Formula 1’s crypto sponsorship crashes
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Over the past few years, cryptocurrency sponsorship has flowed into Formula 1 at an astonishing rate. Nine out of ten teams have some sort of crypto deal, with preseason holdout Haas finally joining that list with an NFT deal last week. The deals have taken many forms, from simple sponsorship deals with cryptocurrency exchanges to complicated tie-ins that actually create currency tied to the idea of being an Alfa Romeo F1 fan. There are so many crypto deals out there that it can be hard to keep up, which is a good thing, because if you kept up with them all and invested your money in each F1 cryptocurrency individually on the day the deals were announced, you would have lost most of the money now.
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The particular data point comes from Twitter user Formula Netflix, who checked the prices of seven crypto investments linked to F1 sponsorship deals on the day they were announced and calculated how much money an investor would have lost if they had invested then. Every property they list has been a significant money loser since these deals began, with a catastrophic collapse from major Mercedes sponsor FTX.
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The special agreement was signed in September last year. The token associated with FTX, called FTT, is not traded on any traditional exchange, but a single unit of a cryptocurrency representing an investment in the company was worth around $50 at the time. Now, after a sudden collapse and a failed acquisition deal with fellow F1 team sponsor Binance, the coin has spent the day fluctuating between $2 and $4. If FTX ends up insolvent, a very real chance given that the company’s celebrity boss has called the day apologizes for a financial disaster in a Twitter threadMercedes AMG F1 would potentially lose what Business F1 estimated at a sponsorship deal of 27 million dollars. It’s still pending, though; Sports company Journalreports Adam Stern the cars are running with FTX logos this weekend as usual.
What should be alarming to F1 teams is that FTX was among the most notable names on the grid, with a huge footprint in the industry and a massive marketing spend that went well beyond the confines of motor racing. Ferrari’s crypto partner, Velas, is perhaps best known outside of the cryptocurrency world for having a partnership with Ferrari. The Swiss company can proudly boast of the partnership (estimated at 20 million dollars a year, per Business F1) in all their social media bios. Velas is a blockchain technology, rather than a cryptocurrency exchange like FTX, but we can track Velas’ value through the value of a token, called VLX, tied to it in the same way. When Ferrari announced a deal with Velas on December 27 last year, VLX was worth $0.39 per token. It quickly rose to an all-time high of $0.55 on January 4; now the coin has spent the day floating around $0.03.
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However, the teams are not the only parts of the F1 ecosystem affected by the volatility of the cryptocurrency market. Formula 1 itself has a partnership with Crypto.com, an exchange that has created waves of massive investment across the sporting world. Their deal with F1 is worth $100 million over five years, announced in June 2021. At the time, Crypto.com’s “Cronos” token was worth $0.11. It is worth a reasonable $0.09 now, but only after rising to an exponential high of $0.89 and collapsing back down.
Each and every one of these tokens can suddenly explode in value overnight. Even FTX, a company so seemingly doomed to it The CEO tweeted in all caps that he did not mean what he said “in a technical or legal sense” earlier in his own Twitter thread, could still somehow get back and fulfill his contract with Mercedes AMG F1. However, each of these deals is a risk exposure for teams in a franchise all too accustomed to risk. Like deals with up-and-coming Red Bull fighter Rich Energy or the stock market predicting Moneytron before it, a crypto sponsorship has the chance to disappear in the middle of a long, expensive commitment that gives a team the money it needs to actually operate and compete.
Worse, these types of deals erode the trust between F1 teams and their fans, diluting the value of any racing sponsorship even as crowd sizes explode. After all, if the top team in the entire sport is trying to sell us on a crypto exchange if the CEO currently blames the impending insolvency in part on “poor internal branding,” why should we trust them to work with high quality oil or tire companies?
