(Bloomberg) -- After Al Tylis merged his publicly traded companies NorthStar Asset Management and NorthStar Realty with Colony Capital in 2017, he pivoted to investing in sports. He put money into the Major League Soccer team D.C. United, the Welsh soccer team Swansea City A.F.C., and the New Zealand Breakers, an Auckland-based basketball team.
Looking around for his next purchase, Tylis turned to Latin America, and did a double take. “Sports are effectively media properties,” he says, “and I saw something a while back that I found relatively shocking: In the U.S. alone, more people watch [Mexican soccer league] Liga MX than Major League Soccer and the Premier League combined—it was just an unbelievable number to me.”
And so Tylis began to search for a club in the league in which he could invest.
Eventually he found a willing partner in the Tinajero family, the owners of Club Necaxa, one of the 18 teams that comprise the Liga MX. Together with Sam Porter, the chief strategy officer at D.C. United, Tylis led an investor group that purchased a 50% stake in the team. German soccer star Mesut Özil; the model Kate Upton; her husband, the pitcher Justin Verlander; actress Eva Longoria; NBA player Victor Oladipo; former NBAers Richard Hamilton and Shawn Marion; and Olympic gold medalist skier Bode Miller all put in money. Tylis declines to say how much they paid, except to say that “there was a news report valuing the [team] in the low nine-figure range, which I’m not going to disavow.”
Final approval for the sale was provided on May 24; this week, Tylis announced that he’s auctioning a 1% stake in the club tied to a nonfungible token (NFT), a type of smart contract that uses blockchain technology. The sale will take place in a roughly two-week-long auction on the online marketplace OpenSea, with an opening bid of about $1.3 million.
The decision to include an NFT in the transaction is “absolutely a way to generate interest” in the club, Tylis says. “We’re adding something unique, and which has never been done before, which is to tie the NFT to actual ownership. You’re not just buying a more traditional NFT that gives you social currency.”
There will be a rigorous vetting (KYC, for know your customer) of any serious bidders for the stake. The winner will get an irrevocable percentage of the team, which comes with “all of the benefits of my shares,” Tylis says, in terms of receiving a percentage of the team’s annual revenue.
But unlike Tylis and other investors, the owner of the NFT tied to the 1% stake is free to transfer that ownership to whomever she wants (assuming that person also meets similar KYC standards). “Usually, [sales] are subject to my right of first refusal,” Tylis says.
Most importantly, he continues, the 1% stake is permanent: Even if Tylis and his partners issue equity and their shares become diluted, the owner of the NFT will always own 1% of the team. “Or if we all have a capital call, because we want to build a new training facility, [the owner of the NFT-tied stake] isn’t required to make that call,” he says, meaning that unlike other investors, the NFT holder won’t have to chip in for expenses down the line.
There are some downsides, too. Anytime the NFT is sold, Tylis and his investors’ legal entity will get 10% of the sale; and the owner of the 1% stake has no voting rights. “As a practical matter,” Tylis says, “the LLC is run by the general partners, which is me and Sam [Porter], so we are the decision-makers on behalf of all our investors.”
But Why the NFT?
NFTs grew in popularity primarily because they could assign authenticity to digital things that otherwise could be replicated to an infinite degree. Think of it like being presented with a stack of postcards made from a photograph that’s the exact size of those postcards. Without a signature on the original image, you might not be able to tell the original from the copies; with the signature, one is certifiably real, the others are fakes.
In the case of the 1% stake in Club Necaxa, Tylis is applying that certificate of authenticity to something that is already certifiably authentic. The ownership doesn’t just exist on the blockchain; it will also exist in legal documents, club registration information, and the ledgers of other government bodies. It’s like taking that original, signed photo and adding a second, less meaningful signature next to the first.
So, why sell the ownership stake as an NFT at all?
The first answer, Tylis says, is publicity. By selling a percentage stake in an NFT, he’s hoping to bring the company in front of a lot of young, tech-savvy people who might not have heard of the Liga MX, let alone Club Necaxa specifically. “We’re coming into a nearly 98-year-old brand that the vast majority hasn’t heard of yet, and we’re trying to be forward-thinking and do things that are novel and interesting and different,” he says. “I genuinely believe that this is a new category.”
Secondly, Tylis says that this NFT is just the beginning of a new way to monetize engagement. “Why not layer different types of ownership for different types of fans?” he says. “Maybe there’s ticket access, locker room access—the universe of what is theoretically doable on the blockchain with something like this is infinite.”
The one thing it’s not, he says, is a way to free up cash. Even though the stake is valued at what he says is “a premium” over what he and his investors paid, a “real percentage” of the proceeds of the sale will go, Tylis says, to Project Sunshine, a not-for-profit that does events for sick children in hospitals. Tylis is the vice chairman of its board. Another portion of the proceeds will go to the charity Rayos de Luz, which provides support for the local community in Aguascalientes, where Necaxa is based.
“This is a new asset class, where we are creating the first of its kind,” Tylis says. “And if I’m right, and there will be other sports teams [which create] assets that have NFTs, I believe that [this stake], which is the first of its kind ever, will have real, tangible, long-term value.”
To contact the author of this story:
James Tarmy in New York at [email protected]