CINCINNATI — It’s a longshot, no question.
But a local technology investor – and former Hamilton County Commission candidate – thinks he has the solution to Hamilton County’s stadium dilemma.
Adam Koehler wants to tokenize the Cincinnati Bengals. That means converting its shares into digital assets that can be bought, sold and traded like bitcoin. Such a deal could generate billions of dollars in cash for the family of Bengals owner Mike Brown, while keeping them in control of the franchise founded in 1967 by NFL Legend Paul Brown.
“It would allow the residents of Cincinnati, instead of going broke spending money on the sales tax, (to) put their money into something that’s practically guaranteed to make money,” said Koehler, founder of Reversed Out, LLC, a digital advertising agency in Covington. “Five years ago, this team was probably worth $2.5 billion. Now it’s worth $5 billion. It’s like, how many billion dollars do you need on paper? At some point, you probably want to get liquid.”
Watch a full breakdown of how this would work here:
Bitcoin Bengals? The case for turning the team into a digitally-owned asset
The Bengals did not respond to an email seeking comment for this story. But there is reason to believe the team would not be interested in Koehler’s idea.
“They’re not necessarily early adopters,” said Joe Cobbs, a professor who runs the Sports Business and Event Management program at Northern Kentucky University. “They’ve shown themselves to be pretty conservative in their approaches, and it’s worked for them.”
The Bengals were the only NFL team to vote against a rule change last November that allows private equity firms to purchase ownership stakes of up to 10 percent in an NFL team. But Koehler figures cash would come in handy for the Brown family, which made the Forbes 400 last year with an estimated net worth of $3.9 billion.
Ray Pfeffer
“One of the big problems for these billionaires like Mike Brown, who’s a billionaire on paper, is ‘Does Mike Brown have that liquid money? Does he have that cash sitting there?’ The answer is no,” Koehler said. “That’s a big problem for us as fans because he can’t pay players. You saw Jessie Bates walk. You saw D.J. Reader walk. Hopefully they can work out a deal with Ja’Marr Chase, who’s the best receiver in the league. But they have to guarantee so much money.”
NFL rules require teams to place money in escrow for long-term contract guarantees. The Bengals are known for avoiding guarantees beyond a contract’s first year. Koehler said the team could also use an influx of cash for stadium expenses or estate taxes.
“We don’t know what their financial situation is, personally. But I would guess that, if all their wealth is tied up into that asset, they probably want to get liquid at some point,” Koehler said.
Ray Pfeffer
‘It’s crazy in the sense that it’s new’
The idea of tokenizing the Bengals has been percolating in Cincinnati’s startup community for years. Koehler was one of those stirring the pot, as he looked for new opportunities following the 2015 sale of Dotloop. It was one of Cincinnati’s biggest startup success stories, when it sold for $108 million to Zillow. Koehler was among its founders.
A few years after the sale, Koehler “started getting into crypto. I own a digital agency. I had to understand how blockchain worked.”
Blockchain is a digital ledger that allows a series of transactions to be recorded, time-stamped and shared in a way that’s intended to promote transparency and prevent fraud. It’s used by cryptocurrency investors to buy and sell digital currencies like bitcoin and ethereum, but it can also track digital tokens that use a unique number to represent ownership of a specific asset.
Koehler helped organize a 2017 conference in Northern Kentucky called “A Day for Crypto.” It explained the industry to about 200 local attorneys and investors. He formed a startup called C-Prop, which uses blockchain technology to document real estate transactions.
“Then, we started going down this whole path of what can be tokenized,” Koehler said.
In the process, he met Mike Hiles, founder of 10XTS, a consulting firm that helps investors tokenize what the industry calls RWAs, or real-world assets.
“Imagine a world where you could own a piece of your favorite painting, a slice of a skyscraper or a fraction of a gold bar,” says the company’s promotional video. “That’s the power of tokenization.”
It makes perfect sense to Hiles that the Cincinnati Bengals could be tokenized.
“I mean, it’s crazy in the sense that it’s new,” he said. “But it’s also based on legacy financial structures.”
Hiles said the concept is catching on quickly in the financial industry, where tokens are being used to represent bond transactions, loans and mutual fund trades. Adoption has been slower in other asset classes, including real estate, commodities and agriculture.
The global consulting firm McKinsey & Company estimated last June that tokenization could be a $2 trillion industry by 2030, mostly driven by the conversion of financial transactions into digital tokens.
“Tokenization, the process of creating a unique digital representation of an asset on a blockchain network, has reached a tipping point after many years of promise and experimentation,” said the McKinsey report. “The digitization of assets seems even more inevitable now as the technology matures and demonstrates measurable economic benefits. Despite this visible momentum, broad adoption of tokenization is still far away.”
Hiles thinks rapid change is likely in the next four years, now that President Donald Trump has been elected with hefty contributions from cryptocurrency voters and donors.
“One claim that he made several weeks ago was that he wants to eliminate the capital gains tax on returns created by digital assets,” Hiles said. “Well, that’s going to create an explosion of tokenization because everyone’s going to want to wrap everything in a token to get the loophole of the capital gains exemption.”
For the record, Trump has not formally proposed a crypto exemption to capital gains tax and experts say such a policy is not likely to be approved by Congress any time soon. But the president’s son is promoting the idea and crypto-friendly rules changes have beenintroduced in Congress and in executive orders signed by President Trump.
“Tokenization of everything is inevitable,” Hiles said. “Whether we pursue it today or not, there’s going to be a growing market demand for assets that are represented in a highly secured digital form.”
Ray Pfeffer
The Art Modell factor
Of course, none of that would be likely to convince the Cincinnati Bengals to pursue a tokenization deal on their own. But Koehler can envision a scenario that might make it happen.
“There’s this Art Modell rule in place that makes it really challenging for teams to move,” he said.
Ohio’s Art Modell law requires professional sports teams, playing in taxpayer-funded stadiums, to negotiate with local buyers before they leave town. Modell’s Cleveland Browns became the Baltimore Ravens. The Browns were revived as a new NFL team in 1999. Koehler learned about the Modell law last October, when the Browns announced it would leave Cleveland for a new stadium in Brook Park.
He was running for Hamilton County Commission at the time, looking for solutions that would keep the Bengals in Cincinnati long-term while reducing costs for taxpayers. He began to ponder how negotiations for a lease extension might play out, and whether Mike Brown might threaten to leave town again, as he did in 1995.
“Is it possible? Yes. He could make a claim, ‘Hey, I can’t do business in Cincinnati. I could move to Mexico City,’” Koehler said. “He’s essentially got a gun to our head right now. He says, ‘Hey, you build me a stadium or I’m leaving,’ right? Well, here we come with leverage. And we say, ‘Wait, wait, wait Mike. We’ve crowdfunded this money and we have enough.’”
Koehler lost the election and the county remains at the negotiating table with the team. But Koehler still sees merit in pursuing the tokenization idea, if only to have a local buyer ready if the Bengals ever take steps to leave town.
“So, the idea is, you create a trust,” Koehler said. “You create this special-purpose vehicle. The special-purpose vehicle has a president and a board. Well, that president is your guy. He doesn’t own the team but he is the person that we’ve put in charge, as people who are token holders that own this trust. He’s the person the NFL deals with.”
How would it work?
Koehler estimates it would take “a couple of million” dollars to create a tokenized ownership entity capable of selling fractional shares to investors.
“I would say the Cincinnati Bengals fan base area, you’ve probably got between three and five million people here,” he said. “If you got 5 million, that’s a thousand bucks a person. You’re going to have some people who want to spend a million dollars on tokens. You’re going to have another person that maybe wants a thousand bucks on tokens.”
Once it’s created, then Mike Brown could join the entity by trading the family’s corporate shares for a majority stake in the special-purpose vehicle.
“He could maintain primary ownership of it, if he wanted to,” Koehler said. “He could take, you know, 51% of the tokens, if he wanted to sell and get liquid, and issue 49% of the tokens back to fans.”
NFL rules require its teams to have a “person in control,” which means someone who owns or controls at least 30% of a team’s ownership and serves as the team’s representative in NFL meetings.
“It might actually be preferable for Mike to be in control because he’s already got those relationships with the NFL. He already knows people,” Koehler said. “But again, if Mike sells 49%, now he’s liquid. Now, Mike’s in a different position, right? He may not be as stingy as he is now. He may be willing to kick in some money on a new stadium.”
Hiles said a deal could be structured to ensure that a member of the Brown family will always be in control of the team, although it might have to confront opposing viewpoints from a larger board. The current Bengals board has nine members, seven of them from the Brown family.
Still, Hiles argues Mike Brown would see benefits beyond liquidity and tax benefits if he agreed to tokenize the team. He might even be seen as an NFL innovator, just as his father was.
“I would think that being the first tokenized professional sports team, that would be historic, right? He would go down in the books as like the first person to ever do that,” Hiles said. “Love him or hate him, Mike is Cincinnati. I think the idea is, we’re trying to keep Mike Cincinnati.”
