Sports trading cards have been popular collectibles for decades. An entire market of retail shops and online forums exists facilitating their “trading” or reselling by fans after their initial purchase in packs, a group of 8-12 cards. Can such an industry rooted in physical items transition to the digital economy?
Enter NBA Top Shot. The National Basketball Association has partnered with Dapper Labs + Flow to create the first ever digital “trading card.” Here’s how it works…
- The NBA provides video highlight footage to Dapper Labs
- Dapper Labs converts these video highlights to unique, blockchain enabled Non-Fungible Tokens and groups them together in “packs.”
- Consumers Purchase Digital “Packs.” These packs multiple tokens / cards, some rarer and more valuable than others. The blockchain “gives each NFT a unique and non-hackable certificate of authenticity.”
- Fans can then either:
- Build a Collection of NBA Top Shot’s
- Exchange Top Shots on the embedded “Marketplace,” a digital platform that facilitates peer-to-peer transactions and trading between collectors of the NFTs
Could this actually work? Would fans be interested in digital trading cards of video highlights they could just find on YouTube or watch on Sportscenter? Simple laws of supply and demand have made sure the answer to that question is YES. By creating a limited supply of the NFTs and reducing transaction frictions via the marketplace platform, NBA Top Shot has seen immense initial success. $230 Million+ of sales have been realized to date, the majority of which has been from peer-to-peer transactions. When new “drops” of NFT Packs are announced, Pre-Order waiting lists have reached 90,000 and the packs sell out within minutes. Some NFTs have sold for upwards of $150,000 individually. [1,2]
How do the economics of the venture work?
- Dapper Labs x Flow (the operators of NBA Top Shots) sell “packs” of NFTs to consumers starting a $9.00 per pack. Some packs cost more based on the projected “rarity” of what’s inside. 
- Dapper Labs x Flow make a % fee on all peer-to-peer transactions that occur in the marketplace. 
- Dapper x Flow pay a licensing fee to the NBA on all revenues related to Top Shot. While official fees have not been disclosed, NBA content licensing fees are usually in the 10-15% range for traditional merchandise. 
While Dapper Labs created the actual product, the real genius is in the peer-to-peer exchange platform. The infrastructure that they have created is easily scalable to not only other digital trading cards and NFTs for other sports and entertainment properties, but to a multitude of digital assets and NFTs across industries. The platform claims to have lower transaction fees than Ethereum, the platform that supports transactions for Bitcoin and other popular cryptocurrencies, potentially giving it an advantage vs. competitors in the industry . It has since raised $250 M at a valuation of around $2 Billion, indicating that the platforms use cases extend far beyond just NBA video highlights. [1,2]
There is a significant amount of value that the blockchain driven NFTs and peer-to-peer platform create:
- The Digitalization and Modernization of a Timeless Industry – Trading cards have long been a beloved industry for sports fans – young and old alike. It has, however, struggled to stay relevant as technology has evolved and the digital economy has developed. Dapper Labs and NBA Top Shot may have finally bridged the gap.
- Asset Verification and Security – utilization of blockchain technology prevents fraudulent and counterfeit goods, something that has been a historical problem for trading cards but that is applicable to a number of other industries.
- Reduction in Transaction Frictions – most high value transactions of physical good require complex contracts, shipping, distribution, buyer / seller communication, etc. Digitalization and blockchain enablement of the entire process reduces the complexities of a previously clunky and disjointed value chain.
- Opening the Door for Digital Goods – to date, digital technology and platforms have primarily been used to improve processes and facilitate seamless transactions between existing goods and services. Dapper Labs, Flow Blockchain, and NBA Top Shot go a step further – not only have they created a digital platform enabling efficient peer-to-peer exchange of goods, but they’ve created a new product entirely – one of the first examples of a successful digital commodity and an NFT tied to an industry with massive cultural relevance and impact.
- Young, J., 2021. People have spent more than $230 million buying and trading digital collectibles of NBA highlights. [online] CNBC.com. Available at: <https://www.cnbc.com/2021/02/28/230-million-dollars-spent-on-nba-top-shot.html> [Accessed 2 March 2021].
- Beer, T., 2021. NBA Top Shot, A Crypto-Based Platfom For Video Collectibles, Soars Past $200 Million In Total Sales. [online] Forbes. Available at: <https://www.forbes.com/sites/tommybeer/2021/02/23/nba-top-shot-a-crypto-based-platfom-for-video-collectibles-soars-past-200-million-in-total-sales/?sh=56181c7d2a71> [Accessed 2 March 2021].
- “Fees & Finances”. 2021. Nbatopshot.Com. https://blog.nbatopshot.com/posts/fees-finances.