Sports NFTs with Scott Lawin of Candy

Jeremy Allaire: Hello and welcome to The Money Movement. I'm joined here today with the co-founder and CEO of Candy, Scott Lawin. Very, very excited to have you here. Obviously, you guys have had a major year in the last year and some significant launches, and a lot coming into the new year. First, I just really appreciate you coming on the show.

Scott Lawin: Thanks, Jeremy. Happy to be here.

Jeremy: Awesome. Look, I think for our listeners, I'm always interested just to hear a little bit about your own journey that what brought you here kind of thing. Before delving into Candy, maybe just talk a little bit about how you got to this space and what drew you to this space at a really high level.

Scott: Yes, absolutely. My journey, not to go too far back, actually started out on the design side. I was an architect from MIT. I made a left turn into finance. I spent a long career, 27 years in finance split between banking and asset management businesses, and then found my way to the crypto space in 2016. I think initially my interest in blockchain was really driven by my finance career, which had always been at the intersection of creating new products and new markets and thinking about how financial technology changed the way that people invested in economic structures, financing structures, et cetera.

Blockchain, obviously, predated 2016. I heard about it, talked a bit about it with folks up at MIT, and had been following the space really to try to understand, in financial services, what was blockchain going to mean? Obviously, on one hand, you had Bitcoin, the idea of a store of value, a new digital currency, this whole structure of decentralization, and what that meant in, ultimately, a global financial marketplace with significant intermediaries.

Then you had smart contracts and the promise of being able to code transactions and eliminate a number of different intermediaries and steps along the way. Just purely from a financial services and a FinTech perspective, that was really where I dove into the space. 2016, obviously, was a wild time in the ICO space, and I spent time looking at that, really, around an alternative financing mechanism, trying to get my head around how people were raising tens and hundreds of millions of dollars on the back of a whitepaper, figuring out whether that was sustainable or not.

Then ultimately, coming from a regulated securities industry, what would this ultimately mean as the marketplace got bigger and always with an eye to what were the things that we're going to start to bring more people and capital into the space, both from a user perspective, as well as from an investor perspective? Obviously, we lived through what happened in 2017 and the first significant run in crypto assets.

Then the beginning of the winter in 2018, obviously, that's when a lot of the real work started and the fast money and the folks who saw the passing fad turned their attention back to what they were doing, but that was really that first phase of bringing people into the space and really starting to build the infrastructure that we're now taking to the next level today. That was how I got into the space.

Broadly, my business partner, Mike Novogratz, folks may know, is the founder of Galaxy Digital. Mike and I were business partners at Goldman Sachs and at Fortress Investment Group. As Mike built Galaxy and really became one of the leading voices in telling the story of blockchain and what it would mean for our broader group of investors, institutional investors around the world, to start to credential and legitimize the space, I started to get more involved with him and his team, and that really led us to 2020, as we were thinking about, outside of cryptocurrency and DeFi, what were the paths to more mass-market adoption of blockchain and distributed ledger?

Thinking about art, obviously, and a number of the projects in the NFT space had already been instituted in the art space, thinking about music, thinking about popular culture, and thinking about sports, sports made a tremendous amount of sense for us to lean into billions of global fans, passionate fan communities, not dissimilar from the passion in the crypto space, and then a sports collectibles business that has been around for decades and frankly, on the back of the pandemic, had been turbocharged as people dusted off the items in their attic, et cetera. That was really what ended up catalyzing the partnership between Galaxy Digital and Fanatics that has become Candy.

Jeremy: That's awesome. I didn't realize how long you'd been exploring and also just the [unintelligible 00:05:19] backdrop with Mike, as well. As you know, I've gotten to know Mike over the years, and Circle does a fair amount of work with Galaxy on different things, too. That's awesome. I think maybe drilling in and zooming in a little bit on that, obviously, that infrastructure build-out that started happening in 2018 and 2019 was very real.

2018 is when we launched USDC, and the early projects were these early DeFi projects and others. Then as we built APIs around it trying to help create that bridge between the fiat world and this pure world, there was early NFT projects and other things that were trying to figure out, how do you make these consumer-ready experiences but still be natively on-chain and natively in digital currency?

As you described right at the end there, this whole phenomenon of existing major categories of culture and intellectual property converging with this is at the heart of what's taking place in a lot of these. Maybe tell a little bit more on the origin story, on Candy itself. Obviously, you've given the backdrop of you found your way there with Fanatics and so on, but you catalyzed a lot relatively quickly and put together, I think, significant strategic partnerships to get this off the ground.

Presumably, there's a big vision behind it all with the amount of capital you've raised and what you're trying to do, but maybe a little bit, if you're willing to share a little bit more on the overall mission and vision of Candy as you came together with your strategic partners and then maybe we'll go from there.

Scott: Yes, absolutely. If I go back to that spark of taking the blockchain and crypto DNA from Galaxy and marrying it with the 83 million sports customers that Fanatics has on the e-commerce side, the thesis originally really was to say, "Okay, let's look broadly at the collectibles business." There's a physical collectibles business. There's this burgeoning, fractional, physical collectibles business stock market of things, and then there's obviously a digital collectibles business.

Where should blockchain live in that continuum of, I can own a Mickey Mantle card, I can own a share of a physical Mickey Mantle card, and then I can own a digital asset that might be the authentication token of that Mickey Mantle card, it might be an NFT of that card, or it may have some other utility-related to it, right? That was really the broad business model that we looked at.

That was really, as I said, at the backend of 2020, as we were thinking about, what was the path going to be in this space to introduce digital assets to folks and understanding a lot of the challenges around setting up a digital wallet, connecting your bank to it, funding it with Bitcoin, Ethereum, et cetera, and knowing that for the average consumer, who wasn't yet a crypto believer, that wasn't necessarily a smooth process?

Really, thinking about, how could we build what we think of in many ways as a digital content consumer products company that lives on a robust blockchain infrastructure? How could we provide a fiat-first experience that folks were already familiar with to bring them into the space for the first time and then introduce them to this world, provide that functionality on the backend? That was a big vision of how we wanted to approach the space.

As we went out in the beginning of 2021 and started having those conversations, that was right around the time when the NBA Top Shot product from Dapper went asymptotic with the next rise and crypto prices when you had the Beeple auction that got the world's attention for the highest price for a living artist and down to the SNL skit right where, suddenly, now proved the thesis that sports, in many ways, was a gateway drug for a lot of people, certainly the media, to start to pay attention to the space.

Our conversations rapidly went to educating the leagues, teams, and athletes on, A, what is blockchain. Everyone has heard about it, but really understanding how does a blockchain functions? What does it actually mean? What does it mean to have tokenized ownership of an asset? What are NFTs? How can you differentiate between the JPEG you can copy a million times and the unique ownership of a tokenized NFT, and then ultimately not just what felt like the near-term commercial opportunity as prices were going crazy but really the fan engagement opportunity?

I think that the other core thesis of what Candy is looking to do is certainly build a sustainable commercial business where we can partner with world-class intellectual property and content owners and create authentic versions, authentic products for fans but also find really new and interesting ways to engage those fans. Our first partnership, which we announced when we announced the formation of the company, is with Major League Baseball, with their exclusive provider of digital assets in the space. Certainly, one of the key objectives is to continue to create a series of products and experiences that speak to that next generation of fans. That's a core part of our mission.

Jeremy: I want to dig into that. As I like to say, the utility value of NFTs as well, I have a dirty little secret, it's not really dirty, actually. I have a little factoid, which is my first company was when I was 14 years old. It was called Allaire Sports Cards. I got really into baseball cards, and I was really into attempting to use, essentially, statistics. Bill James, who was a famous guy, wrote about sports forecasting, players, and all this stuff.

Anyway, I ran a trading business and had actually helped pay for college with collectibles and with the incredible interest that existed there. Interesting now when I look at that and think back at that, and yes, I have huge amounts of baseball cards still. I was interested to see the Topps news that was recent and imagining how that could play out, obviously, as well over time.

I guess drilling in more into that fan engagement side of this, it seems like we're still really in the early stages of how these credentials, the ownership of a collectible or the ownership of digital IP is a form of credential. That credential, as digital wallets proliferate and people can present credentials more easily, what does that unlock for people, whether online or offline? Do you feel like the leagues and the teams and the stadiums and the players, do they get that?

Do they get that this isn't just like, "Hey, I'm really popular, and people are going to want to buy a digital collectible"? Do they see this as a change in the tooling, in a sense, for affinity and engagement, which is really different than digital media itself? I came out of the digital media world, spent years and years in that. It's very different than that and conveys this other form of ownership. I'm just really curious to hear how forward-thinking you think people are on that, and what do you think some of the lowest-hanging fruit is going to be in unlocking the credential power or the utility value of these NFTs?

Scott: I think the broad answer is, yes, absolutely. I think the leagues get that. I think they see great promise in that the path with which that ultimately rolls out and connects is the thing that I think we're all trying to figure out. We started out with our first products over the course of last summer, really saying, "Hey, everything that we're going to do is going to have some element of digital-only, of digital-physical, and digital experiential as a bridge to where we see at least our product set going, which will start to cross that divide and have utility in the case of baseball, when you're at the stadium or when you're watching the game."

Our first broad project with Major League Baseball we called our Stadium Series, we partnered with a digital artist, S. Preston. He had done a series of minimalist pieces of each of the stadiums. We worked with each of the baseball teams then to create not just the digital asset that we sold but a package of a unique experience for a 1-of-1 auction. In some cases, that might have been throwing the first pitch out at a game, it could have been a VIP tour, it could have been tickets to the game.

Each club got an opportunity to curate that the way that they wanted to. That was a really important project for us because it did two things. One, it took us from the conversation and relationship at the league level down to the teams very directly. It gave us an opportunity to understand, for all of the different clubs in baseball, where each club was in terms of their excitement, in terms of their knowledge base, and in terms of their willingness to lean into the product and figure out what that engagement was going to look like because, ultimately, Major League Baseball has broad objectives as a league and a sport, but these are local teams.

These are local cities, local communities. What's really important is figuring out what resonates there. We'd figured out which teams fans leaned more into our in first products and which clubs were the most excited to engage. We're going to take that experience and that knowledge and as we go into the 2022 season, knock on wood, once the lockout ends, we'll take it to the next level.

Jeremy: Just like digital media, there's digital rights and IP licensing, and this is, in that bucket, for sure. It falls into that, but then there's this whole overlay of sports franchises and rights and entitlements and sponsorships and it. In crypto, obviously, we're seeing big crypto companies coming in, buying rights to this, that. We've been pitched, "Get the Jersey patch or whatever the hell," all these things.

It gets confusing to some degree. Who gets to determine what shows up for fans in a stadium for what they could do with what's on their mobile phone at the stadium? How does that get played? How do those rights and entitlements and all the diverse pockets of capital and incentives and all this stuff, how does that play out? Are they going to be battling? Are Coinbase and Candy going to be battling over certain things happening in stadiums? I'm very interested to hear your perspective on this because it's fascinating to watch crypto and sports and the activity that's happening there because it's clearly quite activated.

Scott: Listen, it's not surprising. Others have focused on the same thing we did, which is sports is a great venue to connect with billions of people. Each league is different in the way that the leagues structure their rights and their approach to this space. In the case of Major League Baseball, they had had some previous experience in the crypto space actually, through some games that they developed.

They are one of the most forward-thinking leagues in terms of technology around some of the media properties they developed, the MLBAM business, et cetera. They had been through the journey in different iterations and said, "Hey, we're really interested in building a business together and not fractioning or fractionalizing all of our rights and having competing products but building this in a cohesive way." Other leagues have taken a different approach.

Either by default, I think when Dapper and the NBA got together, neither party had a perspective of how big that product was going to get so quickly. It's obviously been a great result for both. Now they're thinking about where it goes from there. Other leagues are taking a much more surgical approach to say, "Hey, we're going to take a set of rights. We're going to slice this one for this party, this one for another party."

I think when we dial it back, just to your question, we see three buckets. We see what I'll call the exchange and the platform players, who are frankly in a different business than us. If you're an exchange, you're trying to buy eyeballs, and you want as many people, as many consumers to see your name. As they start to cross that divide and get involved in the space, you want them to be buying and selling crypto on your platform. You want them to be connecting your wallets, et cetera. Those are big advertising dollars.

That's stadium sponsorships, it's umpire patches, it's things that. Now those deals are big-dollar deals, and they're trying to put as much in the bucket as they can. They're trying to capture some NFT rights there as well, even though it's not their core business. The second I would say is the product players. These are folks who have an existing NFT product in the market. It's been successful for them, and they're going to look to create that same product in another league or with another content partner.

They're zeroing in on a specific set of rights and willing to pay up to continue to mint that product across different verticals. I think our approach to the market, which maybe is a variation on the second one, is what we think of as more of an ecosystem play, which is to say, "Hey, we're really focused on the community. Who are the community of baseball fans or other partnership with the NASCAR Cup teams, racing fans?

"What does it mean to be a fan and a collector of that sport, and how can we create a series of products that enhance that experience, some of which will be pure collectibles, some of which will have utility, some of which will be high-value, some of which will be low-value fan tradeable things, and then be creating that destination so that, again, in the case of Major League Baseball, if you're a baseball fan, there isn't a one-size-fits-all to what it means to be a fan, what you want to collect, whether it's cards or memorabilia or moments, et cetera? Let's create a suite of products that can talk to all those different fans at different places in their journey."

Jeremy: Right. Yes. It's that crossover between all these different mediums if you will is a big piece if you're really building a franchise out in a deep way. I'm interested just again on this question of the utility of NFTs. What do you think becomes possible a year from now, two years from now if you're a token holder so to speak? What rights do you think that conveys or other kinds of experiences does that unlock?

Scott: The rights issue is an interesting one. I think obviously there's a lot of focus around the rights that get conveyed around a Bored Ape's project or things like that, the ability for owners to commercialize those assets. That's more challenging when you're dealing with leagues and licensed intellectual property, rather than original content. I don't necessarily see at least the things that we're doing in the sports space moving in that direction.

What I do see is, as you pointed out, this one-to-one relationship with a fan and an owner really starting to take on greater value. What we're planning and what we can see in the future is that if you're an owner of a particular NFT or a particular set of NFTs when you're at the stadium and you check in, that unlocks a unique experience for you, or because you've collected a certain set, you might be airdropped a particular NFT.

Given some of the features that we're baking into ours, the NFTs, even if you're not at the stadium, can start to provide utility because they've got dynamic data, so if you're a fan of Fernando Tatis and you've got his NFT, every time he plays a game, his batting average, his home runs, his stolen bases get updated. Your NFT actually tracks that player's performance and reflects his performance and the team's performance and can change over time and potentially become more valuable.

Having the digital asset become a bridge to the real-life experience, providing something unique, and rewarding you for your participation by going to the game, or even frankly sitting at home and watching the game, there's ways to reward that participation and that support. We definitely see those elements of it. I think one of the interesting things as well is as you move from league and team to player, depending upon how products get structured, you're starting to see the beginning of what's the next generation of a fan club.

That level of interaction and the ability for a player to actually interact and speak directly with the owners of his or her NFTs, whether that's in a Discord server, whether it's a video chat, or potentially, a private message system. I think that starts to get really interesting as well.

Jeremy: Yes, for sure. I had a couple of related questions, which is I forget the NBA athlete, but basically tokenized their future income stream, I forget who that was, but I don't know much about the contracts that players have with MLB teams and how that works, and this is maybe outside of Candy, obviously, or maybe not, but do you see the financialization and tokenization of player futures in a sense, player future cap, future income, that kind of thing? Do you think that's real, or do you think that's a sideshow or not really likely to take hold?

Scott: I think it's something people have thought about and tried to structure around even before the advent of blockchain. There are funds out there that take financial stakes in people's future performance. I would say in .com 1.0, there were businesses that were lending money to kids coming out of school to pay their loans in exchange for future earnings, so whether it's on a blockchain or whether it's-

Jeremy: I heard that's called SoFi. I'm kidding.

[laughter]

Scott: -through a securities offering. I don't think that thing is necessarily new. I do think the idea of tokenized communities and finding a way to reward fans and early supporters for their engagement, not necessarily by saying, "Hey, I'm going to give you a 10% of my future earnings" because that's a security right now, but getting people in early, and then as distribution, popularity, engagement rises, having the value of those tokens go up, I think you're going to see more of that. Maybe that's in music, maybe it's an art, but that's an idea that has legs.

Jeremy: Yes, for sure. Speaking of the marketplace side of this, I think you've alluded to this a little bit, which is, obviously, a big part of what's driving the NFT market is the fact that you've got open marketplaces where people are trading. Floor price is what everyone's paying attention to and what's happening with that. You certainly see that as well. I know you guys just opened up your marketplace.

A two-part question, one, what are you seeing taking place in the marketplace? What role do you see the marketplace playing for collectors? Look, I used to go to baseball card shows and trade baseball cards, and that was the marketplace. I haven't kept up with whatever happens online, so forgive me, I'm out of date on all that, but what is the role of the marketplace?

Then the second part of the question, which is the other big piece of what makes NFTs so unique, no pun intended, is that they're interoperable. They're built on standards, and they're interoperable on blockchains, which conveys upon, one, the ability to theoretically self-custody, bring across different digital wallets, bring across different venues and marketplaces. That portability and interoperability is so fundamental.

It conveys technology capabilities that makes it possible for people to, say, build apps where the credential that you have in a wallet could present itself and that's useful, but the actual digital asset itself and its ability to move from one marketplace to another and that, is that part of your vision over time? How do you think about that today? A lot in that question, I realize, and we can break it apart however you want.

Scott: Yes. Great questions. I think from our perspective, the thing that we're the most focused on at least as we start out on this journey is providing a really cohesive customer experience. Our thesis is if Candy is going to be the institutional-grade partner to these world-class content owners and IP owners and we're going to create only officially licensed product using those media assets, the experience that we want to provide is a place where customers can go and see the primary product, see content and community that's there supporting that primary product and the sport and the team and the athlete and then a secondary market as well that's a cohesive experience so that if you're a collector--

If you just look at our Alpha product, our icon, digital trading cards, we had 81 All-stars and 30 prospects at the end of last season October. We released those in blind packs. There was a limited number of packs. Not everyone who wanted packs could get packs. We opened up our secondary marketplace, and that's now the opportunity for collectors to complete their set.

What we saw in the first week or so here is a lot of activity of folks who were excited to find the cards that they hadn't purchased yet. New folks who were coming into the space, they missed out on that first drop. Now they've got an opportunity to own something. Then as I mentioned, all of our products have a collector challenge or a reward structure baked into there. Some of the same things that drove you as a kid to start your business and drove me as a kid to collect and trade in cards, there's the thrill of the chase.

There's this idea of being able to complete your set, whether it's for personal reasons or because you think it's going to be more valuable over time, so creating that cohesive ecosystem of primary market community content and secondary market, that's what we're focused on today. Over time, to answer your question, ultimately, we think that there's going to be cross-chain solutions that are out there that make it relatively easy either as a consumer to choose which chain you mint on or to easily bridge or swap your token to a different chain.

We mint on Palm, and for us, it was really important that we choose a token connected to the Ethereum ecosystem. I think it's challenging for us to try to sell $10, $20 items on Ethereum Mainnet, given where the gas costs are, but we wanted to be part of the ecosystem on a side chain where gas is effectively zero, transaction speed high, and environmental footprint is low, with the idea that it's going to be very easy for folks to bridge to Ethereum. Ultimately, as Ethereum itself evolves, we start to see more convergence.

Jeremy: Yes, that makes sense. Do you think you'll get MLB or other partners that you have comfortable with the idea of open-loop digital asset exchange for collectibles if Coinbase or OpenSea or whoever has these venues, the idea that you take what you've bought here and go over there and third-party marketplaces, essentially?

Scott: Yes. I think philosophically, our view is NFTs want to be free. I don't mean from a price perspective. As a user, you want that transportability, you want to be able to self-custody, you want to have it in cold storage, et cetera. It really comes down to making sure that the protocols and the agreements are in place, the security is in place, and that ultimately we can see a world where that bridge works in two directions.

There will be NFTs that are really interesting and desirable that aren't necessarily officially licensed but may have a home in the baseball ecosystem. We want to be able to see both things happen.

Jeremy: Yes. We're very focused on trying to use all this public chain infrastructure to bring more and more mainstream applications online. It's, philosophically, a very big piece of what we're about. USDC itself is just trying to give the dollar the superpowers of the internet and give it all the powers of digital currency. I think with NFTs and that vision and getting rights holders to ultimately be comfortable, it seems like there are some missing pieces, identity, or mechanisms for identity become important so that ownership has meaning in the context of a customer or whatnot or other things.

Are there things that you think about, given how long you've been in the space as well? Are there other building blocks that you think are critical missing pieces at a user-experience level, at an infrastructure level? We talked about scalability, cost efficiency, energy efficiency. That's clearly one, but are there other things that you see as really critical to unlocking this?

We all talk about, how do we get to a billion users? What would be the apps to get to a billion users? Everyone now sees it's going to happen. What do you see as the critical things that are needed to help get us there?

Scott: Just from a product perspective, as a licensee writer on behalf of my partners, I think standardization across different marketplaces and exchanges, particularly as it relates to royalties, just from a purely commercial perspective, right now there are one-off conversations and agreements. If assets move in different marketplaces, there needs to become a standard language in a standard protocol to allow that pre-flow a lot more directly.

Then some of it's just the evolution of the technology. I talked about some of the features that we're working on, some of the experiential or the dynamic features. We know in our ecosystem, those features will all be functional. Not all of those, if you took your asset off of Candy's platform onto Ethereum Mainnet, would function quite the same way. Some of that is a benefit to being part of the Candy ecosystem.

If you hold your asset there and trade it there, you get the full benefit. Ultimately, we want to see those features be transposable across any chain. I think our approach to this space here is, we're not going to be successful by leading the way on a cross-chain solution or a multi-chain protocol. We want to be really thoughtful in working with all the different parties broadly to think about how that comes together.

Jeremy: Now we're all definitely tuned into that. We're doing a lot with Multichain USDC and envisioning. You want portability, scalability, interoperability, all of these are the promises. I'm originally an internet-tech guy, and that's what has got me interested in all this. Awesome. Well, Scott, it's been a really good conversation. Congrats on where you guys have gotten to here.

I know this is going to be a huge year for you, new seasons, new partners, new products. I think we're all really interested to see how these phenomenon start extending out beyond just the crypto land, as it were, and extending out more broadly, and you're very much at the forefront of that. We're excited to see what you guys continue to build.

Scott: Well, thanks. We're really excited about it and thankful for the partnership with Circle. I think we see where this whole space is going in a very similar way. So glad to be on the journey together.

Jeremy: Absolutely, no doubt. Looking forward to the next year. Well, Scott, thanks for joining us here on The Money Movement today.

Scott: All right. Have a great day. Thanks.

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