In March 2021, a digital artwork titled “Everydays; the first 5000 days” by artist Mike Winkelmann aka Beepie sold at Christie’s, the auction house in New York for a record $60.25m. Ordinarily, this is not news. In 2017, Christie’s in New York sold the painting “Salvatore Mundi” by Leonardo da Vinci for $450,312,500 a record.
So, what is the fuss with the art by Beepie?
Well, Beepie’s art is a Non-Fungible Token, which means that the painting was issued with a digital certificate of authenticity that runs on blockchain technology.
Yes, welcome to the future.
What is an NFT exactly?
An NTF is a Non-Fungible Token. It simply means any contract, document, or art, that is non-duplicable and assigns the ownership. Think of it this way, there are billions of N100 in circulation, what if the Central Bank of Nigeria issued an N100 NFT, then Naira will not be unique – it can never be reprinted, or copied. The CBN will then reissue a certificate, secured by a digital code, permanently published into a token, on a blockchain like Ethereum. In essence that N100 becomes valuable not because it’s a N100 note but because it’s unique, and there can be no other one like it again.
Just like diamonds, the value of that N100 is not in its utility or exchange value but its scarcity or exclusivity. That N100 NFT could sell for N100,000.00. Therefore, a painting by Beepie can sell for $69m because it’s exclusive, it’s non-fungible. An N100 note is fungible. The CBN can print lots of N100 bills, every N100 bill printed is worth the next N100 printed, but the N100 NFT is not worth N100. Its worth is determined by the price set by demand and supply. If more people think a N100 NFT is working more, the price will rise.
What NFT does is create a meaningful specific out of a wandering generality. Anything can become an NFT. I can for instance partner with Austin Jay Jay Okocha and create a digital GIF of him dribbling with a soccer ball. I will go to say Ethereum or Polkadot where NFT is created. That Okocha NFT will carry a digital signature that authenticates that token on any server.
I can then sell that on NFT platforms like Open Sea or Variable. Collectors can then buy that GIF of Okocha dribbling. Note that the actual GIF can be seen anywhere. If I own the token, I cannot hide it, but I can sell that token by transferring it with that authentication certificate.
Yes, again welcome to the future.
What really is happening here?
To my mind, NFT, SPACS, even Cryptocurrencies are a product of the excess liquidity in the global system, there is simply too much money floating around, issued by the various central banks. Take the US for example, she has authorized close to $4.4 trillion, roughly about 27% of GDP in Coronavirus stimulus measure to reflate and boost an economy still experiencing layoffs. That’s a lot of cash being paid to business, individuals, Counties and States and that cash eventually will trickle to the stock and bond markets.
That liquidity is also driving a boom in traditional assets and creating a market for alternative assets like NFTs. Cash is becoming a commodity. Interest rates in most of the world including Europe and Japan are negative. America remains the number one destination for Foreign Direct Investments in the world. The Trump Tax cuts allowed record amounts of cash to be repatriated back to the United States and companies like Apple took advantage of that.
This has led to rising-falling bond prices and fears of inflation in America, thus a lot of investors are now seeking to hedge against a falling US Dollar by diversifying into new asset classes like Cryptocurrencies and NFTs. NFTs really have no intrinsic value. They will go up in price and make a huge return for the holders because of demand, but they generate nothing in terms of return. They are simply based on the “Greater Fool” theory and will continue to post a health return to the holders if there is a buyer ready to buy from the holder, and there will be lots of buyers.
That said, If I had the choice to buy and hold a N100 note or a N100 NFT, I will fall over myself to hold the N100 NFT. Why? because its “scarcity” protects it from inflation. In effect, NFTs are a hedge on inflation.
The issue really is inflation and the risk of holding cash.
Advise to you? Hedge.
Biden tax opportunity for Nigeria
Nigeria should create a fiscal “Delaware” where any foreign incorporated company can open an office and pay zero taxes on imported capital, no need to be present in Nigeria.
America is a nation of 50 states? No. America is a State with 50 nations.
Each of those nations has its fiscal policies and rules. Forty-five states in America charge a Sales Tax. Colorado has the lowest State Sales Tax at 2.9%, California has the highest States Sales Tax at 7.25%. The State with the highest tax burden to the taxpayer is New York which charges a total tax of 12.79%. The lowest tax burden State is Alaska.
These tax rates that differ from state to state creates opportunities for legislation to be created by US State Houses of Assemblies to target and attract businesses to their state. Take Delaware, 66.8% of all Fortune 500 companies incorporate in Delarewe. Google and Coca-Cola are incorporated in Delaware, why? First, you don’t need to be resident in Delaware to incorporate a corporation in the State. Delaware will also not impose a state tax if you do not conduct business in the state.
Texas Vs California
The former Governor of Texas, Rick Perry conducted many “Business Recruitment Trips” to the State of California to lure jobs to Texas. Texas State ran radio ads in California to market Texas as a business destination. Chuck DeVore of the Texas Public Policy Foundation states, “job growth has been running 80% stronger in low tax states than in high tax states since the passage of the tax cuts Act of 2017. For California, the lost opportunity adds up to 153,000 positions since December 2017.” Elon Musk and Joe Rogan have all left California and moved to Texas. Apple, the largest company in America by capitalization is building a new campus in Austin Texas.
In 2020, For the first time, California has posted a population loss.
What about nations?
The data is not so direct when looking at nations.
Companies make decisions based on maximizing shareholder return on equity. If taxes are higher in one nation, then the cash will flow from that nation to another. When the US passed the tax cut legislation in 2017, it eliminated the tax obligation on repatriation of foreign profits. In response, more than $1 trillion flowed from foreign subsidiaries to their US HQ. These funds flowed from low-tax nations of Bermuda, Netherlands, and Ireland, according to the Wall Street Journal.
Biden Tax Proposal
President Biden seeks to raise taxes on American taxpayers to pay for a $3 trillion infrastructure plan. In summary, the plan will raise the corporate income tax from 21% to 28%. With a 15% corporate global tax on companies posting incomes above $100 million.
President Biden knows that when taxes are hiked, American business will simply leave the profits earned outside the tax jurisdiction of the United States, e.g., Exxon Mobil will simply leave the cash it makes from the Nigerian Qua Iboe oil fields in banks in Ireland, rather than send them to banks in the US.
Hence the plan B for Biden is a global minimum tax that will tax all companies including US companies that do business globally. The Biden administration’s plan is simple, if the global tax equals or is less than what US companies pay in Ireland, then they will simply repatriate that cash back to the US and pay a lower tax.
However there is one problem, why will Indonesia or Ireland tax ExxonMobil and lose revenues like California? They will not, thus Ireland will become the new Texas, as more American firms will site “international operations” HQ in Ireland, book profits, and accumulate cash offshore.
What should Nigeria do?
Nigeria should create a fiscal “Delaware” where any foreign incorporated company can open an office and pay zero taxes on imported capital, no need to be present in Nigeria. Nigeria can create and offer special $Eurobonds targeting liquidity. ExxonMobil can invest her crude oil sales JV profits with NNPC in $ denominated bonds held by Nigerian banks, shielded and excluded from all taxes and mandates from the CBN.
There will be American firms seeking to set up a manufacturing base outside the American continent (GE is already in Calabar). How about making that State a Special Economic Zone for only US business, no taxes, no import duties, no levies? What about the Yaba IT cluster? Mack Zuckerberg of Facebook and Jack Dorsey were also in Yaba, can Nigeria create an IT economic zone for services? China is far away and, in conflict with America’s geopolitical interest, Vietnam and the other Asian tigers have seen their wages rise, they are becoming uncompetitive in wage terms.
Nigeria still has low wages and an English-speaking young population. This is a good time to fiscally reform. It will not be easy, Nigeria must change many rules, it must be more open, more transparent, and protective of international property rights, but this is an opportunity.
A typical football viewing centre experience in Nigeria
The centres are stadium-like atmosphere with banter, laughter, pre-match and post-match analysis that sometimes become heated.
It’s a hot Saturday afternoon in Lagos and as you drive down the narrow street lined with cars to attend the naming ceremony of your colleague’s newborn son, a horde of young men come rushing onto the street from a nondescript building at the corner.
Your first reaction is to slow down and watch their next move, another part of you wants to quickly get out of the way to avoid any untoward occurrence. There is a brief and palpable fear inside the car as you scan the faces of the crowd passing by, trying to make out their words and expressions. Suddenly, your eyes light up. Alas! The furore is a simple football banter.
Scenes such as the one described above are a regular occurrence in Lagos and most parts of Nigeria; welcome to the weekend ritual and the allure of the Football Viewing Centre.
From mid-day on weekends and some midweek evenings during the European football season, you will find young men crammed into halls, rooms, makeshift theatres, sports lounges and every available space to watch football, mainly the English Premier League (which is the most popular league), the Spanish La Liga and the UEFA Champions League. It is a thriving multi-million naira industry born of the love Nigerians have for football and the widely available broadcasts from Multichoice (DSTV) in Nigeria.
The public viewing of football matches taps into the communal nature of Nigerians that makes viewing matches alone uninteresting and very ‘unNigerian.’ The period of DSTV’s entry into Nigeria coincided with the peak of Nigerian football when the Super Eagles were African Champions and qualified for their first World Cup. Stadium attendance was very high. The public viewing centres became an extension of the Stadiums and sprung up in locations all over the nation.
A typical viewing centre is a bungalow-like structure or shed with rows of wooden benches arranged to face the different tv screens showing the matches on offer. Outside, a handwritten display on a chalkboard shows the scheduled matches and their viewing times for the information of the prospective attendees. To keep out the prying eyes of those who want to watch matches for free, a tarpaulin cover is installed around the structure to ensure only paying customers can watch the matches.
Consequently, giant fans are provided to ease the inevitable heat from a mass of bodies all crammed together. These days, UPS and Inverters are installed to keep the decoder running before the generator is put on; when the inevitable power cut occurs. This ensures the audience does not miss out on any exciting moments of the match while the decoder reboots after a power cut.
Payment is made at the entrance of the hall, most times per match but regular patrons are allowed to make payment ahead for the total number of matches they might wish to view. Patrons are handed a ticket as proof of payment and the cost of viewing a match on average is N100, while N200 is charged for matches showing simultaneously. Average occupancy is between 50 – 100 patrons and for eagerly anticipated matches, viewership can be even beyond the original occupancy levels of the centre. A typical Saturday line up in the EPL has the games scheduled one after the other and patrons are encouraged to pay a flat rate of N200 for 3 games in a row or pay N100 for each individual game. At the end of each game, the centre is emptied out and paid customers let back in before the commencement of a new game.
Viewing centres have evolved over time from single-screen locations in the early 2000s to multi-screen locations, with some of them offering other forms of entertainment such as snooker tables and video games like PES and FIFA to maintain patronage. In the age of sports betting, many viewing centres have also incorporated betting shops as one of their offerings. People place their bets and are encouraged to stay behind to watch the games and see the progression of their betting tickets.
Once the patron has made the requisite payment and is allowed entry, he gets to sit in one of a row of seats (mostly wooden as rowdy fans have been known to occasionally destroy plastic chairs), usually seating up to 5 persons. The screens are arranged in a way to create the impression of being able to watch multiple matches at the same time; though, in time, the patron finds out that it is easier to focus on one match.
It is a raucous, stadium-like atmosphere with banter, laughter, pre-match and post-match analysis that sometimes become heated. As is typical of any place where young Nigerians are gathered, there is always the inevitable shift to politics and other burning national issues.
Viewing centres do not sell alcoholic beverages but sell other kinds of drinks to provide refreshment to the patrons and act as a source of additional income for the owners. On a typical weekend in the thick of the Football Season, a regular-sized viewing centre that can sit between 50 – 100 people showing an average of 4 matches per day can rake in upwards of N56,000 over a busy weekend before deducting expenses and exclusive of income from drinks and other refreshments.
In most middle income / affluent neighbourhoods, sports lounges have emerged as both an alternative and another form of the viewing centre. The sports lounge is basically a watering hole that encompasses drinks, food and other edibles in a cool and comfortable environment. Here, the patrons do not have to pay an entry fee but are required to purchase drinks or food.
The typical patron is a young, urbane and upwardly mobile professional looking for fun and an alternate way to unwind. The attraction for patrons is the ambience, comfort and the ability to mingle with friends while watching their favourite team play. Due to the availability of space, the arrangement of a sports lounge is markedly different from that of a viewing centre. The seats are plush and more comfortable and are arranged around tables in small clusters with a TV screen as a focal point.
The drinks are usually pricy with alcoholic beverages starting at N1000 per bottle and high-end spirits selling from as much as N16,000 per bottle. Due to the absence of a gate fee, the onus is on the operators of the sports lounge to find new innovative ways to attract more patronage and to increase the sale of their different offerings.
The key expenses for both the viewing centre and the sports lounge are the cost of subscription for DSTV, generator costs and rent. These costs differ substantially based on the location, availability of public power supply and any ancillary cost peculiar to the establishment. Power is an ever-present cost for any business operating in Nigeria and consists of both the cost of powering and maintaining a generator (either diesel or petrol) and payment for public power consumed (prepaid or postpaid).
All in all, the viewing centre business, though a cyclical one dependent on the Football season in Europe, is a lucrative one if well run and managed.
Nairametrics | Company Earnings
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- PZ Cussons Nigeria Plc appoints Ifueko Okauru as Independent Non-Executive Director.
- Chams Plc announces the appointment of Patricia Duru as new CFO
- NPF Microfinance Bank reports a profit after tax of N614.42 million in FY 2020.
- UACN Property Development Company Plc appoints Ojo Odunayo as new CEO.
- Unilever Nigeria Plc reports a loss of N492 million in Q1 2021.