The crypto industry’s grip on Formula 1 sponsorship under pressure in Singapore

The shift underscores the changing mood surrounding cryptocurrency, both from a regulatory and financial standpoint.

Jurisdictions in Singapore, Britain and France have stepped up scrutiny this year after digital asset prices deteriorated, billion-dollar projects collapsed and major market players went bankrupt.

As a result, F1’s newest crop of advertisers are finding ways to make their mark without moving too boldly.

The rout in cryptocurrencies in recent months, which has wiped out about $2 trillion in value since November, has left cryptocurrency brands more cash-strapped but still keen to maintain what they’ve already invested to keep a foothold on the world stage.

Jeremy Walls, a top executive at the Miami venue who helped close the deal with Crypto.com, said current market dynamics may prompt cryptocurrency companies to “be a little more thorough and thoughtful” about the deals they sign going forward.

“I still see people doing crypto partnerships now, maybe not at the pace that it once was,” Mr. Walls said.

Partnering with an F1 team has become a status symbol for cryptocurrency companies, a flashy multi-million dollar accessory that signals wealth and success at a time when market prices reflect the opposite.

Around 80 percent of F1 teams have at least one cryptocurrency partner, in addition to the Formula One Group itself, which has its own $100 million deal with Crypto.com.

McLaren Racing boss Zak Brown said F1 teams “don’t want to be left behind” when a new sponsor or trend emerges.

McLaren signed a five-year deal worth hundreds of millions of dollars with cryptocurrency exchange OKX in May and will debut a special cryptocurrency-themed car for the Singapore and Japanese circuits in compliance with the stricter advertising guidelines.

Rob Bloom, head of marketing at Aston Martin Lagonda Global Holdings’ F1 team, said the need to change sponsorship branding to suit different locations is par for the course in the sport.

Some places require bans on alcohol or tobacco marketing, for example where companies such as Philip Morris International have historically displayed the shape or color of their cigarette mark without actually displaying a logo.

Aside from emblazoned logos across driver uniforms and cars, F1 teams are also starting cryptocurrency themselves. Several now offer fan tokens – team-specific cryptocurrency assets that can be earned, traded and used to pay for experiences or rewards – and non-fungible tokens assigned to individual car parts.

What makes F1 a promising proposition for sponsors is the sport’s global and loyal audience. Next year’s competition is expected to reach a record 24 races in 21 countries, held over nine months.

Cryptocurrencies – in pictures

Fans are also typically wealthier thanks to the sport’s high entry costs, where tickets start in the hundreds of dollars and TV channels pay high fees for exclusive broadcast rights.

Whether cryptocurrency companies will be able to keep up the pace of deal-making in sports remains unclear, with declining demand for digital assets now taking its toll.

Crypto.com and Bybit were among several major companies that laid off employees earlier this year, while the likes of FTX are choosing to value their F1 partnerships on an annual basis, according to Avi Dabir, the exchange’s vice president of business development.

Since signing with Mercedes, Dabir said FTX had seen a “noticeable” increase in new customers, as well as more interest from existing customers looking to take advantage of access to F1 races.

McLaren also had a previous cryptocurrency partner in Turkish exchange Bitci.com, which at the time was the first to run a fan token for an F1 team.

The deal was shelved in February after less than a year, Bloomberg reported at the time, along with two other Bitci.com deals with European soccer clubs after they failed to make payments to certain partners.

“It was one we jumped into pretty quickly,” Brown said. “You have to do your homework to understand” a cryptocurrency deal. As a result, the subsequent partnership with OKX was scrutinized by a 15-person external advisory board, he said.

Due diligence has become even more important this year amid a wave of major cryptocurrency collapses, as well as increasing regulation.

McLaren is now exploring a new fan token with OKX, which it hopes to launch in 2023 after taking time to ensure “really robust” development, director of licensing, e-commerce, e-sports and games Lindsey Eckhouse said.

Despite the fact that sponsoring racing teams is usually more expensive than other sports, Crypto.com chief marketing officer Steven Kalifowitz said their F1 deals were among the first the exchange did.

“I was really looking for ways to meet a global audience and meet them quickly,” Kalifowitz said. “F1 really delivers in a way that I don’t think any other sport does.”

But with cryptocurrency hovering around annual lows and the general economic environment signaling a potential turn for the worse, the future of F1’s multi-year deals hangs in the balance.

It’s typical in the sport for partners to come and go, if a sponsor suddenly can’t meet the millions of dollars required to stay in the race, said Ted Dobrzynski, president of F1 sponsorship agency VIAGP.

Updated: 2 October 2022, at 03.30