How risky crypto tie-ups have shaken up pro sports dealmaking 

Soccer, American football, rugby, Formula One racing, tennis, baseball, ice hockey; soon, there won’t be a corner of the professional sports world without a crypto deal attached to it. 

Pro sports has always been awash with corporate cash, with partnerships and brand sponsorships meaning big business. But there’s something noticeably different about the rash of deals that have sprung up over the past year.  

Industry insiders say that the financial troubles many sports businesses have grappled with during the COVID pandemic, coupled with the fresh glut of cash available in crypto, has meant the majority of teams are now trying to onboard a crypto partner for sponsorship. 

Some have moved faster than others.

In November 2021, Crypto.com splurged $700 million to rename the Staples Center in Los Angeles for the next 20 years. The exchange also signed a $175 million deal with the Endeavor-owned Ultimate Fighting Championship league for logos on athletes’ kits, as well as a $100 million sponsorship deal with Formula One. Industry sources estimate Crypto.com has more than $1 billion tied up in sports sponsorship fees in total. 

The rush to get money through the door has led to a number of oddities in the way deals are struck, perhaps due to the ephemeral nature of some crypto businesses. Equity, token grants and large amounts of cash upfront are often the main features of these term sheets. 

Deals deals deals

Among the more niche sponsorship trends has been a race to participate in huge flagship events.

Earlier this month, Crypto.com, Coinbase, eToro and FTX all chose to run ads during the National Football League’s Super Bowl, one of America’s biggest showpiece sporting events of the year. This year’s game attracted an estimated 112.3 million viewers, a 14% increase from last year’s game, according to NBC. These were the game’s best ratings since the 2017 matchup between the New England Patriots and Atlanta Falcons drew around 113 million viewers.

At an estimated $7 million, the price of a 30-second ad spot on NBC Sunday’s Super Bowl was up by more than $1.6 million compared with the average cost over the last four years. 

Across the pond, Premier League soccer clubs have been courting crypto, too. Socios, a fan engagement platform that facilitates the sale of tokens connected to football clubs, has deals in place with Manchester City, Leeds United and Arsenal in addition to other big clubs across the world. 

So-called fan tokens, operated by crypto providers like Chiliz, allow fans to take part in votes, competitions and other activities related to the club, such as choosing the music played when a team scores a goal. The business has been criticized, however, for failing to protect consumers against pump and dump-style crashes in the price of its tokens.

Crypto agreements in the offing in Europe include the Barcelona Football Club kit sponsorship – with the club reportedly asking for €80 million just for logos on the front of players’ shirts. Offers for what would be the largest shirt sponsorship in football history are rumored to have come in from VeganNation, Polkadot and music streaming service Spotify, according to a Sport report. 

There’s also big business in the sponsorship of individual athletes. For instance, Golden State Warriors guard Stephen Curry has struck a deal with FTX and high-profile rookie NFL quarterback Trevor Lawrence has signed on to endorse Blockfolio.

Funding drought

The timing of the crypto deal boom is no coincidence. Debt at sports clubs across the world has mounted amid prolonged COVID lockdowns. Barcelona Football Club’s own debt pile climbed to a reported $1.2 billion in 2021. This, combined with looming restrictions on another big soccer sponsor — the gambling industry — has made those within corporate sports circles nervous. 

“The way that sports rights holders generally work is a bit like sheep when there’s a new category that comes into play. Generally when we get calls about crypto we’re on it straight away,” says Stephen Pearson, founder at Sports Media Gaming, an international sports and esports marketing agency. “There’s a rush to grab the cash and get it through the door.”

Pearson compares the current flurry of deals in sport to the initial coin offering boom back in 2017 and 2018, when projects were “paying for credibility” to promote their tokens. 

“Every club is looking to onboard a crypto partner right now,” says Sunny Singh, CEO of Van Hawke, a media agency, which matches sports teams with corporate sponsors. But he feels the market may be close to saturation. 

Hedging crypto risk 

The people doing these deals say that they are being constructed in a different way, to shield clubs from the risk of working with crypto companies.

Whereas multi-year partnerships would usually include payment plans that call for teams to pay in installments over many years, in some cases today’s crypto deals are demanding more up-front cash. There is also the question of how best to include things like tokens and equity in the mix. 

Both sports organizations and crypto firms are having to be a lot more pragmatic about the shape of deals than they would in traditional sports partnerships, says William Deller, senior associate at law firm Bird & Bird. 

“There’s a greater variety of deal structures out there,” he says, adding that his firm is seeing two or three crypto deals a week come through the door for a range of different sports. 

“You have to ask: Does it give you rights to voting decisions or profit shares? Do you trigger requirements to look at KYC?” he says.

These different deal structures could include chunky minimum guarantees, a royalty element if it is an NFT-related deal, tokens issued to the rights holder or even equity in the sponsor itself, says Deller. 

Pearson notes that in the Premier League — UK football’s top division — you tend to see a lot fewer deals done. 

“This is arguably because lawyers and organizations attached to top football clubs are better equipped to do the due diligence,” says Pearson, adding that many agreements fall through. 

Due diligence? Dead deals

As more and more crypto cash is pumped into sports marketing, and the complexity of deals increases, those doing due diligence are finding it difficult to keep up. As in other areas of the market, financial and marketing watchdogs' ears have pricked up at the sometimes obscure financial configurations of fan tokens, and to the dangers of marketing complex financial products to the masses. 

In November, Manchester City Football Club suspended a recent link-up with DeFi investment company 3Key Technologies after reports surfaced in The Times showing that five people named by the company as members of its top table appeared not to exist.

“Manchester City conducts due diligence in respect of all of its partnerships,” the club said in a statement at the time. 

Pearson says that the due diligence being conducted by clubs “has not been as effective as it could be because of the rush to market.”

Fan engagement platform IQONIQ, which operates in a similar fashion to Socios, also ran into trouble earlier this year following a number of high-profile agreements. In January, it collapsed, despite having struck significant partnerships with the McLaren Formula One team, La Liga in Spain and several major European soccer clubs. 

Its liquidation left both clubs and their fans holding the bag even after “millions” of IQONIQ tokens — valued now at next to nothing — had been sold. The Spanish club Real Sociedad has said that they are owed €820,000 by the platform. Crystal Palace has begun legal action over missed payments.

“Rights holders are trying to be as proactive and on the front foot as possible,” says Deller, adding that crypto firms have to reassure sports organizations before they take on risk. This sometimes means striking contingent deals, where payments are spread over agreed timeframes based on certain conditions, in order to tackle an uncertain future for their funding. 

“It’s about trying to give your potential partner the comfort you know what you’re dealing with without stifling opportunity,” he says.

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