Organizations win championships 🏆 (Krause House)
The next era of professional sports looks a lot like the first era.
“I believe that we will win”
Every Sunday from September through January, I drive across town to my church, a small rundown place on the corner of Powell and Green. I’ve been going there for a few years now, and I feel a sense of kinship with my fellow practitioners. We know each other. We perform our sacred chants. We pay tribute to our favorite heroes – White, Cunningham, Jackson and Foles. We discuss weekly analyses posted online by our community’s sharpest voices – Brandon Lee Gowton, Tommy Lawlor and Merrill Reese.
But ours is not a religious community in any traditional sense. Ours is a fellowship of the Bleeding Green Nation. We are Eagles fans.
People who “don’t get sports” often miss the community it creates. It’s not just about the glory and agony of highly paid professional athletes. It’s about family traditions and local pride. It’s about history and a sense of place.
It’s about community and the sense of ownership that a fanbase has over its team.
About six months ago, I got a message from a friend asking me if I had heard of Krause House. This friend is not a crypto person. He is a basketball person. Benny fucking loves the NBA. He is one of those fans who spends hours reading Twitter in the off-season for updates on the 76ers. He watches every game. His mental state between October and June is tightly correlated to the performance and health of Joel Embiid.
But for all the time and energy Benny invests, his relationship with the team is one-directional. Benny feels ownership, but he doesn’t own. But if Krause House DAO gets its way, that could soon change. Krause House is aiming to become the first community to become a shareholder in and help operate an NBA team.
Krause House is named after the controversial Bulls GM, Jerry Krause. Krause GM'd a team stacked with Hall of Famers (Jordan, Pippen, Rodman, Parish and Kukoc) and coached by Phil Jackson. But that didn't stop him from taking credit. He told reporters: "Players and coaches don't win championships. Organizations win championships."
Krause House, in a winking way, shares Krause's view. They believe that their community of engaged "Jerry's" can help build winning teams. They promise partners a hyper-engaged fanbase of owners. They promise a world-class analytics operation fueled by their members. They promise to revolutionize what it means for a team to engage with their fans.
I forgive you for being skeptical of a group of internet strangers trying to buy an NBA team.
In European Soccer Leagues, it's possible. WAGMI United exists. Ryan Reynolds/Rob McElhenney have bought into Wrexham AFC. But in America, buying into sports teams is next to impossible. It's ridiculously expensive. And the due diligence process is insane. To quote a favorite episode of Billions, “Sports franchises are how we knight people in this country.”
Is Krause House ready to be knighted? And more than that, what would it mean for sports if every fan was also an owner?
Let's find out.
The Rise of Pro Sports: Scotch Professors and Suburban Dreams
The ironic thing is that professional sports started in DAOs. Oh, sure, they weren’t called that then. But that’s what they were.
The first professional teams came from sporting clubs. They emerged almost simultaneously in the UK and the US in the late 1860s and early 1870s. In America, these clubs played baseball. The sport spread across the country by soldiers playing during the Civil War. In the UK, it was soccer. Football had become popular at Cambridge and Oxford before the rules were standardized.
In both cases, the decisive factor in growing sports was industrialization.
Men had given up the farm for the factory. Higher wages and shorter hours meant more time for leisure activity. Clubs formed for factory employees to play sports together. These clubs were loosely organized communities that shared a love of sport. Sound familiar?
Gradually, inter-club competition took root. People would gather to watch these matches, and that fueled competition. It became common for teams to pay stars under the table. In England, they were known as “Scotch Professors” since Scottish ringers were known to move to England for the season.
Finally, in 1869, the National Association of Baseball Players welcomed professionals to baseball. In the UK, the FA followed suit in 1885. This cleared the way for modern sport. By the 1880s, 10,000 people were watching soccer rivalry matches in-person.
It's hard to predict when new forms of recreation will emerge. But for sports, there seems to be a pattern. When people have increased free time, and there's a new way for them to interact, there will be a new type of sports experience. In the 1880s, that looked like Factory Work + City Commons/Stadiums = Spectator sports.
The balance shifted again when Americans started spending less time in the city. They started spending hours on their couch listening to radio and watching TV. And that cleared the way for broadcast sports to create a new pastime.
By the early 1960s, Americans were a suburban people. Their idyllic homes were not complete without a television set. But America’s largest sports did not understand the new leisure paradigm.
College football and the MLB both thought broadcasts detracted from live crowd attendance. They restricted the number of broadcasts until 1981.
But the AFL and NFL smelled money. And they got to work. The league negotiated deals to carry games with the major networks.
Television took over the living room on Sundays and then on Monday nights. And as a result, pro football overtook baseball and college football as America’s favorite sport.
New leisure time (suburban life), new media (TV) and a new type of sport entertainment (televised spectator sports).
The pattern repeated itself again with the rise of eSports and streaming. And fantasy football. And, of course, the NBA has been quick to crypto with their popular Topshot NFTs.
Crypto, as I've written, is not unique because we can own digital assets. It is unique because it makes it easy for digital communities to pool capital for real world assets. And so, the logical end-state of "crypto" sports should be clear.
We went from members to fans to fantasy owners. The final step is to come full-circle. Fans are going to become owners.
That brings us back to Krause House.
The Plan: Back to the Future
It was easier 150 years ago.
There were no established billion dollar clubs. You just created a sports club and joined a league. But today, buying into the world of professional sports is expensive.
The NBA recently made it easier. They announced in January 2021 that private equity investors could buy into teams for the first time. And don’t tell the SEC this – but you can structure your DAO as a Private Equity LLC.
So legal structure: check.
But this is where it gets harder.
The sports team markets are not public. They are private and for highly qualified buyers. A bidder has to demonstrate that they are a real value add.
The modern professional sports team is a massive enterprise. Teams are partnerships of large-scale investors. That partnership manages a team that competes to win. And they manage a media empire that engages and monetizes fan attention.
To that end, Krause House has started investing in proving their value.
Remote Fan Engagement
If Web3 has a core philosophy, it's that ownership invests a community in its own success.
So if fans own the team, Web3 reasons, they will care more. They will cheer harder. They will come to more games. They will buy more gear. They will do everything they can to see their team on top.
Krause House is doing more than theorizing. To prove their theory, they acquired a professional team of their own. Earlier this year, they bought the Ball Hogs in Ice Cube’s 3-on-3 BIG3 League.
Krause House's pseudonymous co-founder, Commodore, told me that they want the Ball Hogs to have the best fans in the league.
They aim to have the biggest cheering section and the most active presence on social media of any BIG3 fandom. That includes watch parties, loyalty programs, fan-sourced partnerships and media production.
Their MyJerry app rewards Jerrys for engaging in virtual basketball communities. Their analytics team produces an in-depth podcast on the League. They even have hosted a book club with Idan Ravin who has trained Steph Curry, Chris Paul, LeBron James, Kevin Durant and Carmelo Anthony.
The Krause House is a community of die-hard basketball fans. A professional fan club without a team. For small market NBA teams that are looking to spread their reach, this could be an irresistible proposition. After all, Green Bay is not exactly a booming metropolis. But the fan-owned team has long had one of the most engaged fandoms in football.
Commodore also explained how their value add could transcend the cheering section. “We have PHD data scientists in our community,” he told me, “We can bring massive analytics talent to any organization.”
Playing moneyball with a team’s roster in Discord is probably a pipe dream. But it’s not crazy to imagine engaged fans with a demonstrated record of quality predictions offering credible insights. That's not really that different than the relationship between press and team. And while teams are fond of saying they "tune out outside noise," it's hard to imagine they don't pay some attention.
And consider the talent pool that Krause House can tap into. Stanford PHDs might not be willing to sign up with the Warriors as a full-time analytics wizard. But I’m sure many would love to offer their knowledge to their favorite team. It’s always better to be part of a winning team than to watch one.
So again, Krause House is demonstrating this capability using its BIG3 team. One of Krause House’s Jerrys prepares a scouting report on opposing teams for each game.
Today that process looks a lot like a freelancer contributing. But Krause House imagines it becoming more like a competitive game that will help vet contributors. Members would compete on predictions in eSports and other fantasy analytic games. This would help establish their credibility. It's a smart extension of fan behavior. Fans already pore over arcane statistics. They listen to scouting reports. If they can use these games to source (or crowdsource) the next Billy Bean, that's a helluva value prop for partner teams.
The Price of Greatness
Of course, the most important piece to buying an NBA team is.. Y’know, having the money to buy it. That’s no mean feat. The Suns are expected to sell for >$2B. Krause House is only looking for a minority share. And NBA requirements would not allow a PE Fund buyer to own more than 20% of a team.
Still, a meaningful share is in the 10s-100s of millions. The DAO raised $4.1M last year. Impressive? Yes. But ownership ready? Not so much.
But you have to wonder if that could change quickly if they find a team with a willing buyer. People don’t invest in the abstract. Offer me a chance to buy a share in an NFL team? Meh, okay.
Offer me a chance to buy a stake in the Eagles and I will drain my bank account quicker than you can say Go Birds. It’s easy to imagine a partner fanbase doing the same. After all, ConstitutionDAO was able to raise ~$45M USD last year to (unsuccessfully) bid for a copy of the US Constitution.
So while I see this as the biggest stumbling block to the DAO’s ambitions, I’m not particularly phased by it. Owning part of your team is a great meme – and I think it’s going to bring people into crypto who have never heard the word “DAO” before.
My friend, Benny, among them.
Long ago, the idea of professional players was crazy. But players understood that they were giving up their time, their capital and sometimes their body for the club. They deserved compensation. Today’s sports fans spend $56B on their teams in the US alone. And that doesn't count the hours spent reading, analyzing and tweeting about their team. It’s about time they were rewarded for that, too.