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Do Esports Sponsorships Need Endemic Brands?

Nikhil Kalro

TSM, one of the biggest esports organizations in the world, recently announced that they will be suspending the deal they had cut with cryptocurrency exchange FTX in 2021. TSM had signed a $210m sponsorship deal with FTX in 2021, which was the biggest sponsorship deal in esports history.

tsm ftx

Image Credit: Joe Brady

FTX, the cryptocurrency exchange led by Sam Bankman, was valued at $32b not too long ago, but filed for bankruptcy just weeks ago. The events that led to FTX’s collapse remain a bit convoluted, but it is believed that FTX’s cryptocurrency tokens are mostly responsible for their demise.

Bankman’s other company – Alameda Research – was purchasing these tokens at a low price and used them as collateral until the price of the tokens went up. The problem arose when customers who had funded FTX were demanding that money back, with neither of Bankman’s companies capable of covering the cost. It became public news when Binance, led by Changpeng Zhao, decided to buy out FTX.

TSM Not Only Organization to Suspend Ties With FTX

TSM aren’t the only major sports or esports organization to have struck a deal with FTX. The NBA’s Miami Heat and Formula One’s Mercedes are other major sports organizations who had come to an agreement with FTX, and have suspended their dealings with the former crypto giant since the big news broke.

TSM made their statement regarding the suspension mid-November. They revealed that after much monitoring and internal discussions, they were going to suspend the partnership immediately, and that the FTX brand will no longer appear on the organization’s team, player social media profiles, and jerseys.

TSM had some difficulty in getting the FTX name removed from its twitter handle initially, but were able to get rid of it ultimately. For others, like Major League Baseball and UC Berkeley’s football stadium, it might take a while to wash off their association with FTX.

Mercedes’ F1 Team Principal Toto Wolff revealed that he was under the impression that FTX were one of their more credible and financially sound partners, and that the whole situation was quite unfortunate.

TSM aren’t the first sports organization to suspend their relationship with a crypto firm; McLaren Racing, Sporting Lisbon and Spezia (Italian football club) had also terminated their agreement earlier in the year with Bitci, a Turkish crypto company.

Esports Impacted by Crypto Crisis?

Before getting into the relationship between the world of sports and cryptocurrencies, it is important to look at the status of cryptocurrencies after this latest debacle. Bankman was one of the faces of this industry, someone who seemed to have connected with leaders from different industries.

The fall of FTX will lead to a chain reaction that will affect many of the smaller players in this industry. Back in May when the crypto crash had transpired, Bankman was being hailed as the next J.P. Morgan – to the crypto industry what Morgan was to the American banking sector in the early 20th century.

What started off as an innovative way to transact without the need for conventional banks has quickly got the reputation of an unsavory and fraudulent sphere. Bankman, in fact, was seen as someone who was trying to buck the trend, and it looks like it’ll take a while for other industries to trust crypto exchanges after this spectacular demise. The speakers for Ethereum and Binance’s Changpeng Zhao have tried to calm the waters, but the damage feels far too severe after FTX’s collapse.

Stringent regulation is almost certainly going to be on the way, and this might just be the right step. It’ll take a while for organizations for every other industry to trust the likes of FTX again, which might force the other leading cryptocurrency exchanges to have a long hard look at themselves again about how they remedy this, and reinvent themselves.

Lots of organizations will now have second thoughts about how they deal with a crypto exchange. It is a humbling that seemed long overdue. Lots of other small-time players might also be having second thoughts about this, and if it’s worth the hassle. Those who saw the hype, but took a casual interest in the workings of this industry will likely distance themselves even further.

The Future of Sport and Crypto

Sporting organizations and athletes are often the easiest means by which any brand can promote itself. They get the sort of reverential treatment that sees them exempt from what would be considered morally and ethically dubious in every other sector.

Far too many sports organizations have already joined hands with crypto organizations, and it remains to be seen if they’ll sever their ties with them as a precaution following FTX’s fall. Many of these agreements, as was the case with TSM and FTX, are quite long as well.

The problem for the likes of FTX is that, as influential as sporting organizations are when things are going well, they can be equally disastrous for their reputation when things go down badly. Sporting institutions, in many ways, legitimize these exchanges in the eyes of the masses when they represent their logo on their shirts.

The Miami Heat, who had gotten into a naming rights deal with FTX, quickly got rid of the logo on the roof of their home stadium after the news surrounding FTX made the headlines. It’s quite brutal for the sponsor when this happens, and it goes to show just how risky it all can be if things go sour. There’s no hiding place once you’ve entered the wider world of sport and celebrity.

Endemic Brands and Esports

There is a clear advantage to getting sponsored by endemic brands. All esports and sports are ultimately competitive environments with teams and individuals looking for little advantages over their opponents. The individuals and their teams need equipment to help them achieve greater heights, and this equipment requires the same from the individuals to sell their brand.

The interests are the same, which assures that there won’t be as much risk involved in such a partnership. But of course, only a limited number of deals can be done in such cases. Growth won’t be as quick, and could even lead to the sport’s decline in some instances.

For something like esports, which is still working its way into mainstream consciousness, there is a real need for sponsorship funds from non-endemic brands for its survival. It also becomes a matter of pride – getting sponsorships from non-endemic brands suggests that the industry has transcended its origins.

To get a fine balance, and even the sort of situation the likes of TSM found themselves in with FTX, it might be best for esports organizations to strike deals with companies that have a history of sponsoring the biggest events.

The likes of Pepsi, Coca-Cola, Mastercard and McDonald’s will not be met with a lot of backlash even though they have their own critics. Fast food and soft drinks are considered harmful goods by most countries, but they are considered accepted sponsors in the wider sporting world, and the same applies for the esports world.

The likes of FTX and the crypto industry, however, have got far sterner critics, and that’s only going to double or even triple in the coming months. It’s not hard to see why a deal of the sort was struck, though. Both esports and cryptocurrencies have been around for over a decade, but both are still considered as emerging industries.

A partnership could be seen as a way of helping each other out, but there’s also greater risk associated with this. With the two industries still emerging to a degree, something like the FTX collapse could have more of a dent on the reputation of an esport team than a Miami Heat or Mercedes.

The latter will have their own set of issues to deal with, but be able to find solutions far more quickly because they are organizations that have existed for a while, and have a tremendous reputation within their massive industries – industries that have no real existential worries.

Esports has firmly settled over the last five-six years, but there are occasional hiccups. The same can’t be said for cryptocurrencies. The feeling is that cryptocurrencies will be the future even among those who approach it with cynicism, but the industry needs to exorcize itself of its demons before it becomes safe for the likes of TSM and others to enter into such expensive and long-term deals. All of this remains a work in progress.