Imploded crypto company FTX’s hundreds of millions in sport sponsorships are being called into question and could cause other teams to review their crypto partners.
FTX — which had Tom Brady as its ambassador and became the world’s second-largest crypto exchange — signed a 19-year deal with the Miami Heat to take over naming rights of the former American Airlines Arena before filing for bankruptcy protection this month.
Now the team has terminated the $135 million FTX Arena deal and is left without a sponsor, according to a joint statement from Miami-Dade County and the Heat.
This may serve as a cautionary tale in the $78 billion global sport sponsorship market.
“Crypto is done” being a sports partner, said Jonathan Jensen, a former sports marketing executive at Omnicom and Publicis Groupe.
Other sports teams are creating distance from FTX, said Emily Sparvero, a sports management professor at the University of Texas at Austin. And after the crash in crypto prices last November, some crypto companies have already started to scale back on their sport sponsorship commitments, she said.
“I expect sport properties to honor existing partnerships with crypto companies, but they will be a lot more cautious going forward,” Sparvero said.
The issue is particularly relevant in Texas, a state known for its avid support of both sports and crypto. The Lone Star State tied with New Jersey as the fourth-best state for crypto enthusiasts, according to a study from SmartAsset.
A number of Texas teams have paired up with crypto companies in recent years.
The Dallas Mavericks announced a five-year partnership with Voyager Digital in 2021 that also has soured. Dallas Mavericks fans were upset when Voyager filed for bankruptcy earlier this year and said they had trusted that Mavericks owner Mark Cuban wouldn’t endorse a financially unsound company.
In April, the Dallas Cowboys announced that the crypto platform Blockchain.com would be its exclusive digital asset partner, making it the first NFL team to enter the crypto space. Also this spring, The Texas Rangers linked up with Jupiter, Fla.-based Trade The Chain, which paid for the deal entirely in crypto. And in August, BitWallet became the official digital currency of the Houston Texans.
Crypto companies poured money into the sport sponsorship market while crypto prices were high, with FTX worth $32 billion at one point. But the tides have turned, with Bitcoin’s price down over 70% in the last 12 months. On Monday, Jersey City, N.J.-based BlockFi filed for bankruptcy in the wake of FTX’s collapse, with its petition showing FTX is one of its top unsecured creditors, with a $275 million loan.
With once-full treasure chests running dry, crypto players are having to pull back some from sports deals.
“As the crypto market is crashing, the brands in that space won’t have the money to invest in sport sponsorships, so it could be a problem that takes care of itself from a sport perspective,” Sparvero said.
There is still scrutiny about the still newish industry. When Texas executives were asked recently what the most overhyped tech trend is, nearly half of them said crypto, according to digital consulting firm West Monroe.
Crypto companies saw an opportunity in sports marketing to help legitimize their businesses and quickly build recognizable brands, said Jensen, now a professor of sports administration at the University of North Carolina at Chapel Hill.
“A large-scale sponsorship, like a naming rights sponsorship or a jersey sponsorship, can basically short-circuit the brand-building process that normally takes a long time,” he said. “It can basically take that from zero to 60 in one announcement.”
The instant brand awareness with the public and potential investors is why emerging industries often partner with sports teams, which, in turn, is also why it may seem like lots of sport sponsorship deals fall through, Jensen said.
Similar trends with emerging industries have happened before.
During the 2007 to 2009 recession, sub-prime mortgage lender AmeriQuest lost its naming rights to the former Texas Rangers’ stadium, which is now called Choctaw Stadium.
The tech company CMGI had naming rights for the home of the New England Patriots until the dot-com bubble burst and it became Gillette Stadium. Similarly, the Baltimore Ravens’ stadium, called M&T Bank Stadium now, was once PSINet Stadium until 2002 when the early internet service provider filed for bankruptcy.
“An emerging tech firm would slap their name on a stadium because it gives them not only instant brand awareness but it also gives them instant credibility,” Jensen said.
Crypto still has its doubters, and not without reason. Since the start of 2021, more than 46,000 people have reported losing over $1 billion in crypto to scams, with a median loss of $2,600, according to the Federal Trade Commission.
But sports teams are not investors and don’t evaluate potential sponsors too deeply, Jensen said. The sports teams may have their eyes on the money and put blinders on, he said.
“The vetting process is, ‘Who’s going to pay the most?’ ” Jensen said. “Most do not undergo a great deal of scrutiny.”
Teams that signed deals with crypto companies knew that, if the industry went south, they could change sponsors. It’s not uncommon and isn’t too expensive, Jensen said.
“What’s expensive is not having a sponsor,” he said.
Sports teams also gained monetary value as crypto sponsorships emerged because it was a new category outside the more common ones like an official beer, said Sparvero. And coming out of the pandemic, sports teams were under pressure to maximize revenue, she said.
The uncertainty in the economy means teams associated with FTX may have a harder time finding new partners, Sparvero said. At the same time, crypto is still a relatively minor part of the sport sponsorship market, she said. It’s still dominated by traditional categories, such as beer, soft drinks, cars and banks and financial service companies, she said.
“These types of brands make sense for sport properties,” she said. “People consume beer and Cokes while watching a game, or there’s overlap between the fans of sports and the consumers of cars. There hasn’t been the same type of fit between sports and crypto.”
While sports teams will likely move away from the crypto industry moving forward, there will always be new emerging industries to take its place, Jensen said. At this point, people have gotten used to arenas and stadiums changing names, he said, noting that the Houston Astros dropped Enron as a stadium naming rights sponsor after it was caught in an accounting scandal.
“The real question is will other new emerging tech firms have a hard time getting teams, leagues, arenas and stadiums to partner with them,” Jensen said. “And I have to be honest, I think the answer is no. It’s happened before, it’ll happen again.”