Not Your Grandpa's Trading Cards: Understanding NFTs in Professional Sports and Why Some May Be Considered Securities
NORTH CAROLINA BANKING
INSTITUTE
Volume 26
Issue 1
Article 16
3-1-2022
Not Your Grandpa's Trading Cards: Understanding NFTs in
Professional Sports and Why Some May Be Considered Securities
Tucker P. Sutlive
Follow this and additional works at: https://scholarship.law.unc.edu/ncbi
Part of the Law Commons
Recommended Citation
Tucker P. Sutlive, Not Your Grandpa's Trading Cards: Understanding NFTs in Professional Sports and Why
Some May Be Considered Securities, 26 N.C. BANKING INST. 249 (2022).
Available at: https://scholarship.law.unc.edu/ncbi/vol26/iss1/16
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Not Your Grandpa’s Trading Cards: Understanding
NFTs in Professional Sports and Why Some May Be
Considered Securities
I. INTRODUCTION
In the summer of 1939, live televised professional sports entered
people’s homes for the first time.1 NBC broadcasted a matchup between
baseball’s Cincinnati Reds and Brooklyn Dodgers to 400 local television
sets.2 This breakthrough served as a catalyst for the growth of sports
coverage and entertainment.3 Over the history of professional sports,
leagues and clubs have not shied away from technological innovation.4
Fifty-five years after the first live televised broadcast of a professional
sporting event, the National Football League ("NFL") launched “NFL
Sunday Ticket,” allowing fans to access the broadcast of any live game
around the country.5 More recently, the NFL innovated by moving
exclusively to e-tickets to address ticket fraud.6 The latest innovation
facing professional sports is the rise of Non-Fungible Tokens (“NFTs”).7
One of the biggest problems facing potential NFT adapters is the
uncertainty of how the digital asset will be regulated.8 Due to their recent
1. First Televised Major League Baseball Game, THE HISTORY CHANNEL (Aug. 24,
2021),
https://www.history.com/this-day-in-history/first-televised-major-league-baseballgame [https://perma.cc/2FVK-WGRK].
2. Id.
3. See AJ Agrawal, 3 Ways Technology Has Changed the Sports Industry, INC. (Dec.
21, 2015), https://www.inc.com/aj-agrawal/3-ways-technology-has-changed-the-sportsindustry.html [https://perma.cc/X6X8-YSBE] (stating sports coverage is more expansive than
ever due to advances in media).
4. See id. (listing different technological innovations in media, ticketing, and
equipment).
5. NFL Sunday Ticket Turns 20 Today, NBC SPORTS (June 1, 2014),
https://profootballtalk.nbcsports.com/2014/06/01/nfl-sunday-ticket-turns-20-today/
[https://perma.cc/SD92-7TPJ].
6. Ryan Mayer, NFL Stadiums to Have Fully Digital Ticket Systems in 2018-19
Season, CBS BOS. (June 18, 2018), https://boston.cbslocal.com/2018/06/18/nfl-stadiumsticketmaster-fully-digital-ticket-systems-2018-season/ [https://perma.cc/EG5H-ET8Z].
7. Ethan Sears, A Clear Explanation of NFTs and Their Potential Impact on Sports,
L.A. TIMES (July 15, 2021), https://www.latimes.com/sports/story/2021-07-15/nft-rolefuture-of-sports [https://perma.cc/9652-4T54].
8. See generally Adrian Krion, NFT Regulation Looms Large, so Let's Start with the
Proper Framework, NASDAQ (Nov. 9, 2021), https://www.nasdaq.com/articles/nftregulation-looms-large-so-lets-start-with-the-proper-framework
[https://perma.cc/NP49-
250
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[Vol. 26
development and adoption, NFTs lack in-depth regulation and relevant
case law.9 Although NFTs are not uniformly regulated,10 there are ways
that NFTs can be structured that leave them vulnerable to regulation as a
security.11 While it may be possible to sell NFTs and avoid oversight
from the U.S. Securities and Exchange Commission (“SEC”), the ways
in which professional sports are currently selling and maintaining NFTs
seems indicative that the most valuable uses of NFTs may ultimately
qualify them as a security.
This note addresses why the current use of NFTs in professional
sports may require leagues and clubs to comply with SEC disclosure
requirements. This analysis ultimately leads to the conclusion that
although NFTs must be assessed on an individual basis, their most
popular uses likely qualify them as an investment contract, and thus, they
must be regulated as a security. This note proceeds in five parts. Part II
lays out the background and foundational information for an NFT and
how some leagues and clubs are already implementing them.12 Part III
discusses why certain NFTs may be classified as a security.13 Part IV
addresses ways in which leagues and clubs can avoid SEC oversight.14
Part V concludes by recognizing that while NFTs cannot be uniformly
regulated, professional sports leagues and clubs are leaving themselves
vulnerable to SEC oversight by using NFTs in a way that could make
them investment contracts.15
C2K7] (stating that there is a general lack of regulation for NFTs and certain regulation could
hinder NFT investors).
9. Id.
10. See Kyle R. Fath, Alan L. Friel & Carlton Daniel, Your NFT Playbook, THE NAT’L
L. REV. (July 1, 2021), https://www.natlawreview.com/article/your-nft-playbook
[https://perma.cc/EK2Y-UXA6] (stating that although not directly regulated, NFTs must
comply with laws implicated by their use, such as intellectual property law).
11. See Robert Anello Digital Art May be Next in the SEC's Crosshairs, FORBES (July 15,
2021), https://www.forbes.com/sites/insider/2021/07/15/digital-art-may-be-next-in-the-secscrosshairs/?sh=4221549732df [https://perma.cc/57T5-DFKH] (stating F-NFTs are on the
SEC’s radar).
12. Infra part II.
13. Infra part III.
14. Infra part IV.
15. Infra part V.
2022]
NFTS AND THE SEC
251
II. WHAT ARE NFTS AND HOW ARE THEY BEING USED?
A.
Understanding NFTs and Blockchain
An NFT is not itself a digital artwork or creation, but instead
serves as a token that represents the ownership rights of an underlying
creation.16 The token is associated with an underlying creation and is
used to identify and transfer the creation’s ownership rights in a secure
and authenticated way.17
One of the most common uses of NFTs is to exchange digital
artwork.18 Imagine an artist creates a new logo for a team. A club wants
to buy the logo from the artist. The artist could sell the ownership rights
of that logo using an NFT. First, the artist would “mint,” or create, an
NFT on the blockchain platform of their choosing,19 via a simple process
that associates the logo with an NFT, typically using a thumbnail image
of the underlying creation.20 The NFT can then be listed on the
marketplace of the artist’s choosing, including the blockchain platform
they used to mint it.21 The club interested can then purchase the logo
from the artist by purchasing the logo’s NFT.22 Once the transaction is
complete, the club is provided access to the host site that has the logo.23
More importantly, the blockchain records that the club is the now (...truncated)
