Sports Crypto sponsorship category is cooling fast, but the upside remains – Sportico.com

When the Portland Trail Blazers announced their jersey patch deal with StormX, a crypto cashback platform, last year, the deal was hailed as one that would pave the way for the future of crypto brands. A little over a year later, the two organizations ended their partnership early, just weeks before the 2022 NBA season tipped off.

The fallout from the failure of the first crypto jersey patch deal in the NBA exemplifies how the crypto category, once the hottest across professional sports, continues to experience turbulence. As the crypto market remains on a downward trajectory – further exacerbated by rising inflation – cryptocurrencies, exchanges and related companies have had to reassess their sports marketing investments.

“Agreements are bound to relax,” IEG global CEO 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 when sports teams and leagues around the world, thirsty for capital as they managed deep pandemic losses, could not resist the influx of cash. And it was worth spending for crypto companies looking to gain market share and build brand awareness – and pay hundreds of millions to get it. Crypto.com, FTX and Coinbase were the three crypto companies to make IEG’s top 100 sponsors list (based on sponsorship rights fees) in 2021. Their inclusion alongside mature Fortune 500 companies indicates the level of fervent spending.

The crypto-sponsorship category was embraced by the tech-savvy NBA. The league achieved a record $1.6 billion in sponsorship revenue in the 2021-22 season, and crypto brands spent more than $133 million last season alone, according to IEG. But soccer clubs worldwide have the highest volume of deals among all sports, including Inter Milan’s pact with fintech blockchain firm Zytara Labs worth $100 million.

Leveraging sports for brand recognition, Crypto.com has agreed to pay $700 million (over 20 years) to put its name on the arena formerly known as the Staples Center. The cryptocurrency trading platform, which has deals with the Philadelphia 76ers and the UFC, has spent an industry-high $144 million on cross-sports partnerships, according to GlobalData.

However, some agreements have now been terminated or contractually adjusted. These results not only affect 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 require 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 will likely require cash upfront.

Laatz says the crypto-sponsorship market reminds him of the dot-com bubble, when companies aggressively used sports, struck naming rights deals and plastered their brands all over stadiums across the country before the downturn forced many to end deals early. A longtime sports sponsorship partner 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 growth and left organizations unable to operate in many states. Some teams decided not to renegotiate agreements with DFS operators, while others worked diligently 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.

“Apart from the big players, I can’t see these smaller companies paying these sponsors [fees]especially during the period they signed for the deals,” Conrad Wiacek, GlobalData’s head of sports analytics and consulting, said in a phone interview.

Bankrupt crypto lender Voyager Digital, once promoted by Dallas Mavericks owner Mark Cuban, is among the cryptocurrencies that have struggled to maintain their sports sponsorships. StormX and Terraform Labs are also on the list of companies that have fallen short on offers or deals that have subsequently dissolved.

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 related companies, but it prohibits them from promoting the use of cryptocurrency.

While experts believe consolidation among crypto companies will be one of the inevitable outcomes of this downturn, many believe well-run and well-capitalized companies will be able to weather the storm and be in a good position to thrive in the long term once they are ready to reallocate.

“I don’t think it’s going to pick up the way the crypto sector hopes,” Wiacek added. “Does that mean it’s no longer a viable category? I don’t want to say … but it will be interesting to see if it comes back.”

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 pouring into the sector, and major banks like JP Morgan and Goldman Sachs are diving deeper into the crypto world. by using blockchain and giving customers access to crypto funds.

“Once things get back on track, the foundation will be there and things are going to get better for some of these companies to be successful,” Bob Brennfleck, Sportfive senior vice president of commercial, said in a phone interview.

Brennfleck notes that most crypto companies that have made significant investments in sports have managed to keep their deals intact despite the downturn. He is optimistic that the sector will rebound by the end of 2023 and that new players will enter the space as 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, re-emerge, come back even stronger and move forward.”