We’ve certainly heard a lot of chatter about the NFT craze in recent months, as new non-fungible tokens for artwork and collectibles have set crazy auction prices and created fortunes out of almost nothing… so I thought I’d take a look at the latest teaser pitch we’ve seen to pitch the NFT idea.

The ad is from Enrique Abeyta, teasing a few ideas as “NFT Royalty” companies in ads for his Empire Elite Growth newsletter ($2,000, renews at $3,000, no refunds)… he says he’ll talk about NFTs in general, including some of the early trading he has done in NFTs, but the main bait he dangles for subscribers is the special report about those three “NFL Royalty” companies.

Here’s the basic promise, from the order form:

“Even without the crypto story…

“I’d still recommend these three stocks with potential for 300% to 500% upside.

“But when you add in the frenzy happening for NFTs right now…

“These ‘NFT Royalty’ companies could do that even faster than expected.

“Why?

“Because these three companies have everything NFT sellers want: premium, name-brand content.

“Each of these companies will benefit from NFTs as they cut massive, multimillion-dollar and even billion-dollar deals to license their content to create NFTs.”

What the heck are those NFTs? I’ll keep it super simple — they are just digital codes that prove the ownership of an item. “Non-fungible” just means that they’re unique items, they’re not currencies or commodities and they have a specific individual identity even if the actual item (like a digital image or video clip) also has many otherwise identical copies. It’s like your title records for your house, or the provenance of a painting that consists of records of purchases and sales over time to track who rightfully owns it… it’s just that in this case, NFTs are mostly seen as collectibles, so the NFT is really like a serial number that identifies your particular unique collectible, even if it was issued in a series with 1,000 copies and they’re all functionally identical except for that NFT “serial number” on the blockchain.

It’s not so different from buying a trading card, or a signed and numbered print of a painting, or an autographed photo of your favorite athlete. You don’t own the image or the copyright, you just own your one unique digital copy, and the records of every transaction of that unique digital copy are kept kept on the blockchain, so it’s at least theoretically simpler to prove their authenticity. Most of the blockchain projects which register the ownership of unique NFTs are built on the ethereum platform, so Abeyta also does “give away” a free idea, which is to buy ethereum, which is still the second most-popular cryptocurrency.

But really he’s talking about the money those NFT creators can earn. So, without further ado, shall we jump to the clues?

“So the first recommendation is an iconic U.S. company located in New York.

“It stands to get paid from one of the biggest NFT licensing deals in the world right now.

“But it also just launched its own pilot NFT program.

“It made 5 limited-edition pieces of NFT memorabilia to commemorate one of its greatest moments as a company.

“It was a huge hit with customers.

“Now, it effectively has the chance to ‘double dip’ with NFTs, since it’s creating its own as well as enjoying the benefits of a licensing deal.”

The best likely match the Thinkolator feeds us for this one is Madison Square Garden Sports (MSGS), which owns the New York Knicks (NBA) and New York Rangers (NHL) as well as some other smaller teams (minor leagues, eSports), and was split off not that long ago when the properties and the teams were separated (so if you want to own the actual Madison Square Garden arena, Radio City Music Hall, and the Forum in Inglewood, among other sports and entertainment facilities, you buy Madison Square Garden Entertainment (MSGE)).

How do we match those clues? Well, the Knicks are part of the NBA, so they’re a beneficiary of the licensing deals for those popular TopShot NFT videos which have helped to create the first real value in sports NFTs… and the NBA has generally been ahead of the curve on monetizing digital media, so a trickle of that share flows through to each team.

And the Knicks had a breakout season last year, with a big run that got them to the playoffs and brought some optimism back to the franchise for the first time in almost a decade, since the Linsanity years and their last playoff appearance in 2013… and capitalized on that with a series of NFT releases for five of the iconic moments of their surprise season. They all sold out immediately, no surprise, and I imagine they’re probably being traded on one of the many NFT trading platforms… whether that’s really historic or not, I guess time will tell — it’s a signal of how sad the Knicks have been of late that one exciting team with some big comebacks and a surprise playoff appearance might earn the descriptor “historic,” despite losing in the first round of the playoffs, but, well, everything’s bigger in New York. (I loved watching Patrick Ewing as a kid, I was rooting for for Mark Messier when he brought the Stanley Cup to the Rangers in 1994, so the mediocrity of both teams in recent years has been sad to see — though as a longtime fan of the Detroit Lions, I am primed to stand up and cheer for the mediocre).

The various companies spun out of Madison Square Garden and the Dolan Family’s Cablevision empire have been favored by value investing folks for years now as “hidden value” companies, given the massive values carried by both Manhattan real estate, particularly with the air rights and renovations to the Garden, and by prime big-city sports teams in this era of mega-billionaires, where every American business titan who doesn’t own an NBA or NFL team is laughed at by their billionaire buddies when they land at Davos (you bought an NHL team? Oh, that’s so cute — what a fun little project! I gave my kids a MLS team last year, everyone has to start somewhere).

It’s hard to argue with the valuation for MSGS, since the enterprise value (market cap plus net debt) for the company is probably lower than the purchase price would be if you tried to buy the New York Knicks today, and the Knicks are valuable even after a decade of disappointment, so who knows what might happen if they create a real championship contender… and you kind of get the NY Rangers (and Hartford Wolfpack, and Westchester Knicks) for free.

But, of course, just because the pundits of the world believe that the Knicks are the third most valuable sports franchise in the world, behind the Cowboys and the Yankees, doesn’t mean that they’ll ever realize that value for their shareholders. If everyone knows you’re not selling, and the asset is unique and irreplaceable, then valuing it is an art. Or a guess. And high-profile professional sports teams, despite the massive revenue they get from TV deals, are often not profitable, most of the well-known organizations are run with a goal of winning, not of making money each year.

So… sure, the Knicks and Rangers would probably be worth a total of well over $5 billion if they were sold to the highest bidder… and it’s not that hard to imagine it could be twice that much. You can justify the asset value, given the crazy prices paid for lesser teams over the past decade and the rising TV rights revenue… but they’re not likely to be consistently profitable or have positive cash flow, let alone reward shareholders by buying back shares or paying dividends.

Maybe the NFT world boosts the value of professional sports teams ever higher, that wouldn’t be shocking, but I would assume that the impact will probably not be huge in the near term. If you love sports, MSGS would be my first choice among the few available opportunities to own a piece of a major league team… but that’s not saying much, it’s a short list to choose from. If you’d rather own the Atlanta Braves (more on them in a moment), or Manchester United (MANU) with the return of Ronaldo, well, buy the team you like — it might grow in value, with or without NFTs, and all the big teams are almost certain to have a better revenue year next year than they did playing in empty stadiums in 2020.

Maybe that list will grow in the future… there are several prominent athletes working with SPACs and trying to make a deal in the arena, and we were close to having the opportunity to buy the Boston Red Sox and the Premier League’s Liverpool FC at the height of SPAC mania earlier this year, when Billy Beane of moneyball fame got a deal to take those clubs public through his RedBall SPAC (RBAC), but it fell apart. And yes, the most famous “publicly-owned” club remains the Green Bay Packers, whose shares can’t be traded (you can only pass them down to your heirs, and they don’t represent real equity anyway — and, as a Detroit Lions fan, I’m also obliged to remind you that they are evil).

Not a ton of clues there, though, so, like I said, that’s not a 100% certain match.

What’s next?

“The second company is another no-brainer, and the reason is simple:

“It’s going to make a killing as a surprise winner because of the $2 billion deal the MLB just cut with its exclusive license.”

Not much of a clue, right? I don’t know who this is, either — the company that’s taking Topps’ place as the exclusive printer of trading cards starting in 2026 is Fanatics, and the reason for that is presumably Fanatics’ enthusiasm for the NFT space and the vision they have to dramatically increase the value of the baseball card operation, whether physical or digital… but Fanatics is still private, despite the rumors flowing about the potential for them to go public with an IPO at some point, and they’re still overwhelmingly a merchandising company, selling stuff like Jerseys and hats with team logos.

They’re also going to be tough to value when they do go public, the company is throwing itself at lots of different businesses right now, from building their international sports retailing efforts to applying for a sports betting license in New York, and the business has an implied valuation these days, going by recent private funding rounds, of close to $20 billion. It’s definitely not small or undiscovered, and it will be a long time before the Major League Baseball trading card license generates any revenue for them.

So what might a backdoor be? Well, just going from the first solution I proposed, which indicates that Abeyta sees value in the companies who own these sports teams and will enjoy licensing value from future NFTs, I’d guess that this is probably the only publicly traded team in Major League Baseball: The Atlanta Braves, majority owned by Liberty Media and traded as a separate tracking stock called Liberty Braves Group (BATRA, BATRB, BATRK).

What happens if the Fanatics licensing deal generates the huge funds that many anticipate? The reporting is that Fanatics paid 10X more than had ever been paid for these deals before, and that it could generate $2 billion by 2045, so I guess that means $2 billion across 20 years, which would average out to $100 million a year. I don’t know how the rights to the league, which are sold by the league and let you use the team logos, differ from the rights to the player likenesses, which are sold by the players association and let you use the player names and photos, but the MLBPA was apparently paid $20 million by Topps last year for their exclusive deal. This deal with Fanatics also includes the players associations for the NBA and NFL, but what the NFT connection is there I’m not sure (Fanatics already had the NFT rights for Major League Baseball, through their subsidiary Candy, so this deal is specifically for baseball cards, though I certainly haven’t read through the details — perhaps it will include some kind of digital card/NFT rights in the future).

But anyway, let’s guess huge and say that the deal generates an additional $200 million a year for Major League Baseball. Assuming that the league doesn’t take a cut off the top, that would be $6.7 million for each of the 30 teams. I guess it’s all new money, with no marginal cost, so we could just add it to the bottom line. Liberty Braves typically loses money because of its massive payroll, like a lot of teams, and certainly lost a lot of money last year because the stadiums were empty, so it depends on how you look at things — $6 million a year is a small bump on the top line, they will likely exceed $500 million a year in good years in top-line revenue, and that will probably rise as the value of TV/streaming deals rises, but it could make a meaningful difference on the bottom line — the 2019 season brought their best recent year for pretax income, at positive $28 million (last year they lost $143 million), so, theoretically, if we make grandiose assumptions about the value of the Fanatics deal, it could increase the earnings power of Liberty Braves by as much as 25% starting in 2025. Wild guess.

Not so exciting to me, particularly for what has now become a fairly snoozy team in a second-tier market when it comes to national branding and attention (no offense to Atlanta, which rode Ted Turner’s TV coverage to build a national fan base 25 years ago, but a lot of that enthusiasm has since faded… and it’s not New York or Los Angeles).

And one more…

“The third company probably has the most brand recognition of the three…

“Drawing over 500 million television viewers from around the world.

“It also has its own NFT project on the Ethereum blockchain –

“Which doubles as both a collectibles marketplace and a sort of high-stakes video game.

“Since launching this new project, it’s already seen the transaction volume in its game reach nearly $5 million…

“Including a single NFT that sold for $110,000.

“I see this business as one of the more exciting developments in the NFT universe…

“Because the project should help monetize this company’s customers and bring new people into its business.”

That’s very like the racing league Formula One, which is, like the Atlanta Braves, owned by Liberty Media and separately traded, in this case as the tracking stock Liberty Formula One Group (FWONA, FWONB, FWONK). Formula One is a hugely popular global sport, so this is one of the rare opportunities to own not a sports team, but effectively a sports league — like most sports, it loses money most of the time and is a vast marketing machine for the major teams, like Ferrari and Red Bull and McLaren and Mercedes, but it’s also a unique entertainment asset and brand.

And, yes, there are a bunch of NFTs involved with Formula One — Aston Martin launched a series of NFT’s to celebrate their return to the circuit, so the teams are making efforts in this area individually… and F1 does also have a fairly high-profile project that is basically an ethereum-powered video game, where you can earn, buy and sell cars as collectibles while also racing them.

That’s pretty cool, and maybe it’s part of the future of gaming. It at least makes more sense to me than some of the collectibles that are being sold as NFTs… but it’s also just a wacky story at this point, created by the new wave of digital millionaires and billionaires who want to stake out the future (and, not to belabor the point, can afford to lose LOTS of money on their passions and hobbies, just like the analog “whales” of previous generations).

The bigger issue for Formula One right now, of course, is that last year was lousy, with several of their races canceled and with lower attendance and sponsorship at the meets that did take place… but it’s also getting a little more competitive, it appears, with other teams taking some of the shine from Mercedes and Ferrari and giving more teams a little hope. I don’t understand the appeal of auto racing, personally, but I know plenty of folks who do… and they also shake their heads at my fascination with bicycle racing, so it takes all kinds.

F1 ought to have a pretty strong bounce-back in revenue this year, though there may be more softness to come if there are additional COVID restrictions, they ought to get back to being just barely profitable, with revenue over $2 billion again, after losing money and having their revenue cut in half last year, and subsidizing some of the teams by keeping the prize money steady despite the losses.

What the long term appeal might be, or how important digital assets and NFTs might be to the bottom line, I have no idea. I’d probably be more comfortable owning one of the iconic brands of F1 (and of the world, really), Ferrari (RACE)… Ferrari is not cheap, but I’m sure they’ll end up selling plenty of collectible NFTs as well, eventually, even if they probably don’t have the scalable NFT potential of a F1 video game with its virtual cars… but, more importantly, I’m also far more confident that Ferrari will make money in the future, even if they fall in the Formula One rankings.

So where does that put us? Basically, it’s a lineup of buying sports media content, with the hope that the value of that content, which right now is primarily expressed through ever-escalating television rights contracts and franchise sales, will in the future increase with the popularity of NFT collectibles.

Is that really going to happen? Maybe.

You can’t currently invest in most of the higher-profile names in the NFT space, companies like Dapper Labs and Sweet and Larva Labs and Genies, some of whom are helping those sports leagues create their NFT offerings, but in some cases you can get a little more exposure indirectly (Warner Music, for example, is an investor in Dapper Labs, and Circle, going public through a merger with Concord Acquisition (CND), handles the payment processing for a bunch of NFT operators).

As is very often the case with these kinds of things, though, even a huge year for NFT sales in 2021 will be a fairly minor blip for a giant like Warner Music (WMG) or Formula One… but you never know, that was true for the new innovation of digital streaming of songs as well, a decade ago, and now streaming payments from the likes of Spotify and Apple Music generate more than 70% of the revenue for Warner Music. Exponential change is difficult for us humans to predict.

Maybe in a decade, we’ll look back and laugh about how record labels and NBA teams were valued based on their streaming revenue and ticket sales and TV deals, when the obvious value was the unique collectible NFTs they generated with each ticket sale, or each song purchase, and it’s those collectible NFTs that will have become the foundation for the entertainment economy, or will be legal tender under President LeBron James. It sounds crazy to me, and my knee-jerk reaction is to put most NFTs in the same category as Beanie Babies and baseball cards, but crazy stuff happens all the time… and nobody’s crazier than a collector.

Will this NFT stuff be a craze the explodes and then disappears again, like so many collectibles of the past? I’m sure it will be, for some of them, I’m definitely skeptical that CryptoKitties or the works of artist Beeple will have any value at all in the future, beyond the novelty of being NFT pioneers, but the value of art and collectibles and a unique connection to beloved entities, digital or physical, has always been tough to predict, since before Vincent Van Gogh couldn’t even sell what we now consider to be uniquely precious masterpieces for beer money. The NFT technology and the notion of digital ownership and digital provenance for collectibles will very likely stick, even if the nature of the digital collectibles changes.

The world is getting more digital, and people want to show off their collectibles in the virtual world as well as on their wall in the rec room at home, or on their brag wall in their office, and I imagine we’ll continue to see more ways for fans to buy a digital connection to their favorite artists or sports teams or celebrities or events. Maybe when we all live in the metaverse, we’ll be inviting our friends over to our virtual living room to admire our favorite NFTs (and maybe they’ll be sick of your LeBron James dunk video, and they’ll make a virtual excuse). Probably the big winners in the end will be the same oligopolistic companies who are the winners of celebrity culture today, the sports leagues and teams and music labels and movie and TV studios… but enough of the business will evolve in strange and interesting ways to probably create some surprise winners, too.

Beyond that, though, I’m just marveling at the wild new adventures the world is having each day. If you’re an early NFT devotee and ready to buy a sports team with your riches, please do share your wisdom with us all… and if you have a fondness or see froth in any of those three stocks that are somewhat connected to the rise in NFTs for sports collectibles, feel free to jump in with your thoughts, the happy little comment box below awaits.

P.S. A reminder, Enrique didn’t drop many hints in his pitch… so I can’t guarantee I’ve got 100% accurate answers for this particular tease — so if you’ve got a better suggestion to match the clues, well, I’d be delighted to hear it.

Disclosure: Among the investments noted above, I own ethereum tokens as the majority of my cryptocurrency exposure. I will not trade in any covered investment for at least three days, per Stock Gumshoe’s trading rules.