NFL team, the Denver Broncos, is up for sale after its owner Pat Bowlen passed away in 2019. The BuyTheBroncos DAO (decentralized autonomous organization) aims to crowdfund $4.5 billion or more to become one of the bidders, but it hasn’t got a lot of time. The NFL would like to see a new owner in place at the beginning of the season that starts in September. The DAO plans to launch non-fungible tokens (NFT) that won’t be transferrable.
According to Sportico, five groups have already progressed to the next round of bidding and will meet the team in early May. Amongst them is Rob Walton one of the Walmart heirs ranked by Bloomberg as 13th richest in the U.S. Another is Todd Boehly, who already owns MLB team LA Dodgers and NBA’s LA Lakers and just landed a deal to buy the Chelsea soccer club.
Provided it can raise a fortune in a short space of time, the BuyTheBroncos DAO might have an ace up its sleeve. The NFL wants part of the team to be owned by a minority investor. With a DAO sourcing funds from the public, there will be a huge range of members, including minorities. A year ago, a U.S. Harris Poll found that 23% of African Americans own cryptocurrencies, 17% of Hispanics and just 11% of whites.
However, BuyTheBroncos is targeting fans and not just the crypto community, so its NFTs will go on sale for fiat currency. It’s no secret that many get involved in cryptocurrencies to earn a quick buck, but BuyTheBroncos is squarely targeted at fans rather than speculators.
The non-transferrable NFT
We chatted with DAO founder Sean O’Brien and James Wigginton of law firm Downey Brand. From a legal perspective, BuyTheBroncos plans to structure as a cooperative with NFT owners becoming co-op members. In the United States, one of the highest profile co-ops is REI, the outdoor gear retailer. Its co-op members typically receive a 10% dividend on their annual store spending as well as other perks.
For BuyTheBroncos, the co-op membership is represented by an NFT that is non transferable, which heads off potential legal concerns that it could be considered a security by the Securities and Exchange Commission (SEC).
It also addresses an NFL requirement that teams should not be owned by a non-profit. Suppose BuyTheBroncos didn’t have a formal legal structure. In that case, there’s a risk the DAO might be considered a partnership which might mean that every DAO member is on the hook for any liabilities.
Compared to a corporate structure, co-ops tend to reward participation rather than purely capital commitment. Each member gets a single vote on decisions rather than voting based on the amount of stock held. In the case of BuyTheBroncos, that participation will also be based on the activity level of members. There’s a possibility that passive members won’t get to vote.
However, this structure creates goals which at first seem contradictory:
- raise $4.5 billion
- appeal to Broncos fans, so the NFT needs to be affordable
- one person one vote.
So where’s the incentive beyond contributing the minimal dollars?
On Facebook, the Denver Broncos have four million fans. Even if every fan bought an NFT, in theory it would need to cost them more than $1,000 per person to raise $4 billion.
But that’s not the plan. The NFT is simply the DAO membership, with plans to issue other digital assets for funds. Another potential solution includes joining other investors to buy the Broncos team.
A co-op that allows for whales
It’s a coincidence that Denver is based in Colorado, which is a state that has ‘special’ co-op laws. In addition to the typical ‘patron’ member, a Colorado co-op allows for outside investors that can earn a return on their investment.
However, the patrons – in this case, the fans – have to hold the majority of the voting power. Additionally, at least fifty percent of the profits go to patron members. So BuyTheBroncos could attract some whales, but they’d need to be willing to have less control. Those investors can potentially earn a capital gain on their investment.
Alternatively, the DAO has stated that it could join one of the existing bidding consortia if it doesn’t raise sufficient funds. According to O’Brien, it is in “various stages of contact with a handful of current bidders.”
A fixed value utility token
Another way the DAO plans to raise funds is through the issuance of a fungible token in addition to membership NFTs. One concept on the cards is to create a Broncos fan metaverse experience, and the token could have utility there. But instead of making it a typical volatile cryptocurrency token, it would have a fixed value and be redeemable for a dollar. The 3D chat platform IMVU has done something similar and received an SEC no-action letter which means it’s not considered a security.
The token can be used in the metaverse and the more tokens that a member owns, the more rewards they earn. Hence, there’s an incentive to contribute more money.
While these are all great ideas, the clock is ticking and there’s still much to do. It has a partnership with XDAO for tooling and a yet-to-be-announced deal with a well-known NFT company that will help it move faster and build the community, which is currently pretty small. There are also a bunch of professional athlete partners to be unveiled alongside the early release of the NFTs.
One of the challenges with DAOs that want to buy sports teams is a reluctance to make promises they can’t keep because they don’t know how much money they will raise. While the organizers are focused on success, if they fail to raise enough money, there are backup plans. Apart from joining another consortium, they can return the money to DAO members, less admin and gas fees. But their target is firmly on the fans owning the whole team.
“Web3 and DAOs will revolutionize ownership for fans and players,” said O’Brien. “No more fans left on the outside looking in and no more players treated like commodities.”