When BYU announced plans this week to enter the NFT world, officials said they believed the venture could be worth $20 million in the first year alone.
The five-year deal would, in theory, give Utah technology company Ocavu the rights to create non-fungible tokens — in this case similar to digital trading cards of BYU football players — that fans can buy. In turn, the athletic department and athletes will receive an undisclosed percentage of the profits when an NFT is sold.
But the deal was quickly met with skepticism by experts, who cited the risks in the NFT market and were surprised that BYU would place itself in the volatile industry.
“Other major brands [in college football] have been hesitant to embrace NFTs wholesale,” said Matt Brown, who writes a business newsletter for college athletics. “The market is volatile. There is a reputational risk from the institution. And it is unclear how big consumer demand is.”
When the partnership was announced, Lehi-based Ocavu estimated the deal could be worth up to $20 million in the first year. BYU billed the deal as a win for both the athletic department and the athletes to cash in on the NIL space.
But Brown scoffed at that valuation, noting the greater risks.
Over the summer, the market for NFTs fell 92%, according to the data website NonFungible.com. The number of active users decreased by 88%.
Many experts believe that the NFT bubble popped in June, after months of people flipping NFTs for extremely high prices. Now the fallout from the exorbitant prices is cratering the industry.
As a result, other college programs that have been approached by NFT companies have declined. Miami briefly flirted with NFTs in 2021 but was unsuccessful.
“When we first started having these NFT conversations, the NFT market was still very robust,” said Casey Stauffer, BYU’s assistant athletic director. “But from the very beginning we didn’t want to [the marketplace] to be about speculation. We talked about creating experiences, which is more valuable than saying, “I have a JPEG.”
“We thought about [the risks]. I think the platform will be more utility-driven and experience-driven than speculation-driven.”
BYU and Ocavu acknowledged that the NFT market has become “bloody” and that BYU’s marketplace is a risk. Still, Stauffer emphasized that this NIL deal will not depend on people buying and selling NFTs alone.
BYU says that when a fan buys an NFT, they will also have other experiences with it. That, BYU believes, will make the platform more immune to the fluctuations in the NFT space. The NFTs, they say, are just a way for people to buy experiences.
– This is as close as we can get [to being immune from speculation]because of our focus on experiences,” Stauffer said.
“Was there a moment [when we were hesitant]? In the beginning, yes, he continued. “We didn’t want it to be perceived in the same way as other NFTs are perceived. We want this to be a resource. But this is much more experience-oriented, and about engagement, than it is about NFTs. Our goal was not about creating a speculative market, it was about what lay behind them.”
However, some experts say that any value placed in NFTs is inherently risky. A large part of this agreement revolves around an up-and-down market.
“I would say that traditionally it has been, and probably will continue to be, a pretty volatile market,” said Tim Neilsen, who runs a Utah NFT company called Cloutchain. “That’s partly because of the nature of the new technology. People are still learning what it is and what it means. With that comes the ebb and flow of adoptions.”
The appetite for BYU fans buying NFTs is another concern. BYU acknowledged that there is not much demand for buying NFTs alone.
This was a red flag to Brown, who noted that NFTs are expensive to make. Ocavu said it has already spent $2 million to create the current NFTs. It will also likely spend $2 million more next year. Ocavu said it will take part of the profits to cover the fixed expenses.
“If you take a macro step back and you look at the NFT market, it’s been pretty bloody over the last six months,” said Jon Cheney, CEO of Ocavu. “Last year everything was sky high. It was during this time that Ocavu decided to go into NFTs because we saw problems [in the industry]. There’s no way a picture is worth $50 million just because it’s an NFT.”
The question Brown and others pose is why BYU would take the risk on NFTs. There are other NIL deals out there that can generate similar income. There are also other NIL agreements that will give a higher percentage of the profits to the athletes.
Ocavu has declined to say what percentage of profits will go to athletes, the sports department and how much the company will keep.
“I would imagine that other group licenses, consumption opportunities, would be much less risky [for BYU]”, Brown said. “And it will likely provide similar value to athletes than NFTs.”
