This NFT Offering Is Not a Slam Dunk

As a third-generation Washingtonian, I have no choice but to root for our local professional sports teams. For the most part, that has been a satisfying experience.

Two years ago, our major league baseball team won the World Series. The year before that, our hockey team won the Stanley Cup. Back in the 1980s, our football team was a perennial powerhouse and won three Super Bowls in a 10-year span.

However, our basketball team has not fielded a championship squad since Jimmy Carter occupied the White House. It has been a model of mediocrity, qualifying for the playoffs only nine times during the past 25 seasons.

Nevertheless, that has not stopped the Washington Wizards from jumping on the cryptocurrency bandwagon. On July 7, the team announced that it will sell its own collection of NFTs (non-fungible tokens).

According to the press release, “The Washington Wizards Starting Five is a five-part NFT series that celebrates the diverse and powerful hometown of the team, Washington D.C.”

That’s a bit confusing. Will these NFTs feature the basketball team or the city where it plays?

We’ll get the answer to that question today. That’s when the NFTs will be unveiled to the public. These tokens will be auctioned on OpenSea, an online market for trading NFTs.

Missed Shot

In the investment business, we sometimes talk about certain cultural phenomena as being a sure sign of a market top such as your taxi driver giving you a hot stock tip. To my way of thinking, the exploding demand for exotic assets such as NFTs falls into that category.

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It is one thing for speculators to bid up the price of an NFT that features an iconic image of a legendary athlete. Four months ago, an NFT of LeBron James dunk sold for $200,000. I still think that is too much money to pay for what amounts to digital art, but at least I understand the attraction.

However, it is something else altogether to risk money on an unproven currency featuring images from a losing franchise. If this transaction is successful, I may offer a few NFTs of my own featuring my little league baseball team that went win-less in 1968.

At the same time that the Wizards’ NFTs will go on sale, the Washington Capitals will also offer a set of its own tokens. Both teams are owned by Ted Leonsis, who made his fortune at America Online (AOL).

Similar to the Wizards, a long time ago AOL was a force to be reckoned with. But it failed to capitalize on its early advantage in the Internet era and was acquired by Verizon (NYSE: VZ) for $4.4 billion in 2015. In 2017, Verizon added Yahoo to its portfolio for $4.5 billion.

Two months ago, Verizon announced that it is selling AOL and Yahoo to a private equity firm for $5 billion. That is roughly half of what Verizon paid for both businesses.

Costly Turnover

I am an admirer of Ted Leonsis. His uncanny sense of value and timing has made him a very wealthy man. But it is those same instincts that have me concerned about this NFT offering. He is now a seller, not a buyer.

The NFT market is very hot right now. And most likely whoever buys the Washington Wizards NFTs could resell them for a nice gain before this year is over.

But after that, who knows which direction the NFT market will turn after everyone and their brother comes to market with their digital currency offerings. The novelty of a sports-themed NFT may wane after hundreds of teams and athletes have sold their likenesses.

My guess is the NFT market will soon hit a wall. While the top-tier athletes and teams may still fetch top dollar for their tokens, demand for subpar performers could plummet.

I will be watching today’s NFT auction results with equal parts curiosity and incredulity. No matter what these tokens sell for, I can’t help but wonder how long it will be until they end up on the same trash heap as AOL and Yahoo.

In fact, in addition to the NFT offering, I know of several other high-flying stocks that are due to take a big fall soon. There’s a slew of much-hyped “story stocks” in the tech sector that are poised for a tumble.

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