The collapse this week of FTX, the second largest cryptocurrency exchange in the US, has sent shockwaves throughout financial and investment communities with the fallout spreading into the sports industry.
FTX negotiated two major venue rights deals in 2021: In April, Miami-Dade - owners of the Miami Heat’s home arena - and FTX agreed to a 19-year $135 million deal for FTX to replace American Airlines as the stadium sponsor. In August of the same year, FTX signed a 10-year deal worth a reported $17.5 million with UC Berkeley’s California Memorial stadium.
Now that FTX has filed for bankruptcy, Miami-Dade and the Miami Heat have officially terminated the naming rights partnership. The NBA's Miami Heat are currently looking for a replacement sponsor.
In June 2021, Major League Baseball and the crypto exchange announced a long-term partnership where umpires would wear patches with the logo of FTX.US on their uniform. In September, The Mercedes-AMG Petronas Formula 1 team named FTX as a partner with their logo printed on several parts of its W13 cars. Professional e-Sports team, TSM, also agreed to a deal worth $210 million over 10 years to change its name to TSM FTX.
Speaking to reporters after Mercedes suspended their partnership with FTX and finished one-two at the Brazilian Grand Prix, team principal Tom Wolff commented on the chain of events this past week:
“But this situation is very unfortunate. We considered FTX because they were one of the most credible and solid, financially sound partners that were out there,” Wolff said. “And out of nowhere we can see that a crypto company can basically be on its knees and gone (in) one week. That shows how vulnerable the sector still is.”
“It’s unregulated and I believe it needs to find its way into regulations because there’s so many customers, investors and partners like us that have been left in utter disbelief at what has happened.”
In the last couple of years, FTX has also spent significantly on sponsorship deals with top athletes including Tom Brady, Shohei Ohtani, Stephen Curry and Naomi Osaka, spending millions on a Super Bowl ad last year starring Larry David.
The fallout from the myriad of sports partnerships that FTX entered into is only starting to be felt.
This isn’t the first time that sponsorship agreements have dissolved due to a crisis, with the dot-com bubble in 2000 and the 2008 recession as two previous waves that have impacted professional sports. In light of the turmoil at FTX, sports organizations might be more comprehensive in checking the stability of their brand partners.
Crypto exchanges feel the heat
FTX is not the only crypto company involved in the sports world. Crypto brands have spent more than $130 million on NBA sponsorships last season, with five companies including Crypto.com, Coinbase and FTX exchanges responsible for 92% of sector spending, according to IEG.
Since it came to light that FTX’s financials were unsound, other crypto exchanges have been scrambling to reassure markets. Binance CEO Changpeng “CZ” Zhao said that transparency is essential to rebuilding trust, revealing the company reserves and publishing their cold wallet addresses.
In a similar attempt, Crypto.com - sponsors of the upcoming FIFA World Cup 2022 - prepared a proof of reserves dashboard displaying the allocation of assets. This initially backfired as it was revealed that nearly 20% of its reserves were in a memecoin, Shibu Inu. This subsequently caused its native token CRO to drop around 30%.
“We never engage as a company in any irresponsible lending practices, we never took any third-party risks,” Crypto.com CEO Kris Marszalek said Monday. “We do not run a hedge fund, we do not trade customers’ assets. We always had 1-to-1 reserves,” he added.