Opening up new sponsorship categories allows rights holders to increase their revenue and marketing reach – just ask the NFL, which raked in $1.8 billion in sponsorship deals this year while hosting the sports betting and alcohol categories. Certainly, at the end of two consecutive seasons troubled by the pandemic, rights holders must consolidate their sources of income. However, moving into emerging categories can present risks – not only that sponsors may not be around long enough to pay the sponsorship deal in full, but also reputational risk to sports ownership if the sponsor is controversial. .
One such emerging category is cryptocurrency. By GlobalData, over 200 sports sponsorship deals were made by crypto companies in 2021 (up 488% from the previous year) with an annual value of more than 600 million dollars, world football being the biggest beneficiary. And while some rights holders have begun to embrace it (e.g. NBA agreed to a 4-year, $192 million deal with crypto platform Coinbase; AEG, the owner of the arena home to the Lakers , Clippers and Kings, agreed to a 20-year, $700 million Naming Rights Agreement with Crypto.com; and several Major League football clubs have major jersey sponsorships with crypto entities), others , like the NFL, are taking a wait-and-see stance when it comes to sponsorships from cryptocurrency entities.
This may be the right approach, as the category has been the subject of controversy. In particular, the powers of football Manchester City and FC Barcelona ended deals with crypto-related companies last fall shortly after the execution, concerns arose regarding the operation of these companies (Man City, however, just announced a new partnership with crypto exchange OKX). Knock closer to home, an investor in crypto firm DigitalBits recently sued the company and its founder for fraud and unjust enrichment in a New York state courtarguing, among other things, that the company was diverting money invested in expensive sports sponsors rather than developing its real business. Dorrell v. Burgio, no. 0657130-2021. (NY Sup. Ct., Compl. filed Dec. 23, 2021)
All involved stakeholders need to balance risk versus reward in an emerging and untested category such as cryptocurrency. For cryptocurrency brands, the ability to partner with sports leagues and teams (and more importantly, their fans) can justify the big spend for sports sponsors — but to keep it down, consider short-term agreements with extension options. For a rights holder looking to increase revenue, consider prepayments and build strong termination rights into any sponsorship agreement – things that could help a rights holder withstand a reputational and monetary hit if an entity in an emerging category such as cryptocurrency going bankrupt or otherwise breaking the law. Rights holders need to know who they are dealing with and understand the regulatory uncertainty that currently surrounds cryptocurrency.
Of course, as with any emerging category, having an established partner in the cryptocurrency space could lead to great things. But as with all partnerships, due diligence is required.
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