Photo by Justin Edmonds/Getty Images
TECHNOLOGY

Can a DAO Actually Buy a Sports Team?

The distributed autonomous organization titled “BuyTheBroncos” is stirring conversation around the viability of cryptocurrency when it comes to team ownership across major American professional sports.

Many sports fans dream of two things: lacing up as a professional athlete or owning their own team. For most of us, either is about as plausible as winning seven Super Bowl rings on the moon.

But one group of enterprising cryptocurrency investors is attempting to make team ownership accessible for everyday people.

The distributed autonomous organization (DAO) known as “BuyTheBroncos” is trying to do exactly what their name suggests, which would be an unprecedented feat.

The DAO is led by former lawyer-turned-lifestyle-brand-owner Sean O’Brien.

O’Brien, a lifelong Broncos fan, and his fellow crypto enthusiasts aren’t simply dipping their proverbial toes in the water, either. The group could have tried buying a team in a less popular sport or even attempted to buy a minority stake in one of the three other major American sports leagues.

Instead, “BuyTheBroncos” is opting to purchase a team going for a league-record price. As of last August, per Forbes, the Broncos are valued at $3.75 billion — 12th among the 32 franchises.

Sign Up For Our Newsletters

Get on our list for sports business, industry trends, interviews, and more.

“We know it sounds a bit crazy, but it’s also a bit badass,” O’Brien told CNBC in February. “The purpose essentially is to establish an infrastructure so that fans from all walks of life can be owners of the Denver Broncos.”

For those unfamiliar, DAOs are organizations existing on the blockchain that strive to put operational control of business entities in the hands of the individual members in a way that traditional legal corporate structures do not.

DAO members typically invest Ethereum into the entity in exchange for a governance token that gives them the authority to vote on operational matters relating to the organization. The operations of the DAO are governed by a smart contract, which spells out what the token holders/members can vote on and how many people or tokens need to vote in order for a decision to be made and executed via the smart contract.

While many remain skeptical, the money behind these DAOs is very much real and it’s only a matter of time before some serious players actually buy a major sports asset like the Broncos.

Assuming a DAO could put up the money up to buy a sports team, what are the hurdles facing the DAO to be able to actually execute the transaction and effectively operate? Let’s take a look.

Understanding the Law

In every state but Wyoming, a DAO is not (yet) recognized as a legal entity like an LLC or a corporation. Outside of Wyoming, corporations and LLCs may create DAOs, but a DAO unto itself does not enjoy many of the protections that other business entities enjoy, such as being shielded from personal liability if they get sued. In other words, there are structural legal barriers that make contracting with a DAO or allowing to own/hold property something of an open question that the law has yet to really address.

Joining the Club

The next and perhaps biggest hurdle becomes gaining admission to the proverbial club. If we think about the four major sports, those are legal entities or associations composed of teams that have the right to vote on the admission of new members.

In the NFL specifically, the Commissioner wields an outsized amount of power and is the initial gatekeeper with respect to which potential buyers may be put in front of the existing owners for approval. In order for the sale of an NFL franchise to be approved, the transaction must receive at least a 3/4 vote or 20 total votes of the existing owners, whichever is greater. Additionally, the NFL requires the principal franchise owner to have a minimum 30% stake in the team and that the entire ownership group can’t consist of more than 24 people in total. The rules also give the Commissioner the authority to issue fines of up to $10 million per year for teams that do not comply with the rules.

Neither of these restrictions is theoretically insurmountable but it seems as though creating a DAO of 24 or fewer members with a principal owner controlling 30% of the tokens is an easier solve than convincing 24 wealthy old men to allow a “ragtag” group of investors into their “old boys club.” What would realistically need to happen would be for someone who the existing NFL owners trust and respect — perhaps a crypto-forward former player like Tom Brady — to become the face and principal token holder of a DAO for them to begin to warm up to the idea.

Decision-Making

The other challenge that DAOs comes in the way decisions are made. All contracts (smart or otherwise) are an exercise in predicting the future, as you normally try to anticipate what might happen over the course of a relationship and provide some sort of guidance as to what to do when situations pop up.

The idea behind the smart contract is that it provides a set of objective criteria and when they are met, the transaction is automatically executed. But in this case, objectivity will be difficult to achieve. Take for example something more nuanced like whether a coach’s insensitive emails violate his contract. In other words, there are certain decisions that are essential to running a team that cannot be properly codified in a smart contract.

Even in cases where events are accounted for by a smart contract, the form of pure democracy employed by DAO’s doesn’t allow for nimble decision-making if all of the operational power is delegated to/vested in the DAO.

Look at free agency. When the free agency period officially opens in a sport like football, it is a true frenzy of activity where teams are racing against the clock and competing to sign players. If the decision as to whether to sign a player requires the votes of 24 individuals every time, you hamstring your ability to do business and effectively operate the team.

Not every decision in life or business is binary, which is why you need an operational system that gives a certain amount of power to the members but also delegates power to decision-makers that can act at the speed of sports. For a DAO to be successful in operating a sports team, it would need a hybrid approach that vests a certain amount of power in a handful of operators while keeping the ultimate overarching decisions within the purview of the community — a true dichotomy between the macro and the micro.


This is a technology and an organizational structure that is still in its relative infancy but is constantly evolving. DAOs are bound to become more sophisticated over time, and in that span the views of the other owners to DAOs and crypto are also bound to soften. The delta we have right now between it being a fun idea and a reality can be bridged by a little innovation and education.

Though the prospects of a DAO owning a sports team in a franchised league like the NFL or NBA might be several years away, DAOs could easily purchase entities like esports teams, certain motorsports teams, and even race horses. It wouldn’t be at all surprising if some of these things are already in the works. While it’s unlikely the Broncos DAO will be able to thread the needle, your dreams of at least owning a piece of a sports team are not as far away as you might think.

Sign Up For Our Newsletters

Get on our list for sports business, industry trends, interviews, and more.

Subscribe

Enter your email below