Fintech

This DAO wants to buy an NBA team. It’s a long shot.

The Krause House is looking to be a part-owner of the New Orleans Pelicans.

New Orleans Pelicans player

Krause House, which was named after the late Chicago Bulls General Manager Jerry Krause, has drafted a plan that’s a combination of blockchain-based fundraising and old-style grassroots community organizing.

Photoillustration: Sean Gardner/Getty Images; Protocol

On his Twitter page, James Shamenski calls himself a “Future owner, Pelicans NBA.”

The Vancouver-based entrepreneur hopes eventually to make that official through Krause House, a newly created DAO that’s looking to own an NBA team. The New Orleans basketball team is the group’s first target.

That may sound even wackier than the DAO that tried — and failed — to buy a copy of the U.S. Constitution. Krause House describes itself as a “community of hoop fanatics that are just crazy enough to buy an NBA team.” But the new organization underlines the growing fascination with using the blockchain to organize grassroots financial projects and campaigns.

Some teams have started issuing tokens to give fans a vote on club decisions. And fan-owned professional teams are common in Europe and Latin America. In North America, they’re rarer, though the Green Bay Packers has long operated as a publicly owned nonprofit. But Krause House is the first to use blockchain-based organization as a path to ownership.

“Fans are creating all this value from sports, but we're not getting any of it back,” Shamenski told Protocol. “We're just dumping in money continuously. If you start to think about re-shifting this asset for the people, by the people, teams will be run completely differently.”

Krause House recently began raising funds by selling NFTs which it plans to use to make a bid to become either a full owner or part-owner of a team. The DAO, which now has about 1,700 backers, has raised roughly $4.2 million worth of ether.

That’s probably enough to cover a regular NBA team’s budget for chartered flights for a year, but nowhere near the amount needed to buy an entire team. Sales of NBA franchises are rare, but according to valuation estimates, teams could go as high as roughly $6 billion for the New York Knicks to a low of $1.5 billion for the Pelicans. And both the current owners and the NBA Board of Governors must approve a sale.

Business leader Gayle Benson owns the Pelicans. When asked about Krause House’s ownership ambitions, a team spokesperson sent an email that said: “Not for sale.”

But Krause House, which was named after the late Chicago Bulls General Manager Jerry Krause, has drafted a plan that’s a combination of blockchain-based fundraising and old-style grassroots community organizing.

Shamenski, who you could say is Krause House’s point guard for the New Orleans project, estimated that if they’re able to raise about 20% of a team’s value, they would have a shot at becoming an NBA team minority owner. That translates to roughly $300 million for the Pelicans. In other words, Krause House has a long way to go.

Shamenski said the plan is to present the Pelicans with a strategy that involves raising capital for the team while building and mobilizing a more engaged fan base who would also become owners of the team.

If Benson agrees to have the DAO as a minority owner, Krause House will work to raise more funds “in accordance with the SEC,” Shamenski said.

Shamenski said the DAO has yet to discuss their plan with Benson, who also owns the New Orleans Saints and who has discussed plans of selling both teams to a buyer who would keep them in the city and distributing the proceeds to charity.

“We're going to show her that this is a can't-lose situation,” he said. “We [will] have the fans saying, ‘We want to contribute our energy.’ At that point, sometime in January, we're going to present a clear offer to say, 'Gayle, we have the energy. Can we work with you?’”

Patrick Haggerty, a director at Klaros Group, called Krause House “a fascinating example of how crypto-native DAOs could eventually unleash the power of grassroots investment.” But he said the DAO will likely face huge hurdles, including serious regulatory “pitfalls.”

The NBA also has “a notoriously tight grip on who can make investments in franchises and they would have some predictable concerns about relinquishing any meaningful control over a team to a decentralized collective with no history of effective governance,” he told Protocol.

“I’m a big NBA fan and a sucker for the nostalgic ’90s era branding,” he said of the Krause homage, “but as much as I would love for it to happen, I fear this DAO may be DOA in today’s environment.”

Even so, Krause House has attracted serious investors.

Michael Lewkowitz, a general partner at a VC firm Possibilian Ventures, sees Krause House as a worthy experiment for what DAOs can accomplish. He bought the DAO’s NFTs for 22.2 eth, or roughly $93,000.

“As we go through the New Orleans bid, as we go through other bids, we're going to start learning how to do these things better collectively,” Lewkowitz, who is from Canada, told Protocol. “It just seems to make sense for people who are interested in sports. Wouldn't it be neat to have an actual stake in the team that they care so much about?”

Krause House’s support in New Orleans is still pretty thin. One Krause House member who goes by the Discord handle Soothsayer and lives in the city says they have about five to 10 locals in the DAO. Soothsayer said she has not invested financially but signed up to help “make some waves in the local community.” The DAO is, for example, working on projects to rehabilitate neighborhood basketball courts.

“It’s a small gesture that we hope can bring some happiness to some people,” Soothsayer told Protocol. “If we happen to get Gayle Benson’s attention while we’re doing those things, even better!”

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