Last year when the Portland Trail Blazers announced their jersey-patch deal with StormX, a crypto cashback platform, the agreement was hailed as one that would pave the way for the future of crypto brands. A little over a year later, the two organizations terminated their partnership early, just weeks before tipoff of the 2022 NBA season.
The fallout from the failure of the first crypto jersey-patch deal in the NBA exemplifies how the crypto sponsorship category, once the hottest across pro sports, continues to undergo turbulence. As the crypto market remains on a downward trajectory—further aggravated by soaring inflation—cryptocurrencies, exchanges and adjacent companies have had to reevaluate their sports marketing investments.
“Deals are going to have to unwind,” IEG global managing director Peter Laatz said in a video interview. “And the first place companies go to is the toy store, which is sponsorship and advertising spending.”
The crypto category exploded as sports teams and leagues worldwide, thirsty for capital as they managed deep pandemic losses, couldn’t resist the influx of cash. And it was worth the spend for crypto companies that wanted to snatch market share and build brand awareness—paying hundreds of millions to obtain it. Crypto.com, FTX and Coinbase were the three crypto companies that made IEG’s top 100 sponsorship list (based on sponsorship rights fees) in 2021. Their inclusion alongside mature, Fortune 500s companies indicates the level of fervent spending.
The crypto-sponsorship category was embraced by the tech-oriented NBA. The league achieved a record-high $1.6 billion in sponsorship revenue in the 2021-22 season, and crypto brands spent more than $133 million alone last season, according to IEG. But soccer clubs worldwide hold the highest volume of deals among all sports, including Inter Milan’s pact with fintech blockchain firm Zytara Labs that’s worth $100 million.
Crypto.com has leveraged sports for brand recognition, agreeing to pay $700 million (over 20 years) to to put its name on the arena formerly called the Staples Center. The cryptocurrency trading platform, which has deals with Philadelphia 76ers and UFC, has spent a sector-high $144 million in partnerships across sports, according to GlobalData.
Now, though, some deals have been terminated or tweaked contractually. These outcomes not only impact the two partners but also have a ripple effect on the marketing agencies that earn commissions on the deals. The downturn has also increased scrutiny among team owners, who are demanding far more due diligence when approached by crypto-related companies, especially in the current climate of global economic uncertainty. If owners are interested in taking the call, they’ll likely demand cash up front.
Laatz says the crypto sponsorship market reminds him of the dot-com bubble, when companies were spending in sports aggressively, inking naming rights deals and plastering their brands throughout stadiums nationwide before the slump forced several to exit agreements early. One longtime sports sponsorship matchmaker said the recent stagnation in crypto-related partnerships is also reminiscent of the rise and fall of daily fantasy sports. DFS took off in 2013, before increased government regulation stifled its growth and left organizations unable to operate in many states. Some teams decided not to renegotiate deals with DFS operators while others diligently worked with their partners.
A similar dance played out between corporate partners during the height of the pandemic. Now, several crypto-related companies are asking for relief and delayed payments.
“Outside of the big players, I can’t see these smaller companies paying these sponsor [fees], especially over the length of term that they signed for the deals,” Conrad Wiacek, GlobalData head of sport analysis and consulting, said in a phone interview.
Bankrupt crypto lender Voyager Digital, which was once promoted by Dallas Mavericks owner Mark Cuban, is among the cryptocurrencies that have struggled to maintain its sports sponsorships. StormX and Terraform Labs are also on the list of companies that have fallen short on offers or inked deals that later unraveled.
The NFL took a cautious approach to the category from the start. The league only recently allowed teams to sign sponsorship deals with exchanges, wallets and adjacent companies, but it prohibits them from promoting the use of any cryptocurrency.
While experts believe consolidation among crypto companies will be one of the inevitable results of this downturn, many believe well-run and well-capitalized companies will be able to survive the storm and be in good position to thrive long-term once they’re ready to redeploy.
“I don’t think it’s going to rebound in the way the crypto sector is hoping,” Wiacek added. “Does that mean it’s no longer a viable category? I wouldn’t say that … But it will be interesting to see if it recovers.”
While the downturn continues to wreak havoc on the crypto industry and its investors, there are encouraging signs of a potential recovery: Venture capital is still flowing into the sector, and major banks such as JP Morgan and Goldman Sachs are diving deeper into the crypto world by utilizing blockchain and providing clients with access to crypto funds.
“When things do get back on track, the foundation will be there and things are going to be better for some of these companies to succeed,” Bob Brennfleck, Sportfive senior vice present of commercial, said in a phone interview.
Brennfleck notes that most crypto companies who’ve made sizable investments in sports have managed to keep their deals intact despite the downturn. He is bullish that the sector will pick up again by late 2023 and that new players will enter the space when the once white-hot category regains its footing.
“We knew a cooling off period was coming because we’ve seen this before, and this is no different,” he added. “The category will stabilize, reemerge, come back even stronger and move forward.”