There is a sneaker drop of mammoth proportions on the horizon. The shoe in question has what you’d call serious provenance: on offer is a pair of player-exclusive and star-spangled Kobe Bryant 2s…that the late Lakers star gifted to LeBron James…who wore them in a high school game…against 18-year-old Carmelo Anthony. That ownership history was enough for the shoes to sell for $156,000 at auction last month. They’re now back on the market, but with something of a twist. When they go up for sale—later this spring, on an app called Rally—there’s a good chance you can be the owner of these historically significant shoes. Or at least a proud owner of a small, metaphorical piece of them.
That’s because Rally was the proud purchaser of those shoes at auction—and because Rally is a platform that allows people like you and me to invest in partial shares of high-value stuff. Rally started as a place where investors could purchase shares of rare cars, before moving into art and watches. Now, it’s ramping up its sneaker offerings with these Kobe 2s, along with more: a pair of Air Jordan 6s game-worn and signed by Michael Jordan himself; shoes Zion Williamson wore in action; and a 1972 prototype of Nike’s Moon Shoes. The new fleet of sneakers coming to Rally is part of a burgeoning alternative investment class. In addition to Rally, there are companies like Otis, where investment opportunities range from Kevin Durant rookie cards to a pair of Dior Air Jordan 1s, and the WatchFund, which allows participants to invest in a physical group of watches, clustered together the way a mutual fund bundles stocks. Think of it as Sisterhood of the Traveling Pants, if the jeans incurred a capital gains tax.
This all sounds a little absurd, but the general idea underpinning these apps—put your money in sneakers, kid!—is not a new investment strategy. Sneaker resellers have been treating shoes as investment vehicles for years, while StockX, one the most popular resale platforms, attempts to recreate the experience of trading on the stock exchange floor with Wall Street jargon, replacing “buy” and “sell” with “bid” and “ask.”Goat, a StockX competitor, offers buyers the option to keep purchased shoes in storage while they increase in value.
But where platforms like StockX and Goat treat sneakers like assets, for Rally and Otis they really are stocks—no similes, metaphors, or comparisons necessary. For a shoe like LeBron’s game-worn Kobe 2s, Rally will “securitize” the item, filing vital documentation to the SEC to turn it into a tradeable item, and then releasing shares for sale in what the company calls an initial product offering. Rally employees factor in comparable auction results and the price they paid to acquire the item to determine the sneaker’s value—and then split it into enough slices to keep shares affordable. Then investors are able to buy shares until the demand is filled. (If shares don’t fully sell out, Rally purchases the remaining shares, refunds existing investors, and attempts to privately sell an item.). Every month, a day-long trading window will open for the product during which people can buy or sell their shares. If an opportunity comes to sell the shoe outright to an interested buyer or collector, Rally coordinates a vote among the shareholders. If more than 50% vote to sell, the shoes are moved and everyone is cashed out. Otherwise, you may be one of over one thousand people currently holding a handful $8.50 shares of, say, a pair of Jordan’s game-worn baseball cleats (a real shoe on Rally right now). Rally, meanwhile, makes its money by charging fees for insurance, storage, and sourcing. Naturally, the platform also releases merch alongside new offerings (of course!).
The sneaker market has been teaching its customers to navigate the sneaker market like the stock market for years. Goat employs a former trader from Citigroup to advise high-volume sellers on their shoe portfolios. Numerous Instagram accounts have sprung up with the sole purpose of analyzing shoes not as aesthetic objects, but as investments. The son of a now-former Nike executive set out to build a sneaker-resale business based in part on selling “bricks”—less popular shoes that don’t sell for more than their retail price—in mass quantities. Turning sneakers into stocks “was inevitable,” says Rob Petrozzo, Rally’s co-founder. “It’s certainly a natural progression for people to start moving their attention away from the commoditized utility and into true equity,” meaning from treating shoes like shoes to treating them like money. “And part of that is because those platforms [StockX and Goat] truly did kick the door down,” Petrozzo continues.
However, it’s not just sneakerheads pursuing sneakers as investments. There are a host of influences driving folks to Otis and Rally. More than the sneaker platforms, Petrozzo credits the day-trading app Robinhood for sparking users’ interest in investing. “Robinhood has helped our business without question,” Petrozzo says. “Because [investors] came from Robinhood, they understood how equities work before they found their way to Rally.” Familiarity with sneakers helps, but a younger generation’s willingness to invest in unproven markets is just as important. Your nephew who evangelizes about cryptocurrency, invests in Gamestonk, and is currently dipping into the exploding NFT (non-fungible token) market is the target market for an investment in Jordan’s Jordans.
What all these investment vehicles—Otis, Rally, WatchFund, Robinhood, cryptocurrencies and NFTs more generally—have in common is a stated desire by their founders to level the economic playing field. For decades, only the wealthiest people have been able to play the stock market, buy a rare watch worth tens of thousands knowing its value would only rise, or treat a collectible item like a painting (or a sneaker!) like an investment opportunity. “The idea of having to pay $3,000 for a share of Amazon is limited,” Petrozzo says. “That benefits only a small group: the wealthy, the people who are in the know, and who have access to large sums of money where they can buy multiple shares.” The typical share price (under $10) and average investment ($300) suggests that the app’s audience is just that smaller-margin investor.
Of course, investing into an item, rather than a company, comes with complications. The process makes investors much less liquid—if you need the cash from that pair of Jordans you’ve sunk money into, you can’t unilaterally force a sale to recoup the initial investment. Otis and Rally have built in steps to make selling a stake in these items simpler, but it remains a point of concern for financial experts.
Otis and Rally aren’t trying to bill themselves as one-stop day-trading shops, anyway. “I don’t think many of our investors are forgoing traditional investments and putting their whole portfolio on Otis. The way people are using Otis is largely to diversify their investments,” says Karnjanaprakorn. The founders of these platforms aren’t suggesting you empty your 401k and reinvest your savings among shares of a Dior Jordans, a rare Blastoise Pokemon card, and a ‘95 Ferrari Spider. But they’re not not high on that idea, either. Karnjanaprakorn points out that collectibles like these are largely unaffected by the fluctuations of the stock market (a fact that’s regularly echoed by watch enthusiasts too).
Your accountant might not advise you to dump your savings into a pair of Michael Jordan’s sneakers over a mutual fund. But that’s not really the point here. “This is a much more interesting investment than just putting money into the stock market and into a ticker symbol,” Rally’s Petrozzo claims. That fun factor is often the greatest determinant for Otis in deciding what to put on offer: “We look comprehensively at past sales data and auction data as well as more qualitative factors like whether an artist has top notch representation or whether we see future catalysts to drive up demand for a particular item,” Karnjanaprakorn says. “ Above all though, we ask ourselves: is this item relevant? Do people care about this artist or sneaker or comic book?” Because if they care, they’re probably going to want to buy a piece.