Crypto Sponsorships In Sports

The UK Government is considering a ban on online sports betting companies serving as the primary, front-of-shirt sponsors of English football clubs in response to their recent “complete review” of gambling regulations.

In addition to another six Championship sides, nine of the 20 clubs in the Premier League last year had gambling companies as their front-of-shirt sponsors.

However, teams are already searching for sponsors elsewhere, and these are increasingly coming from the cryptocurrency industry, which has its issues and problems.

Gambling Sponsorships Losing Ground in English Football?

Concern over gambling addiction and associated hazards have grown, especially for young people and other vulnerable demographic groups. As a result, numerous clubs have voiced their worries about the negative impacts of gambling on the government and stated that it is the “moral duty” of the sport to sever connections with gambling sponsors.

With all but one Premier League club collaborating with betting companies in some capacity, English football has significant amounts of gambling sponsorship.

The proposed bill will take some time to pass through Parliament, so any front-of-shirt ban, if it happens, is unlikely to take effect until at least the 2023–24 season.

In a purported last-ditch effort to avoid the government-imposed ban, the Premier League has since requested that clubs accept the phase-out of gambling shirt sponsors. The plan calls for a voluntary ban to go into place at the start of the new season while allowing existing contracts to expire no later than the 2024–25 season. The Premier League has recently made a deliberate attempt to solve a problem that has attracted a lot of political and public attention.

By agreeing to shorter-term sponsorship agreements, incorporating break clauses in the contracts, or finding new sponsors, including those from the cryptocurrency industry, clubs are starting to reorganize their current sponsorship programs to prepare for the rule changes.

What Kind of Crypto Sponsorship Exists Already?

It appears that cryptocurrency businesses will displace gambling and finance the most recent infusion of money into sports. Instead, a large portion of this investment will flow into football, and some prestigious European teams have already reached agreements with industry businesses or are in the process of doing so.

Several noteworthy examples include:

• A recent $24 million shirt-sleeve agreement between Chelsea and WhaleFin, a rapidly expanding digital asset investing platform, was reached.
• In an agreement that is said to be worth more than USD$40m yearly, WhaleFin has also agreed to allow Atletico Madrid to wear its emblem on their jerseys.
• FIFA declared Crypto.com as an Official Sponsor of the FIFA World Cup Qatar 2022 earlier this year.
• Over half of the clubs in the English Premier League and a large number of other clubs in the top five divisions of European football have sports relationships with eToro, a cryptocurrency investing platform.
• A blockchain company called Tezos and Manchester United have announced a historic multi-year cooperation arrangement worth an estimated US$27 million. The alliance will be displayed on the club’s men’s and women’s training jerseys.
• The Premier League and Consensys agreed to a deal that reportedly cost USD$589 million over four years, giving Consensys the ability to create NFTs based on still photos collected during games.

According to rumors, Liverpool was in negotiations with a number of cryptocurrency-related businesses that were prepared to increase their current front-of-shirt sponsorship agreement with Standard Chartered, which is worth £40 million annually. As a result, they would have become the first Premier League team to have a cryptocurrency company as a major front-of-shirt sponsor. In the end, they reached an agreement with Standard Chartered for a renewal at a “substantially enhanced” rate, with hints that the value was partially boosted by interest in cryptocurrencies.

Numerous sizable agreements have been made around the rest of the athletic world, so the surge of Crypto sponsorship is not just in the UK or with football:

In addition to its multi-year agreement to provide the UFC with fight gear, its global collaboration with Formula 1, and its sponsorship of the FIFA World Cup, Crypto.com has agreed to pay USD$700 million for the name rights to the venerable Staples Center in Los Angeles.

In a deal worth “hundreds of millions,” McLaren just unveiled a new lead sponsor in the form of the cryptocurrency exchange OKX.

In addition to the USD$135 million agreement to purchase the naming rights to the American Airlines Arena for 19 years, FTX also agreed to a naming rights arrangement with Esports Team, TSM, valued at USD$210 million.

In the most recent season, a Crypto-based sponsor was visible on the bodywork of eight out of the ten active Formula 1 cars.

The Dangers

However, there are also particular financial and reputational dangers connected with sponsorships from the cryptocurrency business, and teams should take these into account before taking any funding.

Gambling comparisons

Certain cryptocurrency asset investments are extremely speculative and may even be considered crypto sports betting disguised as an investment opportunity. And it is a problem gambler—the exact people the government hopes to protect with a prospective ban on gambling sponsorships—who might engage in cryptocurrency speculation without fully comprehending the dangers involved.

In the most recent price crash of the Terra (LUNA) cryptocurrency, which crashed by more than 99% in May 2022 and lost more than USD$40B from its market value, there have been multiple claims of significant losses suffered by individuals. Following its zenith in November 2021, Bitcoin, the biggest and most well-known cryptocurrency, has lost around 70% of its value.

A few restrictions

The sector is still mostly unregulated, and cryptocurrency is a relatively new phenomenon.

Cryptocurrencies are the new “first line” in criminal frauds that authorities are attempting to stop, according to Andrew Bailey, the former CEO of the FCA and current Governor of the Bank of England. He made this statement in April 2022.

There is little consumer protection, and sports fans typically have a considerably harder time comprehending the products they are buying. This was emphasized by the UK’s financial watchdog, the Financial Conduct Authority (“FCA”), in May 2022 when it warned that buyers of crypto assets and NFTs are not covered by the Financial Services Compensation Scheme and have no consumer safeguards. As a result, if you invest in crypto assets, you should be ready to lose every penny.

Crypto entrepreneur Sina Estavi, whom last year paid USD$2.9M for the NFT of Jack Dorsey’s (CEO of Twitter) first-ever tweet on the social media site, is an extreme illustration of how much money may be squandered on an NFT. In April, he sought to resell it at auction, with a starting bid of US$48M, but the best offer he got was only US$6,800. More recently, the value of the John Terry-endorsed Ape Kids Football Clubs NFTs fell by 90% in the first month after introduction.

Reputation

Regarding connections between cryptocurrency and financial crime, there are reputational problems. Cryptocurrencies are frequently used on the dark web’s underground market and have been linked to it. Recently, ransomware assaults, tax evasion schemes, and hacking have all caused reputational problems.

Since 2012, almost 50 cryptocurrency exchanges have been the target of significant hacking assaults. For example, a gaming-focused blockchain company called Ronin Network had 173,600 ether tokens and 25.5 million US dollars worth of coins stolen from it in May 2022 after an attacker exploited compromised private keys to create two phony withdrawals.

More than 50 leads to possible crypto-related tax offenses that could result in official investigations have been found by international tax inspectors, including one case that might include a USD $1 billion Ponzi scam.

It is based on the “Verizon Data Breach Investigations Report” for 2021. In 2021, the frequency of ransomware assaults was predicted to double, and this trend will likely continue.

Sponsors may suffer reputational harm as a result of upcoming regulatory inquiries and hacking scandals. For example, there are instances of football clubs working with cryptocurrency companies that were later revealed to have no or very little track records or identifiable ownership.

Environmental

Many sports, including the Premier League, have committed to implementing the UN Sports for Climate Action Framework by 2021. In order to meet the 1.5oC global warming target of the 2015 Paris Agreement, the Premier League as an organization aspires to lower 50% of its own emissions by 2030 and attain net-zero emissions by 2040.

There are concerns about how these pledges relate to some cryptocurrencies’ high energy needs, which come from the energy-intensive processes required for each transaction and “mining” new coins. For example, the projected annual carbon footprint of Bitcoin is 125 tera Watt-hours, or roughly the energy usage of Sweden or Argentina.

For instance, the Ethereum blockchain is in the early phases of switching to a new software code that will require 99.9% less electricity, signaling some positive change for other cryptocurrencies.

Financial

The sponsors’ ability to maintain their finances is still another concern. Large sports sponsorship companies have fallen apart before; two recent examples are Terra and IQONIQ. This causes problems with the beneficiaries’ reputation and their finances, including the difficulty of finding new sponsors quickly, sponsorship gaps, and pricey legal battles to recover money owed.

IQONIQ has agreements with several top European football clubs, the McLaren Formula One team, and La Liga in Spain. Real Sociedad of Spain has claimed that IQONIQ owes them €820,000 (about £685,000), and Crystal Palace has also started legal proceedings over unpaid fees.

The Washington Nationals received sponsorship money upfront from Terra, but there is now reportedly discussion about whether to retain the company’s name on display in light of the negative publicity.

Despite all of these difficulties, the cryptocurrency sector continues to be a dynamic and quickly expanding one from which sponsorship dollars will continue to flow into online sports betting. Although this flow of money has a huge potential to advance and grow sports, receivers should be aware of the risks and take the necessary precautions to mitigate them.