Tech

After Failure to Buy the Constitution, Crypto Fans Want to Buy an NBA Team

Whether or not Krause House DAO will also result in failure and chaos is anybody's guess.
After Failure to Buy the Constitution, Crypto Fans Want to Buy an NBA Team
Image: Krause House

After the chaotic failure of one crowdfunded attempt to purchase a copy of the U.S. Constitution with crypto and its dissolution, another “decentralized autonomous organization” (DAO) has set its sights on an even more nebulous and seemingly doomed plan: buying an NBA franchise. 

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On Sunday, the Krause House DAO―named after Jerry Krause, the late Chicago Bulls general manager—announced it had raised 200 ETH (just over $800,000) within 15 minutes on Saturday and was now sitting at 477 ETH ($2 million) with a new goal of 1000 ETH (about $4.3 million). Mind you, the least valuable NBA franchise—the Memphis Grizzlies—is worth some $1.5 billion.

Despite this obvious mismatch, the rallying cry of the project is “WAGBAT” (We are going to buy a team) or its longer variant “WAGBAT-AYCDAAI” (We are going to buy a team and you can’t do anything about it). It’s a play on the catchphrase of the failed ConstitutionDAO, “WAGBTC” (we are going to buy the constitution.) The project’s “flightpaper" is subtitled “Empowering fans to purchase & operate an NBA Team.”

Over the past few months the Krause House Discord has seen the same questions or concerns come up every now and then: “I can’t make the math work. No scenario seems to feel approachable” one person wrote. “Question, how to profit by taking part of this project,” asked another. Similar to ConstitutionDAO, the project’s leads (who, unlike ConstitutionDAO, are pseudonymous) are reinforcing that investing in a project that is seeking to buy an NBA team is definitely not an investment. 

“This is a crowdfund for a community to put in work and resources to start organizing towards buying a team. Please do not treat this as an investment,” said Eli, one of the Discord server’s admins on Wednesday. Despite this, members in the Discord’s “venture” channel are entertaining the idea of their own investment fund, although like much of the DAO’s plans it’s not fully fleshed out and doesn’t seem to have been reviewed by most members.

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The project doesn’t seem to have a clear plan on how it will actually buy an NBA team, and its documentation hints that it is entirely likely to end in disappointment. One section of their outline lays out a period of experimentation, where the DAO would “launch bids on multiple smaller franchises to learn by doing and demonstrate success” and look to “ventures into multiple sports in multiple countries.” While some might read this as a quiet admission that perhaps buying an NBA team is unrealistic, the DAO spins this as a chance that “allows us to experiment in our approach and learn, without a single point of failure.” The documentation also raises the possibility of a minority stake in a team, which is a bit different from WAGBAT. 

While the DAO is seemingly nowhere close to buying a team, it is selling NFTs. The DAO is hawking “ticket” NFTs in three tiers of NFTs: 50 "Courtside Genesis Ticket" NFTs for 10 ETH, 500 "Club Level Genesis Ticket" NFTs for 1 ETH, and 1500 "Upper Level Genesis Ticket" NFTs for 0.1 ETH. Each tier gives buyers a greater number of $KRAUSE tokens, which are supposed to one day  represent votes that contributors can use to govern the DAO’s decisions around things like which team to eventually acquire, as well as “access to our Discord community and events, a special Discord role based on ticket tier, and eligibility for raffles and airdrops.” 

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Tokens are beginning to be distributed and roles assigned as the Discord begins to limit access to certain sections and roles to NFT holders. The token’s contract shows that there are currently 700 KRAUSE holders. 

The project’s plans are, at times, extremely complicated and convoluted, and at others incredibly vague and simplistic. One path outlined by the Krause House, for example, envisions registering a C Corp in Delaware and nesting the Krause House DAO inside, selling NFTs and offering tokens to raise funds for the treasury, forming a SPAC (a shell company explicitly structured to take public something that no one normally would, often at a loss) and filing an S-1, finding an NBA asset to acquire, creating a token offering for that asset, then reversing the SPAC and merging with the NBA asset, then listing that minority stake on over-the-counter trading exchanges.

The project’s roadmap, which is separate from its “flightpaper”, lists three phases of proposals, each with a name inspired by basketball of course. The first  is focused on "Strengthening our community" (shootaround), the second on "operations & learning-by-doing" (scrimmage), and the third about "NBA Ownership & Beyond" (gametime).

Phase 1 pitches itself as a "choose your own adventure" where "different types of participation earn NFTs" that are parts of sets linked to certain benefits, a bid to encourage community building, competitions, and somehow lead to perks such as "merch drops, NBA tickets, and lessons with elite coaches." Some proposed events range from fantastical (at this point) to likely: AMAs with NBA insiders, executives, players, agents; community commentary and friendly competitions; workshops and volunteer drives.

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Phase 2 and 3 are much thinner on details—each is only a paragraph long, despite arguably being the most important steps beyond selling NFTs. In Phase 2, they seek to "demonstrate success operating as a collective intelligence" by buying stakes in non-NBA franchises, a sort of experimentation period where they will work with any individual or group to acquire stakes and cultivate knowledge. Phase 3 is basically a rhetorical call to arms. Adamant that the "NBA will approve our bid to officially acquire a majority position in an NBA team" they believe this is where more capital will be raised, and where the rights of various tokens and their holders, relevant regulations, and the legality of all this will be determined. 

While the DAO’s website and discord are full of bombastic rhetoric and grand visions, they are relatively barren when it comes to concrete details about how any of what they envision will happen, let alone if it can happen. You can find an obligatory disclaimer nestled in the website that "Neither this ticket NFT nor KRAUSE are a promise for future ownership of a team," even as major contributors promise that very thing and insist the DAO is all about the “ownership economy.” 

Indeed, DAOs are touted by supporters as being a new kind of organization, one in which people with the most investment have the most say. This appeal to a certain kind of populism is largely what propelled the ConstitutionDAO’s fundraising, even though that organization ultimately failed to ever become a functional DAO or hold a single vote with its token. That trend seems to be repeated with Krause House DAO, which makes the appeal to populism and promises “governance” without currently having token voting. 

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“In a traditional organization, decisions are made in a top down fashion and occasionally a small sample set of customers are surveyed to see how the product is resonating (a slow and imperfect process),” Krause House’s roadmap states. “In a DAO, the customers are empowered owners that deliver the product they want. This is instant product-market fit and a primary reason why DAOs are today’s fastest growing companies. By opening up governance, a team will access a wider knowledge base and ultimately reach the best solution.”

"We understand the reader's first instinct may be to scoff at this and say owners will never let this happen," the flightpaper’s “vision” section reads. "It’s important to understand that there was a time not too long ago where players were at the same place on the totem pole where fans are today. Through the use of technology, savvy, and understanding how critical they are to the business, the ownership by players (both tangible and unrealized) has grown immensely within the last 10 years. There’s no reason fans can’t do the same if organized correctly."

It's not really clear what they're talking about here, considering that NBA players are explicitly prohibited from owning any stake of a team. Perhaps the DAO is speaking about decisions regarding coaching, training staff, team personnel, and contracts—the only problem is that while these are areas players have developed a greater say in, they are also areas the DAO is explicit it should not get involved in: "We do not believe the DAO will provide value-add by participating in these areas," it says. 

Ironically enough, this decision seems to have not not been made democratically, following a similar pattern to ConstitutionDAO, where every major decision was made by a core group of unelected contributors.

All of this, however, deals with buying a team—what if they aren’t able to buy one? It was easy for ConstitutionDAO to raise more than $40 million, but it was the aftermath of the failure to achieve its stated goal that truly devolved into chaos. It doesn’t seem that and many other questions haven’t been given much thought by Krause house DAO in the mad rush to crowdfund. Many of the members of this project are enthusiastic, fanatic even, about the prospect of having a fan-owned team but it’s not clear anyone has a  clue what that means and how to get there, let alone whether it’s possible—and whether this is just another DAO doomed to crumble under the weight of its own convoluted vision.

Krause House DAO admins did not immediately respond to a request for comment.