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- Cryptocurrency brands unlikely to go away but big deal-making likely over
- MLB, Mercedes F1, Miami Heat all suspended partnerships with FTX
- Tom Brady, Steph Curry and Naomi Osaka all named in lawsuit against exchange platform
The recent collapse of the FTX exchange, which counts some significant rights holders among more than one million individual creditors, will permanently alter the cryptocurrency sector’s relationship with the sports industry.
Coming in the wake of similar funding issues amid the so-called ‘crypto winter’, the collapse of FTX potentially marks the end of a short, but lucrative, association between the world of sports and cryptocurrency firms.
The rush from rights holders to sign deals with brands in the cryptocurrency space once looked like it could fill the sponsorship hole being created by tighter regulation on the betting industry. With a lot of firms relatively new and yet to fully evolve their businesses, there appeared to be mutual benefits for both parties as brands brought in more attention than they could have got on their own.
Now a senior executive at a major sports marketing firm has told SportsPro, on the condition of anonymity, that cryptocurrency brands are not going anywhere, but there will now be a lack of confidence from the sports industry in doing deals with them. Going forward there looks set to be heightened scrutiny even on the firms that have shown good business practices up to this point. The executive said that it is likely that companies known for good governance will be preferred, even if other brands are writing bigger cheques.
Indeed, from a marketing perspective, he said the impact of FTX’s demise will probably push back the cryptocurrency industry from any high-level sponsorship agreements for several years and it is unlikely that any big-money contracts will be signed with sports organisations in the near future. Going further, he said that there may even be a push from major properties to prevent deals with cryptocurrency exchanges from occurring, given the lack of regulation around them.
However, there is a sense for blockchain firms, who are considered to be in a different category, that while the FTX collapse will put a temporary stain on their deals, ultimately it will not impact their relationships within sport.
While there is no obvious beneficiary of the vacant sponsorship space left by cryptocurrency exchanges, emerging categories such as clean tech and sustainability companies may be able to step in, if not quite at the level of spending as seen by the likes of FTX.
Larry Mann, a partner at the rEvolution agency, points to several other categories that could benefit. He told Reuters: ”While crypto might be cooling off as an emerging category, there are always other growth areas to watch – sports betting, CBD, Fintech, are a few examples to keep an eye on.
“If teams weren’t cautious before regarding crypto… they will be now.
“As it relates to increasing sponsorship revenue, teams/leagues are always looking for new opportunities, but what’s happening with FTX is a wakeup call.”
For FTX, which recently filed for bankruptcy after investors withdrew US$6 billion from the platform within just 72 hours and saw a rescue deal with rival Binance collapse, the future is murkier.
Founder and chief executive Sam Bankman-Fried resigned his position at FTX immediately after its collapse, although he has since claimed the company is still capable of operating. Its new boss John Ray III stated in a court filing that the firm suffered an ‘unprecedented and complete failure of corporate controls.’
The announcement that FTX had filed for Chapter 11 bankruptcy protection has had huge repercussions for a number of individual rights holders. The Mercedes Formula One team suspended their partnership, while the National Basketball Association’s (NBA) Miami Heat also terminated their 19-year arena naming rights agreement with the firm.
Other FTX partners to have distanced themselves from the platform include esports organisation TeamSoloMid (TSM), while Major League Baseball (MLB) has confirmed it is terminating its five-year sponsorship deal too.
A class-action lawsuit has since been filed against Bankman-Fried, with several athletes including National Football League (NFL) icon Tom Brady, NBA All-Star Stephen Curry and tennis ace Naomi Osaka named as co-defendants.
The suit, brought by a group of suing investors, claim the defendants, which also includes the NBA’s Golden State Warriors, ‘made numerous misrepresentations’ about FTX. The company is described in the filing as a ‘Ponzi scheme’ in which FTX-owned entities moved around investor funds to look like a solvent corporation.
There additionally remains significant doubt surrounding deals involving subsidiaries of FTX such as crypto lending firm Voyager Digital. Voyager, who had inked sponsorship agreements with the National Women’s Soccer League (NWSL) and the NBA’s Dallas Mavericks, is currently the target of a separate class-action lawsuit.
