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Why is NBA TopShot creator Dapper Labs raising more funds at $7.5 billion valuation?


Less than three weeks ago, NBA TopShot creator Dapper Labs announced it raised $305 million in funding at a $2.6 billion valuation. Now tech publication The Information reports that further funding is being discussed at a valuation above $7.5 billion. Coatue, which led the March round, is thought to be the leader here.

While much of the attention might be on the eye-popping valuation, the more interesting question is, why does the startup need so much money? And why does it need more now compared to last month? Our guess is to do more nonfungible token (NFT) deals with big sports franchises. And to get the money in the bank while the hype is still significant.

NBA Top Shot has grossed $527 million in initial and secondary market sales, with most in the latter category. The game still gets a 5% cut of those re-sales. That said, the activity has dropped off from its peak. According to CryptoSlam, NBA Top Shot did almost $136 million in sales during the last 30 days, but that’s less than half of the previous month.

In some ways, Dapper Labs may be a victim of its own success. With the massive figures being bandied about, big sports franchises appreciate the value they’re sitting on with their NFT rights. So whatever Dapper Labs’ deal was with the NBA, the next sports franchise is bound to demand more money. And if Dapper has to pay more for rights, fans selling their NFTs are likely to have to pay more than 5% on NFT re-sales.

Dapper can additionally benefit because it developed the Flow blockchain  specifically for games and entertainment applications. So it can also indirectly earn transaction fees and benefit from Flow’s increasing token value.

While the MLB seems to have gone elsewhere, other major franchises such as the NFL, NASCAR and international ones may still be up for grabs. But there’s also more than one way to slice and dice NFT rights. For example, NBA Top Shot was notably not for card collectibles but for video moments. Most likely because the card collectible rights were already sold.

However, sports is only one area that Dapper Labs can play. It may get involved in comics, games or anything else where NFTs are relevant. But the payment for rights might be equally relevant. For example, DC Comics, which owns Batman, Superman and Wonder Woman, is planning NFTs.

This isn’t the first time a new startup raised oodles of money on the back of news digital sports rights. Back in the dotcom era, UK startup Sportal raised £55 million ($91 million in those days) to buy sports rights, including broadband video. But it ran out of money before it became profitable.

In contrast, Dapper Labs has an already proven business model. Despite its advantages in terms of track record, ability to execute, and the Flow blockchain, there are still some risks. One is competition, and the other is overpaying for rights, which is related to the first. Nonetheless, it’s in an enviable position.

NFTs represent a new kind of sports and entertainment rights, and with such deep pockets, Dapper Labs is in pole position.