Yahoo Finance Crypto: The sports marketing fallout from the ‘fastest arms race we’ve seen'
The cryptocurrency crash has weighed down investors, exchanges, and now the sports industry.
Once seen as a saving grace for revenue-hungry sports leagues coming out of the pandemic, crypto marketing spend has become — in some cases — an empty promise as some sponsorships appear to be on the fence amid several companies filing for bankruptcy.
“This has been an arms race,” IEG Managing Director Peter Laatz told Yahoo Finance. “It might've been the fastest arms race we've seen in terms of 40 companies going down to three.”
Crypto prices have been on a decline throughout 2022, with market leader bitcoin (BTC-USD) dropping nearly 60% year-to-date. The drawdown has exposed several over-leveraged exchanges in the process.
Voyager Digital, which had sports partnerships with the National Women’s Soccer League (NWSL) and the NBA's Dallas Mavericks, filed for bankruptcy last week. BlockFi paid last year’s top NBA draft pick in bitcoin before the company needed a capital injection from crypto exchange FTX to stay afloat. Blockchain.com brokered the first crypto deal with The Dallas Cowboys in April, but reports last week stated the exchange could lose $270 million from its loans to a defunct crypto hedge fund.
With corners of the crypto market in disarray, an industry that spent more than $1.6 billion on NBA partnerships last year has largely stopped looking for new deals. Several deals per week used to cross the wires at IEG, which tracks sports sponsorship investment. But in the last 60 days, there’s been barely anything of note outside of a few small partnerships, according to Laatz.
“More anecdotal than anything else,” Laatz said. “I think it’s definitely slowed down.”
'We are well-financed'
FTX and Crypto.com have been two of the market leaders in sports spending. Both exchanges have spent hundreds of millions of dollars on sports partnerships that vary from league-wide deals to stadium naming rights deals and jersey patch sponsorships.
Last fall, Crypto.com reportedly inked a 20-year, $700-million naming rights deal for the home of the Los Angeles Lakers and Clippers, formerly known as the Staples Center. On June 10, Crypto.com CEO Kris Marszalek announced layoffs as the company considered “how to best optimize our resources to position ourselves as the strongest builders during the down cycle.”
“Crypto.com remains fully committed to its sports sponsorships,” the exchange said in a statement to Yahoo Finance. “We are well-financed and these are multiyear contracts, which will continue to play a crucial role in our mission to accelerate the world’s transition to cryptocurrency.”
That means making difficult and necessary decisions to ensure continued and sustainable growth for the long term by making targeted reductions of approximately 260 or 5% of our corporate workforce.
— Kris | Crypto.com (@kris) June 11, 2022
In late June, the New York Post reported that FTX — which paid $125 million for a 19-year sponsorship of the Miami Heat’s arena — had backed out of a jersey sponsorship deal with the Los Angeles Angels of Anaheim.
A source with knowledge of the deal disputed the Post’s report, highlighting the discussions didn't occur during the time of the crypto crash and never materialized to the point where an offer sat on the table. According to the source, FTX believes it’s in a healthy position with all of its sports partners and is still open to new partnerships in the near future.
Despite each exchange's comfortability in the naming rights deals, the carnage around them won't go unnoticed, according to several sources in the industry. The record-setting marketing spends, highlighted by Crypto.com Arena, likely set a market top for sponsorship pricing, according to Laatz.
"I don't think it was long enough for it to do a market reset," he said. "This was easy money [for sports teams]. It could be a difficult fight to keep it. I don't know if they can go in now and say 'well, the new level has been set on a naming rights deal by Crypto.com,’ because if I'm a buyer, I'm sort of calling BS on that.”
'Nickels on the dollar'
Irwin Kishner, co-chairman of the Sports Law Group at Herrick Feinstein, supported Laatz's skepticism and said that most defunct deals with bankrupt companies would likely be settled in court.
“I don't think teams or owners of the inventory are just simply going to walk away,” Kishner told Yahoo Finance. “There's likely value to be had in having a default judgment or a legal victory when you're trying to collect damages because there are obviously damages involved with that in terms of a team or an owner of the inventory was expecting a revenue flow which is no longer coming in.”
Kishner said most brand deals typically involve some payment up front, potentially nearing half of the overall deal, followed by occasional installments. It’s likely most of these entities like the NWSL and the Mavericks received some of their payment prior to Voyager turning belly up.
Now, however, their search for remaining compensation will be a small part of massive settlements. The situation will be similar to the unraveling of the dot-com bubble, according to both Laatz and Kishner. That era led to defunct sponsorship deals like the Houston Astros buying out of a naming rights contract with Enron and left MLB teams waiting for payment from startup-gone-broke SpongeTech in 2010.
In the end, Kishner estimated some teams will wind up accepting 'nickels on the dollar' for their once-promising crypto partnerships.
"As the economy sorts itself out, you're just going to see more of this," he said.
Josh is a producer for Yahoo Finance.
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube
