NBA Top Shot’s enormous sales boom may be over, but NFTs are here to stay

LeBron James
By Bill Shea
May 7, 2021

NBA Top Shot has cooled off.

Long-term, that may not be a bad thing for the non-fungible token (NFT) company whose explosion in popularity earlier this year helped usher concepts such as NFTs, blockchain, and cryptocurrency further into mainstream culture.

Launched in its ongoing public beta testing phase in October by Vancouver-based Dapper Labs, NBA Top Shot began garnering attention in January when users bought and resold $40.5 million worth of the league-licensed digital video highlight clips that are serialized in limited editions like trading cards.

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Then it went into overdrive: February sales hit $231.6 million, per figures provided by the company. March sales were $230.4 million but in April they dropped to $92.5 million. The first seven days of May brought $12.3 million in purchases and resales on the site’s secondary market per NFT collectible sales tracking site cryptoslam.io — a pace that would generate $54.5 million in total sales for the full month.

The February-April sales decline is 60 percent.

NBA Top Shot sales 2021
MonthPack salesP2P resalesTotal sales
January
$3 million
$40.9 million
$43.9 million
February
$6.2 million
$225.4 million
$231.6 million
March
$21.6 million
$208.8 million
$230.4 million
April
$10.2 million
$82.3 million
$92.5 million

(Table source: NBA Top Shot)

The majority of NBA Top Shot sales are on the site’s in-house peer-to-peer resale market, where the average transaction price peaked at $182 in February and last month declined to $65. And the number of unique buyers rose from 30,800 in January to 403,000 in March but fell to 342,000 in April.

What’s going on, experts say, is the market adjusting after the initial boom. That doesn’t mean NBA Top Shot is dead. Far from it: Daily sales of $2 million to $4 million are healthy and realistic for such a company, said Noelle Acheson, managing director of research at New York City-based CoinDesk that analyzes and reports on blockchain.

“That’s a lot of money for something that doesn’t have a lot of fundamentals behind it,” Acheson said. “Tens of millions a day is unsustainable.”

The NBA, the league’s player union and Dapper Labs get a cut of the retail and peer-to-peer sales.

NBA Top Shot’s success and the attention on it fueled a gold rush by the sports, music, arts, and other industries to glom onto the NFT trend and make some money (the link includes an explanation of NFTs, blockchain, and crypto). That led to a first quarter of $2 billion in NFT sales on the popular Ethereum blockchain, per data from Nonfungible.com that tracks the industry.

And that $2 billion figure doesn’t include nearly $600 million in NBA Top Shot sales, the $9.8 million in Topps NFT baseball cards sold since April 20, nor the eye-popping $69 million auction of a NFT digital painting on March 12 by an artist called Beeple, because those occurred on other blockchains or via a physical (off-chain) auction.

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What’s happening is that the NFT boom is underway — piggybacking somewhat on the ongoing cryptocurrency boom for the likes of Bitcoin, Ether and Dogecoin — but the NFT initial hysteria has started to recede, at least for NBA Top Shot and perhaps other offerings.

“The hype around NFTs has slowed down,” Acheson said.

Slowed, yes, but NFTs are now part of the culture.

“(NFTs) are now a permanent fixture in people’s minds, that digital collectibles are a solid way to interact with a community and support whoever you identify with culturally — music, sports, artists,” Acheson said.

What helped NBA Top Shot gain traction is that its interface doesn’t require users to have much knowledge of the underlying technologies — blockchain and cryptocurrency — that can intimidate and turn off those not into fintech details.

“NBA Top Shot’s site doesn’t mention blockchain. That’s ingenious,” Acheson said.

Also helping NBA Top Shot gain cultural currency (and literal currency) is that it’s sports-based. “People are crazy about the NBA,” said Gauthier Zuppinger, co-founder and COO of Nova Scotia-based Nonfungible.com.

Sports NFTs and team-based cryptocurrency promotions — the Oakland Athletics have offered suites for Bitcoin and recently sold seats for $100 worth of Dogecoin — are ideal to help introduce the tech concepts to the general population. Experts liken the current state of NFTs, blockchain and crypto to the internet in the early 1990s, just as it began to go mainstream.

The connection and loyalty sports fans feel toward teams and athletes helped boost the NFT boom, Acheson said, because buyers were willing to overcome trepidation about the complexity usually associated with the cryptocurrency world.

“There seems to be a blending of the two worlds. The athletic arena has a mainstream connection that crypto assets have not had,” she said.

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In other words, it was a natural alliance between the jocks and nerds. It also helps that a handful of sports owners, like Mark Cuban of the Dallas Mavericks, and tech billionaires like Elon Musk, publicly push NFTs and crypto to their followers.

Still, there is a loud chorus of “what the heck is an NFT?” and “Why would I buy something not physical?” that can be heard across social and traditional media. And experts wonder if NFTs like NBA Top Shot have enough utility beyond buying to flip for profit, to last.

Why someone would buy an NFT is at least partially a generational thing, Acheson said, but also another example of how society changes.

“People are valuing things differently now,” she said. “We live through our phones, we live digitally.” Movies, photos, and music are increasingly bought and consumed digitally without buyers owning a physical copy.

The younger-age cohorts are willing to spend money on things like NFTs, which exist in the digital ether but sometimes come with a tangible asset such as a trading card version of the NFT or a perk like an in-person meeting with the athlete or artist.

“They’ll pay more for experiences than for things,” Acheson said. “Ownership is an experience. They like the feeling of owning something digital. That is worth that money to them. That opens a world for brands to interact with their community, to deeply engage.”

She also said NFTs will increasingly become part of the way business is done in sports, entertainment and other industries, and users may never know or care that the product or service or perk is NFT-based. It’s the underlying blockchain technology that’s key, Acheson said, because it allows users to do a wide array of things. Some are gamified, such as Zed Run that offers digital racehorses.

“NFTs can be programmed to give front-row rights, to give you 10 minutes of an athlete’s time or to talk to an artist,” Acheson said. “That kind of level of abstraction of the NFT itself is something we’re just starting to think about now.”

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It’s that sort of utility that helps give the NFT concept permanence, Zuppinger said. And as developers continue to see what the blockchain technology can do, there will be more failures than successes.

“You will never know it’s an NFT. You’ll benefit from what an NFT can provide you. You care about the value proposition of these projects,” he said. “This is development of a space where everyone is looking at NFTs like a new gold rush. You’ll see thousands of experimentations. Most have no value proposition.”

So-called digital “fan tokens,” which are blockchain-based and similar without actually being NFTs, have grown in popularity among European soccer clubs to raise revenue at a time when fan attendance (and their wallets) is missing from stadiums, and fan tokens has begun to move into the U.S. recently with the New Jersey Devils recently adopting the concept.

The early NFT boom has fueled criticism that the hype is, in fact, a bubble. Zuppinger disagrees.

“What we’ve seeing over the last weeks and months is mostly hype and speculation,” he said. “It’s speculation, not a bubble. It may look like a bubble. If everyone is starting to spend millions on assets that are not worth that, it’s a risk. Speculation is a risk. It’s possible in a couple of months the hype will decrease a little bit. Media will be like, ‘NFTs are dead.’ But the technology is still there. It will be time to get back to work and focus on the next steps.”

The blockchain industry also is dealing with criticism that it’s environmentally unsound because of the enormous energy consumption required to create anything on the secure computer networks, something that Acheson believes will fade as the technology improves to reduce carbon output.

And as for NBA Top Shot, it remains confident it has the right product to sustain its business model after the initial boom has settled down. When asked about the sales decline, Dapper Labs’ NBA Top Shot spokeswoman Rachel Rogers opted to compare the company’s January and April sales as more realistic, cutting out the enormous February and March numbers as obvious outliers.

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“It is the fastest growing marketplace in history — there is nothing close to the volume or pace we’re on,” she said via email. “There was an NFT boom in February and March. If we isolate that time and look to January ’21 and April ’21 as a more normative representation, we are still growing. April sales ($92.5 million) more than doubled that of January ($43.9 million).”

Dapper Labs has been a fund-raising darling, too. It raised a reported $305 million in March from a consortium of investors that include celebrities such as Michael Jordan and Will Smith, and that money gave the company a $2.6 billion valuation. It reportedly is now raising a larger investment round that would give it a $7.5 billion valuation — about the same market capitalization as the New York Times and Harley-Davidson.

Dapper Labs says it’s working to resolve customer complaints such as the ability to actually buy a pack of highlights — the limited-edition drops have had wait lines of over 100,000 people for far fewer available packs — and issues such as bots and the length of time it takes for users to get their money from highlights they’ve sold to other users.

NBA Top Shot’s value proposition for users has largely been the chance at landing in-demand highlights they can resell for a profit. The average resale price has declined to pre-boom levels, but the company spins that as a positive.

“The decrease in the average price of marketplace sales means it’s a good time for new or more casual collectors to start building their collections,” Rogers said. “We are also starting to focus on giving our collectors more opportunities to have access to packs. In April, we launched a new system giving collectors the opportunity to pre-register for access to purchase a pack.”

Outside of NBA Top Shot, there’s other evidence that the early boom has leveled out. One of the most popular NFT marketplaces, OpenSea, saw sales volume increase from $8 million in January to $150 million by March, and then recede to $93.6 million in April, per a report from Reuters. Last year, OpenSea’s average monthly volume was about $1 million.

“I don’t think what happened with NBA Top Shot is a good example of the future of NFTs,” Zuppinger said. “Six months from now, people will regret spending (on Top Shots) because there will be no way to sell because the hype will be over.”

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It’s likely there will be mini-booms for new NFTs in the future.

“It works in waves. This is the first big wave of interest,” Zuppinger said. “There will be more projects. It will continue to grow. It’s just the beginning.”

(Photo of a LeBron James dunk against the Rockets in February 2020, a clip of which is the highest-selling NBA Top Shot ever at $210,000: Andrew D. Bernstein / NBAE via Getty Images)

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