FTX Failure Forces Rethink on Global Sports Sponsorship

The future of high-profile sponsorship agreements between premier league clubs and the digital assets sector is uncertain.

Beyond the realms of cryptocurrency and finance, the collapse of FTX is having an impact on the global sports industry, which is debating whether to continue signing lucrative sponsorship deals with firms that deal in digital assets.

Sam Bankman-Fried, the now disgraced founder of the crypto trading platform once valued at $32 billion, targeted new audiences through brand-boosting alliances with elite sports teams in baseball, basketball, and motorsport.

The Major League Baseball umpires’ uniforms and the Lewis Hamilton and George Russell-driven Mercedes Formula 1 car were covered in FTX’s logo prior to declaring bankruptcy in November. And as part of a $135 million, 19-year agreement signed last year, Tom Brady, the quarterback of the New England Patriots, was appointed as an ambassador for the cryptocurrency brand, and the Miami Heat’s home court was renamed the FTX Arena.

The deals served as a metaphor for the explosion in sports-crypto tie-ins that followed the coronavirus lockdowns, as clubs and leagues sought to recoup some of the billions of dollars lost due to postponed events and the crypto industry found itself flush with cash. This included companies like Crypto.com, which agreed to sponsor the 2019 Fifa World Cup, and blockchain service provider Tezos, which emblazoned its logo on Manchester United’s training uniform.

Many European sports groups were “quick to take the money”, said Steve Martin, the global chief executive of M&C Saatchi Sport & Entertainment, said this was particularly true as they sought to replace betting partners due to restrictions on or potential restrictions on gambling advertising in some jurisdictions.

“When cryptocurrencies first began to appear, they had a fresh, innovative feel to them. You have to question how much due diligence was done,” Martin said.

Clubs and leagues started to rely on such partnerships as a source of potential future income. Data provider Nielsen predicted in February that by 2026, the value of sports sponsorship deals with cryptocurrency, blockchain, and digital asset players would reach $5 billion.

This is almost nine times more than it was in 2021, but it is still a small portion of the $46 billion that sports marketing agency Two Circle estimated was spent on sports sponsorship globally in 2019 — the last full year before the pandemic. Nielsen warned it would be “vital for organizations to properly vet sponsors and not let revenue impede due diligence”.

According to Haider Rafique, marketing director at cryptocurrency group OKX, which sponsors Premier League champions Manchester City and F1 racing team McLaren, FTX’s collapse has pushed back the trajectory of cryptocurrency sports sponsorship by up to five years. While he expects OKX to continue to be active in the market, he forecasts a slowdown in new sports sponsorships.

“I think you’re going to see few and far between,” said Rafique. “There aren’t many businesses that can afford deals worth $50 million, $100 million, or $300 million over several years.”

In addition to the decline in confidence surrounding FTX, a report released in December by sports media company IMG and its digital agency Seven League claimed that the decline in cryptocurrency prices has reduced interest in digital sports collectibles, or NFTs, which are tokens created in collaboration between digital asset companies and sports organizations and then sold to fans. The report found that the “conversion” of sports fans into NFT enthusiasts has been “a lot slower than expected”.

Two things are at risk: First, if FTX-style blow-ups increase in frequency, sports businesses will be more at risk of reputational harm. The price of tokens is declining, and investor confidence in the industry is eroding, so crypto companies themselves are less able to spend big on sponsorship deals.

A December survey by the European Sponsorship Association showed that many in the sports industry said they felt cautious about crypto partnerships “or said they had already been negatively affected by an alliance that did not last”.

Rating agency Fitch also said it could prove harder for sports clubs and leagues to strike deals with potential sponsors from all sectors next year in the “worsening macroeconomic environment” as cost pressures force companies to cut marketing budgets.

Following the collapse of FTX, Martin of M&C Saatchi predicted that sports clubs and leagues will be under even more pressure to thoroughly vet prospective sponsors.

“People are now going to go into a situation where they’ll be incredibly wary because of the FTX fallout,” he said. “In the upcoming years, they will have bet on millions. They must go find new deals if these ones are falling apart.”

Reference: https://www.ft.com/content/c75c82ad-9fab-491a-b876-d1ed5b546131