The rise in cryptocurrency deals throughout 2021 was alarming, with many sports teams and leagues jumping at the chance to secure lucrative deals with crypto firms willing to pay significant amounts of money for the opportunity to form partnerships. However, the collapse of crypto in 2022 has teams fearing for the security of these deals, with the FTX collapse potentially being the first of many, according to GlobalData.
The leading data and analytics company’s latest report, ‘Digital Payments in Sport’, reveals that FTX traders have all lost sizable sums of money, with some losing millions of dollars as a result of the company’s bankruptcy. The swiftness with which the company collapsed emphasizes the incredibly unstable nature of cryptocurrency, and the need for greater regulation.
Tanveer Aujla, Analyst at GlobalData, comments: “Due to the difficulty of introducing laws for an incredibly messy industry, lawmakers in North America have been having a difficult time introducing regulations for the cryptocurrency space. The freedom that the digital marketplace has makes it incredibly difficult to enforce any kind of tangible laws.”
As a result of the FTX collapse, the plug has been pulled on its major sponsorship deals, including the $7.5 million naming rights deal with the Miami Heat arena, which was supposed to run for a duration of five years. The deal has now been terminated and the arena is set to be renamed, but the long-term nature of the deal suggests that the Miami Heat were expecting a much more fruitful partnership.
Aujla continues: “This highlights the short natured thinking of the sporting world, with few stopping to look at the long-term viability of cryptocurrency, which has been incredibly unstable for years. People riding the high of 2021 must now confront the reality of a market that is sinking, with further potential to go downwards.”
The sports industry will continue to move increasingly away from cryptocurrency, with far fewer deals expected to be signed with crypto firms in 2023. Any deals that are signed will be worth far less than what they would have been valued in 2021, and these deals will likely be on shorter contract lengths to minimise the risk of losing money in the longer term.
Aujla adds: “It remains to be seen what new fad could take over the sponsorship industry, but the crypto crash serves as a stark warning to teams looking to make some quick cash. Shorter-term deals on lesser money are a safer way to kick off longer term agreements, and we will likely see more deals of this nature in 2023.”
