NFL star Rob Gronkowski receives a text every couple of days from the founders of Medium Rare, his partners on an NFT project that earned the equivalent of $1.8 million in Ether cryptocurrency back in March.
The texts are an update on the price of Ether (ETH), which has soared in the past week to multiple all-time highs. Ether is up to $2,000, or $2,500 or $3,000, the co-founders write, Maybe you should cash some out. Gronkowski’s response is always the same: I’m holding.
“We text him constantly,” Medium Rare co-founder Adam Richman said in an interview. “He tells us we’re crazy.”
The position has worked out well for the Tampa Bay Buccaneers tight end—that $1.8 million of Ether was worth over $3.3 million early Thursday, an 80% return in less than two months. But as sports leagues, teams, athletes and media companies all rush headfirst into this new revenue opportunity, not everyone is catching the same wave.
Faced with the prospect of holding cryptocurrencies, often for the first time, some rights holders are choosing instead to convert it immediately into U.S. dollars. It’s a decision that’s part personal preference, part risk tolerance and part accounting consideration, according to Jon Parise, co-founder of blockchain specialist GigLabs.
“We’ve worked with some companies that want us to call them before we transfer the cryptocurrency to their accounts, so that they can be on the phone and convert it immediately to avoid concerns over accounting or capital gains,” Parise said in an interview. “On the other end of the spectrum, we’ve worked with others that say, ‘This is going to be a new asset for us.’ It might be a small amount, relative to their total balance sheet, but they want to dip their toes in, and this is a way to do it.”
For now, those that have kept the cryptocurrency have been rewarded. Bleacher Report’s first NFT drop in early March brought in about 490.6 Ether, the equivalent of about $810,000 at the time. That’s now roughly $1.7 million, more than double the original haul. (Bleacher Report, which ultimately rolls up to AT&T, declined to comment on its ultimate plans for the crypto).
As Bleacher Report considers its options, so too does sports streaming service DAZN, which is releasing its first NFTs this weekend in connection with Saturday’s title fight between Billy Joe Saunders and Canelo Alvarez.
“I think it’s a really interesting discussion for our business to have,” DAZN executive vice president Joseph Markowski said in an interview. “There’s a risk element with the volatility of some cryptocurrency, relative to cold, hard traditional cash, but there’s a commitment here from DAZN more generally to blockchain and other innovative technologies. If part of that is holding some cryptocurrency on our balance sheet, that’s definitely something that we’re open to.”
Businesses are beginning to warm to cryptocurrency in general, perhaps none more publicly than Elon Musk’s Tesla. In January, Tesla updated its investment policy to give the company more flexibility in areas like gold and digital assets. Shortly thereafter, it invested $1.5 billion into bitcoin. A number of people interviewed for this story mentioned Tesla’s position as one that will help normalize cryptocurrency for other companies.
Many athletes are already there. NBA players talk openly on social media about their interest in cryptocurrency. And like Gronkowski, MMA fighter Francis Ngannou has kept a good portion of his NFT proceeds in Ether, becoming a devotee of the Coinbase trading platform and even buying when the market dipped.
— Matthew Dellavedova (@matthewdelly) February 17, 2021
For tax purposes, the U.S. typically treats cryptocurrency like real estate or stock: There’s a value set once you acquire it, and then the gains (or losses) are calculated once the cryptocurrency is sold or transferred. It can create a tax and accounting headache that some might not want. There’s also inherent risk in holding revenue in Ether or Bitcoin, as opposed to U.S. dollars. (Ether’s value dropped 8% in the span of a few hours Tuesday, before rebounding slightly).
Faced with those risks, some are choosing to take their NFT revenue in USD. During the Golden State Warriors’ record-setting NFT drop last weekend, Medium Rare staffers furiously played the role of crypto traders, taking the Ether earnings from each of the 327 sales and converting it into U.S. dollars, staying up until 5 a.m. Sunday morning.
In the end the NBA team grossed about $2 million, post-conversion. That would be a bit more today had the team kept it in Ether, but that revenue is now free from the volatile swings that are still common for cryptocurrency.
“We actually did talk about it a fair amount,” Warriors CRO Brandon Schneider said. “We ultimately decided, we’re a basketball team, and let’s focus on what we do as opposed to investing in cryptocurrency at this point.” That said, the team is open to holding digital assets going forward.
These are decisions that sports teams and athletes will have to keep making. One of the big economic draws of NFTs is that the original creators receive a cut of every subsequent transaction, so groups like the Warriors and Bleacher Report will see additional cryptocurrency payments each time one of their items is re-sold. Sports’ crypto-conomy also now extends beyond NFTs—NBA teams like the Dallas Mavericks are accepting some digital currencies as payment; the Oakland A’s just sold a pair of tickets for 100 dogecoin.
“The big picture is that we’re not setting this up to be a short-term deal,” said Teddy Bornstein, general counsel for Ethernity, which has done NFT drops with Fernando Tatis Jr. and Pele. “These properties are going to be generating revenue for a long, long time, so an economic model where you get paid in dollars as a one-off doesn’t really fit the mold.”