National Basketball Association NFT Marketing Efforts Exploited - Klein Moynihan Turco LLP

National Basketball Association NFT Marketing Efforts Exploited

On April 20, 2022, the National Basketball Association (“NBA”) engaged in a bit of NFT marketing and released 18,000 free NFTs in an exclusive drop, available only to its Discord server’s earliest members. In dropping “The Association” NFT collection (the “Collection”), the NBA had intended to allow each of its qualifying Discord channel members to mint one of the Collection’s NFTs. However, issues with the Collection’s smart contract code unfortunately permitted members to mint multiple NFTs. As a result, the available 18,000 NFTs were quickly minted by a small group of individuals, and many eligible members did not receive The Association NFTs, as promised. 

What Went Wrong with the NBA NFT Drop

The NBA decided to give early Discord members access to an “allow list,” which reserved one NFT from the Collection per Ethereum wallet address registered on such list. The NBA believed (and promoted in its NFT marketing) that each member on the allowed list would be permitted to mint one NFT from “The Association” Collection. 

However, it seems that the Collection’s smart contract contained major flaws. Smart contracts are programs stored on blockchains which automatically and immediately execute agreements (here, an NFT sales agreement) when predetermined conditions are met. In conflict with the NBA’s intentions (as listed above), its smart contract: 1) permitted eligible members to grant minting access to other wallets that were not on the original list; and 2) failed to prevent wallets from minting multiple NFTs. 

Some members took advantage of these loopholes and minted as many NFTs as possible. Around an hour after the Collection drop, the NBA became aware of the exploitation and paused the drop. By that time, thousands of the Collection’s NFTs had been minted by individuals who had exploited the loopholes. As a result, many members did not receive their promised NFTs. 

The NBA will uphold its NFT Marketing Promises

Unlike the creators of the alleged Frosties Utility NFT scheme, the NBA will not break the promise it made to consumers. Although third-party exploitation of the Collection’s smart contract resulted in the breach (rather than through a deliberate act of the NBA), the NBA will, nevertheless, fulfill its marketing promises. The day following the minting event, the NBA announced that it had identified those who did not receive their NFTs and would increase the size of the Collection to 30,000 NFTs (an additional 12,000 NFTs), so that everyone who was promised an NFT would get one.

As this unfortunate collection launch illustrates, it is advisable to obtain guidance from attorneys experienced with NFT marketing before offering NFTs to the public. If you require assistance with an NFT launch and/or your associated NFT marketing practices, please e-mail us at info@kleinmoynihan.com, or call us at (212) 246-0900.

The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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Photo by Jason Leung on Unsplash

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