities of where the NBA and Dapper can innovate is one thing that has totally drawn me in. Another main motivation for collectors is that this is a rather liquid market with great potential for long term investments, in a way that physical trading cards will never be able to reach. Collectors who were on Top Shot before its explosion this February all have seen ridiculous return on investments as the user base and mainstream appeal of the website have grown remarkably in 2021. This chart below shows the total market cap for NBA Top Shot. When I read that Brian Windhorst article, that was during week 2 of the chart. Common cards were selling for $2 or $3 for random players like Nerlens Noel. My friend wanted to dip his toes into the water, so he bought a Common Kevin Durant Moment for $30, and then re-listed it for $60 immediately because if someone bought that, my friend just made a free $30. Little did we know, two days later, Top Shot exploded into the mainstream and my friend's KD Moment was scooped up, and the new Lowest Asking price for the time being was $500. Since that late February hysteria, this KD card, as have many other cards, continuously dropped in price. This KD card now goes for a little over $100.
Now let us return to the $999 pack I was hoping to buy. In that pack, I would get 1 Legendary Holo Icon Moment (only 99 created of each player), 3 Rare Metallic Gold Moments (499 of each player), and 6 Common Moments (anywhere from 12,000-35,000 of each player). Only 2,423 of these packs were released, and to be eligible for the drop, a collector had to own at least 15 moments, or 2 Rare moments. So, along for the ride with me in pursuit of these exclusive 2,423 packs were over 58,000 people. This gave me about a 4% chance of getting a pack. People in the queue on a drop are randomly assigned a spot, so if I was in the first 2,423 people, I would have been able to get my hands on this pack. Say I got the worst Legendary moment and the 3 worst Rare moments. The cheapest Legendary Holo Icon moment on the marketplace at 12:55PM today is Josh Jackson (serial #56) for $1,260. The cheapest Rare Metallic Gold moment from the pack drop on the market at the same time is Bogdan Bogdanovic (serial #411) for $200. Therefore, if you got the worst moments and bad serial numbers in the drop, after Dapper and the NBA skim 5% of your sale, you would come out with $767 in profit (76.7% ROI). That is fantastic investing. One big criticism though against Dapper Labs and Top Shot is that the process of withdrawing your money from Top Shot into your bank account is extremely frustrating and it can take months before you become eligible to withdraw. So if you were able to acquire a pack, and flip your contents for profit, the $999 you spent on the pack would still be your bottom line until you become eligible to withdraw. That is partially by design, as Top Shot wants you to keep your money in their ecosystem in the near term because they believe that you love to collect and will be motivated to re-invest profits. The big collectors in the Top Shot community also have this perspective, and are waiting for all the prospectors to remove themselves from the ecosystem. I believe that there is room for both groups of people in Top Shot.
The key here is that Top Shot has not even completed a calendar year of existence, and it is still in the Beta. Sign-ups have been limited, and the marketing campaigns are just now getting off the ground. Dapper Labs did just receive $305MM in its most recent investment round from players like Kevin Durant, and investors like Reddit founder Alexis Ohanian, showing there is great optimism on the future of the platform.
One really important takeaway from this is that the NFT market in general is inefficient as many people do not understand how to value these tokens very well. For example, during the February Top Shot hysteria, I bought a common RJ Barrett moment for $60 because I knew he was going to be named a Rising Star. Today, that card is worth $20 and I am just going to hold on to it because there is no reason to realize that loss. However, I also this market is still in its infancy, and the room for further growth is rather enormous, and there is the real possibility that collectors who were early adopters to this platform will be rewarded, like I was for being eligible for the drop yesterday.
Something else to know is that Top Shot is not the same as buying a Topps pack of NBA trading cards at Target. A physical pack of sports trading cards is a cheap way to learn more about players. Top Shot is a marketplace for collectors, which means there is either a profit incentive, or a joy of collecting incentive. It is also meant only for people 18+, which means everyone is coming into this platform as an adult with a thought out plan of action.
In the end, I think it is the future of sports collection. As long as you have patience and enjoy owning these moments, good things are on the horizon. I also would like to shoutout the community that has been built around Top Shot by incredible collectors. Because Top Shot exists on the blockchain, every single transaction is publicly available and therefore able to be manipulated into data analytics by anyone with the skills, interest, and free time. Top Shot has also quickly been adopted by NBA players themselves. One of the most notable players being Damian Lillard. In his post-game interview after hitting a near half-court shot to ice the 2021 All-Star game, Lillard said "I would like to see it on there. I think it would be pretty popular."
I agree, Dame. It is time to get collecting.