FTX failure forces rethink on global sports sponsorship

The collapse of FTX is reverberating beyond the worlds of crypto and finance, as the global sports industry contemplates the future of lucrative sponsorship deals with digital asset companies.

Sam Bankman-Fried, the now disgraced founder of the crypto trading shop once valued at $32bn, targeted new audiences through brand-boosting partnerships with top sports teams across basketball, motorsport and baseball.

Before filing for bankruptcy in November, FTX plastered its logo on the uniforms of Major League Baseball umpires and the Mercedes Formula 1 cars driven by Lewis Hamilton and George Russell. And in a 19-year deal inked last year worth $135mn, the home of the Miami Heat basketball team was renamed the FTX Arena, while NFL quarterback Tom Brady became an ambassador for the crypto brand.

The deals were symbolic of the boom in sports-crypto tie-ins that emerged from the coronavirus lockdowns, as clubs and leagues looked to recoup some of the billions of dollars lost as a result of cancelled events and the crypto industry found itself flush with cash. This included the likes of Crypto.com, which struck a deal to sponsor this year’s Fifa World Cup, while blockchain provider Tezos slapped its brand across the training kit of Premier League club Manchester United.

Many European sports groups were “quick to take the money”, said Steve Martin, global chief executive of M&C Saatchi Sport & Entertainment, especially as they sought to replace betting partners because of bans, or potential bans, of gambling advertisements in some jurisdictions.

“When crypto started to come in, it felt like it was new and about innovation. You have to question how much due diligence was done,” Martin said.

Clubs and leagues began to pin their hopes on such partnerships for future revenues. In February, Nielsen, a data provider, projected that the value of sports sponsorship deals with crypto, blockchain and digital assets players would reach $5bn by 2026, almost nine times greater than in 2021, but still a fraction of the total $46bn that sports marketing agency Two Circle said was spent on sports sponsorship globally in 2019 — the final full year before the pandemic. Nielsen warned it would be “vital for organisations to properly vet sponsors and not let revenue impede due diligence”.

The threat is two-fold. Sports businesses are at greater risk of reputational damage if FTX-style blow-ups become more prevalent. In addition, crypto companies are less able to splash out on sponsorship deals as the price of tokens falls and faith in the industry wanes.

FTX’s implosion has set back the trajectory of crypto sports sponsorship by as much as five years, said Haider Rafique, marketing chief at crypto group OKX, which sponsors Premier League champions Manchester City and F1 motor racing team McLaren. He predicts a slowdown in new sports sponsorships, though he expects OKX to remain active in the space.

“I think you’re going to see few and far between,” said Rafique. “There’s not many of those companies that are able to afford, you know, $50mn, $100mn, $300mn deals over the course of a few years.”

On top of the loss of trust associated with FTX, a December report by sports media company IMG and its digital agency Seven League said the collapse in crypto prices has weakened the appetite for digital sports collectibles — tokens known as NFTs that are issued in partnership between digital asset companies and sports groups and then sold to fans. The report found that the “conversion” of sports fans into NFT enthusiasts has been “a lot slower than expected”.

They’ll have been banking on millions in the coming years. If these deals are unravelling, they’ve got to go replace them.

Sports clubs are likely to change tack in how they use the tokens. “For sport, it’s likely in 2023 that the innovation won’t be focused on using these new technologies to solely make money, but instead to improve the relationship with fans and customers,” the IMG-Seven League report stated.

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.

The pressure on sports clubs and leagues to heavily scrutinise potential sponsors will mount in the wake of FTX’s collapse, said M&C Saatchi’s Martin.

“People are now going to go into a situation where they’ll be incredibly wary because of the FTX fallout. They’ll have been banking on millions in the coming years. If these deals are unravelling, they’ve got to go replace them.”