Still confused about Spencer Dinwiddie turning his contract into a digital token? We talked to him and got him to explain

Brooklyn Nets guard Spencer Dinwiddie will soon become the first pro athlete to turn his contract into a digital investment vehicle when his company and token name, “$SD8,” go public for investors. The project will be backed by Dinwiddie’s three-year, $34.36 million contract extension and will bring him an upfront lump payment.

In a secured investment vehicle such as this one, the borrower gives up some future income in return for a smaller lump sum payment. But the borrower, in this case Dinwiddie, then has more money to immediately invest than he otherwise would. A token is a digital currency term. The bond exists in the digital currency world. Instead of buying the bond from a broker, it is through a token.

For Dinwiddie and his investors, the prime appreciation is designed to come during his player option season in 2021. Dinwiddie has a player option worth $12.3 million for the 2021-22 season. By opting out and earning more, it will, of course, create a major return for him — but also investors.

“What better way to be invested in a player as a fan than to have some level of skin in the game,” Dinwiddie told The Athletic. “With the way mine works, if I play well in that player option year and we split the profits up the first year of my new deal, it greatly appreciates the return on this investment vehicle. It allows you to get up in that 15-percent range in a return, like a growth stock, and that’ll be something most guys won’t beat.

“And you’re going to be invested in watching your favorite player. It’s something with a floor, guaranteeing you a floor, and obviously the cap on the return would beat most stocks in the economic climate that we’re going into. To make it as simplistic as possible, the real growth is for the third year, just like my contract is. You have the guaranteed premiums. You have the big-time fluctuation in the third year, with a floor. Everyone can appreciate it and make money.

“Establishing an asset class that is not correlated to the legacy markets and stocks that are going to get hammered when everything comes to fruition, it can help people save money and create a real fantasy sport. It enhances the real fan engagement. It enhances the NBA.”

Dinwiddie’s company, DREAM Fan Shares, is planning to go live with the “$SD8” token on Nov. 1.

Dinwiddie told The Athletic that he will also start a reserves system to ensure investors have security in case things go awry: $1 million in cash flow, $1 million in a public Bitcoin entity and $1 million in physical gold.

In an exclusive one-on-one with The Athletic, Dinwiddie discussed his new endeavor; his vision for his money; the investing process in “$SD8;” the new risk assessment placed on his player option; his conversations with the NBA and players union; who could join him as public investment vehicles and more.

What drove you to this plan of getting money upfront and becoming an investment vehicle for the public and yourself?

Quite honestly, athletes, specifically NBA players, have viewed themselves as employees for a very long time. It’s a very limiting title because in all actuality, we’re the asset. We’re the intellectual property partners with the NBA. The NBA is a broker that’s designed to bring the fan and the asset together, and obviously monetize. They’re very effective and wonderful in the job that they do. But every night we go out and play, we’re like artists and the canvas we paint on is every night that we go out there and produce.

It’s not so much that we’re employed, as much as we’re in partnership. Every asset has its own asset class. I want to be one of the guys to define that and enlighten my peers.

What are your plans for your money, and what’s your vision?

My vision is … a lot of these guys take money deals from banks, getting charged between 7-to-12 percent. So these guys end up under water before they even start. There are also guys who go broke within four years or so, out of the league because they’ve established a certain lifestyle that they can’t keep up once they’re out of the league. From a player’s sense, I want to figure out how I can help.

So if it’s a smaller rate, like three percent, we’re going to be able to do things with our own money that is more prudent. If we lock up our money from the start, we can live off the interest from the beginning so you don’t get caught trying to manage a lifestyle you can’t keep up. If we were to lock up a large amount of our money from the start, then we would be able to live off our interest from the beginning. For example, if you get your money up front — like $10 million — and you establish a lifestyle that is $200,000, $300,000 a year, in theory you will be able to keep up in perpetuity. I want us to keep our money from the start, use our investment interests and keep up our pace.

From an investor’s and fan perspective, we have a recession coming up. This shit is beating down the doors. I hope it’s a win-win for everyone with my process.

For instance, if I’m a billionaire and an owner approached me and said, ‘Hey, you want 49 percent of the team, you have to give me $1.5 billion, but I’m keeping all voting rights, I’m keeping all powers, keeping everything.’ I’m going to look at him and effectively say, ‘Hell no, I’m rich. I’m not going to do that.’ But if you offer that to the fans, they’re not going to point to the CEO or point at anything. They’re going to be able to sit in the stands and say: I own .00001 percent of the NBA team and I’m a super fan and this is why I matter and why I’m here.

How do you believe this is going to change the game and how can people get involved?

I’m doing it through my company, Fan Shares, and people will be able to go on the website and buy a token. It will pay out in cash. I’m not creating my own currency; that was floated out there. I’m not creating my own Bitcoin. These transactions will flow through the dollar. The money that we’re operating under is guaranteed from my contract.

Where does your Nets contract fit into all of this in the short-term and long-term?

We’re being very safe. We went from a straight after-tax basis and we took out any taxes in the calculation of my contract; any union fees, commissions. And we’re offering people a government bond percentage on top of that, and we raise the money and guarantee them the floor of that government bond of 2-to-3 percent. Then we all wait and hope that Spencer plays well. Because we’re tied to a three-year term, if I play up to a max contract that third year, then that first year is split between myself and fans that have invested in me.

People then will wonder, ‘What’s the incentive of Spencer to keep playing?’ Well, years two, three, four and five of that max deal, for example, is all mine. There’s no incentive for me to get this money and stop playing. Even though I’m a savvy investor, I can still make up to $100 million on the basketball court.

(Brad Penner-USA TODAY Sports)

The big year of growth potential for investors is during the player option season of 2021, so how does that season play into your assessment and risk of opting out?

The player option was very important to all of this. It allows me to opt out at age 28, so a four- or five-year deal has me playing my whole prime on that deal. Because this is the first of its kind, we want this to go well. We structured this very safe and under every single SEC restriction possible and structured it under the maximum value that we could raise on all my contracts. We want to be careful because we believe in the actual concept.

The player option is tied into everything with this.

Like in any business there is risk involved, though. You can, of course, opt in and you keep the same number and investors retain that bond investment percentage. But when you look at the flip side: You could opt out, and get less than the $12.3 million? Or you could get suspended, get injured, get banned, get traded. Have you thought about the risk element?

If I get traded or injured, I’m covered by various insurance policies that are protecting us. And player options pretty much guarantee you a floor. The only time you see a guy opt out of a player option worth that much … there is usually a sense that he has an understanding how much he will earn in a new deal. Let’s say in the worst-case scenario: My career was going completely into the tank, and I had to opt out and sign a three-year, $25 million deal because that was the last deal of my career, for example. That is where the personal guarantees and insurance policy covers up for the investor in that situation. We’ve structured this with as little risk as possible. I can never say there is no risk. We’ve set up different reserves in the token to account for suspensions.

I’m also doing a $1 million Bitcoin reserve that I will have on a public address. If any money moves from that account, everybody will see it. It’s part of the investment. When we raise the money, I will safeguard that amount in a reserve account in a lane that I will invest in anyway. If anything goes wrong, we can liquidate these accounts and investor peace of mind. I don’t plan on touching that money in three years. It’s in reserve for the people, then after the three years I will take it back.

I’m also doing a $1 million gold lock up. Those are two assets that are resistant to a recession, so I’m putting my money where my mouth is in terms of philosophy and for the world to see. So hey, if I get suspended and the Nets don’t want to pay me, then there is added money owed and those accounts will be liquidated. Those accounts will be put on a world stage. There is $1 million cash reserve, a $1 million bitcoin reserve, a $1 million gold reserve, and two of those are investments and the other is a shortfall.

But if the losses have to be paid for because I got suspended or something, then that’s what it is. We’ve really structured this as safe as possible. We want investors to know that they will be fine no matter what. We want this to be a safe haven for investors.

So essentially, you will become a bond for the next two years — with the third year being a stock year for investors?

Yeah, essentially.

Do you feel any added pressure because it will be known that the third year could pay dividends for investors now too?

Not at all. I’m on a team now that has championship aspirations. It’s not going to be on this person or that person to add pressure. I’m the guy that was 150th in his high school class. People thought my NBA career would last two years. I blew out my ACL and still declared for the draft (in 2014). These are not things that will weigh on me. If I can’t play for the best situation and money for my son, then, what, are the investors going to sway me? More than my family?

The investors are not set up to lose anything, so this is not a situation where I’m going to feel indebted to somebody. At the end of the day, you’re going to make money. It’s just a question of how much you make. So obviously, I do have incentive to push this as far as it can possibly go.

What drove you to the Bitcoin approach and what’s the correlation going to be with this project?

I have a big passion for Bitcoin because I feel it offers transparency and liquidity. Its value is determined by the people. It’s not in relation to the markets. It goes against our current debt system. That’s why I believe so much in cryptocurrency, and bitcoin specifically.

As far as a process standpoint, you are playing in the games. But potential investors get involved by watching you play, purchase a token and watch the investment process unfold?

Yeah, that’s as easy as it gets. With any security offering, you have a one-year lockup period. Which means: after a year’s time you’ll be able to trade it. Fan Shares will have the capability to be able to trade. So let’s say there is a “Spencer” and a “Shams” token, you’ll be able to trade them against each other based on the value that they’re at.

For the most basic situation, you buy the token just like you buy any other stock or bond and watch it unfold.

How about the prior history to this, such a Fantex with Arian Foster in 2013-15 or Frank Thomas in 1999. People say it hasn’t worked yet, so why would it now? Why are you so confident about your approach?

Nobody today has tried it on blockchain, secured investing. They have tried IPO on Nasdaq. You get ate up with fees. You have to be making essentially $100 million for it to make any type of dent on these traditional outlets. With blockchain technology, the fees are drastically reduced and you’re allowed to do this offering.

With this type of technology, you can’t really lie to it. The ledgers are public and so you can see what goes on. People will be able to see the wallet, and see where the money is at the same way you check if the money is deposited. Have the reserves moved? How is my token? Our process will be transparent. Big companies lie to you all the time; it’s just that we act that they don’t. Apple admitted to messing up your iPhone right before the new one comes out. Everyone still buys one. Because, why not? It’s Apple. Fuck it.

Building on a technology in a transparent ecosystem should hopefully inspire trust.

You sat down with the NBPA and Michele Roberts, how has that process gone with the union and NBA officials as a whole?

The NBPA conversations have gone well. The NBA conversations I’m not supposed to talk about. At the end of the day, there is nothing illegal or nothing we are doing wrong. We’ve gone through the collective bargaining agreement multiple times over. We understand exactly what we need to do to execute this well and do this right. We’ve been extremely conservative. The amount we’re raising is well below the total $34 million-plus in my contract.

How many other athletes have been approaching you, trying to learn more information about this and potentially get involved?

Quite a few. They ask, ‘What exactly are you doing? We read Shams and The Athletic’s article, what’s going on?’ So I give them a brief overview and speak about the launch. Players feel that if mine works, they really want to get into this. They want to see it’s for real. It’s been mostly NBA guys and a couple NFL players. It’s been in the double digits.

Every athlete that comes on board gets a share in the company requisite to what they tokenize with the company. So it’s rising-all-tides-raising-all-ships philosophy, a true brotherhood to try to take a contrarian view of athletes going broke.

Any names we can get?

You know I can’t do that. (Laughs) I hope to open this up for the masses.

(Photo: Steve Mitchell-USA TODAY Sports)