Formula 1 sponsorship deals with blockchain companies shrink amid crypto scandals and bear market

After a buoyant 2022, sponsorship deals with blockchain and cryptocurrency companies for the Formula 1 race are shrinking this year amid high-profile collapses and turbulent markets.

A Bloomberg analysis found that while all teams had at least one crypto-native sponsor by 2022, the share dropped to 70% this year, as of June. The trend suggests that F1 may be reassessing its ties with the crypto industry amid the FTX scandal and a prolonged “crypto winter”.

In 2021, Mercedes-AMG signed a sponsorship agreement with the now bankrupt FTX, but the agreement was suspended last year when the stock exchange was closed. Mercedes team principal Torger Christian Wolff said in a statement that the collapse of FTX has left Mercedes in “complete disbelief” and that the sector needs to be regulated.

“We considered FTX because they were one of the most credible and solid, financially sound partners out there,” Wolff said.

“Out of nowhere we can see that a crypto company can basically be on its knees and gone [in] one week. It shows how vulnerable the sector still is. It is unregulated and I think it needs to find its way into the regulations because there are so many customers, investors and partners like us who have been left in complete disbelief at what has happened.”

According to filings, Mercedes may now have a claim in FTX’s bankruptcy process. Going into 2023, the team has no crypto-native sponsor for this year’s race.

FTX, a crypto exchange once worth $32 billion, went under in November 2022 after a dramatic series of events led to a run on deposits and a sell-off of FTT, its internal crypto token. It has been estimated that US$8 billion of customer funds were missing.

An analysis by Decrypt shows that before the collapse, FTX spent big money on sports sponsorships, signing deals with the likes of Miami Heat, Major League Baseball, Golden State Warriors, Washington Wizards and Capitals and the giant esports team TSM. Star athletes such as Tom Brady, Steph Curry and Naomi Osaka also signed on to support the exchange in return for equity in the startup.

Besides Mercedes, Ferrari is another team bearing the brunt of the volatile market. In January, the team’s long-term deal with Velas came to an abrupt end, with sources telling London Insider that the blockchain company pulled out of the deal amid the crypto bear market.

AlphaTauri also lost its crypto sponsor, removing smart contract platform Fantom from its list of partners earlier this year; Alfa Romeo dropped its sponsor, Vauld, after problems at the crypto lender in 2022; Red Bull Racing ended earlier than expected the multi-year deal they signed in 2021 with blockchain network Tezos; and Animoca Brands, which had operated a licensed non-fungible token (NFT) game called F1 Delta Time since 2019, shut down the game last year.

Cryptocurrencies witnessed a turbulent year in 2022, marked by a number of high-profile business failures and falling markets. The total market capitalization was halved last year, from 2022 to $2.2 trillion to reach an annual low of $1 trillion in November, according to a report by The Block.

Bitcoin fell below its 2017 high in June 2022 and extended its withdrawal to -64.1% year-to-date (YTD). All of the top ten cryptocurrencies by market capitalization, excluding stablecoins, posted negative returns last year, with Polkadot taking the biggest hit (-80.9%), followed by Cardano (-76.9%) and Ethereum (-65.6%) ).

Year-to-date returns of top ten cryptocurrencies in 2022, Source: 2023 Digital Asset Outlook, The Block, December 2022

While some crypto startups are scaling back on their marketing spend, others are still investing aggressively in sports marketing.

In March, crypto exchange Kraken announced a new sponsorship and Web3 deal with Williams Racing, making it the team’s first ever official crypto and Web3 partner. Stake, an online casino and sports betting platform that deals exclusively with cryptocurrencies, entered into a multi-year partnership with Alfa Romeo in January. Meanwhile, deals including the US$150 million partnership between Red Bull Racing and crypto exchange Bybit, and Tezos’ deal with McLaren, are still alive.

Featured image credit: edited from Freepik