National Basketball Association NFT Marketing Efforts Exploited – Fin Tech

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.

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