Why Celebrities and Brands Are Betting on NFT Startups

From tennis champion Naomi Osaka to actor Johnny Depp, dozens of celebrities have launched non-fungible tokens (NFTs)-digital assets such as artwork and collectibles that are bought and sold using cryptocurrencyin recent weeks. Now, many are stepping even further into the trendy industry by backing NFT startups.

A few examples: Deadmau5 and fellow EDM musician Richie Hawtin have launched Pixelynx, an NFT gaming company that will help artists and brands integrate NFTs into videogames; rapper Waka Flocka Flame launched Satoshi.Art, an NFT marketplace aimed at helping up-and-coming artists; and Ashton Kutcher’s VC firm Sound Ventures is hosting a $1 million virtual pitch competition for NFT entrepreneurs. 

Profit isn’t the only reason so many public figures are buying into the NFT hype, both as sellers and investors. For some, the primary appeal is the potential to shift control over creative work. NFT enthusiasts imagine a world where artists can break free of galleries, musicians aren’t beholden to record labels, and filmmakers no longer have to answer to studios. 

NFTs allow every creator, influencer, and artist to essentially be their own distribution channel for their work, says Megan Kaspar, managing director of crypto investment firm Magnetic: “Tying creative IP to NFTs offers multiple tangible benefits and pathways to monetize their work through a new entertainment medium.” 

In April NFL linebacker Cassius Marsh and entrepreneur Kenneth Kuo launched Ownr, which will work with athletes to design, mint, and sell NFTs. The athletes have the option of donating part or all of the proceeds to charity. The startup, based in New York City, is planning auctions around the Basketball Hall of Fame inductions and the end-of-the-year NBA awards. 

Marsh says NFTs offer athletes a way to work outside the licensing system for their likenesses. Licenses are typically worth millions of dollars, but they’re controlled by professional leagues and associated organizations that allocate a relatively small amount to players.

“When you’re signed to these leagues, you basically sign your likeness away, and they use it how they see fit. You might get a check at the end of the year,” he says. 

Since Ownr is creating individual works with athletes, and not using team names, there’s no risk of violating licensing agreements with pro sports organizations. The buyers will also own the intellectual property–a rare policy in the NFT world–so if for example they want to make a T-shirt based on the NFT and sell it, they can. But athletes will be able to collect royalties on resales of the NFT. 

NFT entrepreneurs say the digital assets give fans an unprecedented ability to collaborate with public figures and creators. “The owner of an NFT can alter the art piece to their liking and forever change how the art is presented to the world,” says Hsuan Lee, co-founder and CEO of Blocto, a blockchain platform. “This brings collaboration and co-creation to a whole new level.” 

An appealing feature of NFTs is their ability to serve as a certificate of authenticity, a sales contract, and a royalty payment system. Creators can use blockchain software known as smart contracts to tie in different specifications to an NFT sale, including licensing rights, fractional ownership, and royalties. They can then automatically collect royalties for any resales. 

Still, a major obstacle remains for these NFT businesses and the creators whose work they sell. There’s skepticism in the industry that blockchain-based licensing rights will hold much weight in the real world. In the case of Ownr, Kuo is resigned to the fact that there’s little creators can do to stop someone from creating a T-shirt based on an NFT and pocketing all the profit.  

Experts in copyright and entertainment law have taken to referring to the NFT universe as the “Wild West” due to a lack of awareness over ownership rules.

“I can see issues arising from people not knowing what rights they have. I think people are already starting to make mistakes when they’re purchasing entities, and assuming they have copyright ownership,” said Steven Gagliano, director of business and legal affairs at Sony Music. 

Some artists such as Taylor Bennett and Big Zuu are selling a portion of rights to their upcoming work as NFTs. Gagliano says he wouldn’t advise his clients to sell the copyright to their work at this point. It’s still unclear whether a contract that lives on the blockchain would hold up in court, he says, and there are ample opportunities for bad actors.