The last few months have seen a downward spiral in the value of crypto assets, and experts are worried about the projections. In the last six months, the total value of all crypto assets has dropped 70%. The total crypto market cap fell below $1 trillion, which is a massive freefall from its peak of $2.9 trillion.
Ethereum has gone down 75% from its all-time high, while Bitcoin is down by more than 65% from its all-time high. The skeptics and critics of crypto are having a field day because they have always thought it a scam, while there is a school of thought that believes the hiked interest from the Federal Reserve has caused it, a move made to combat high inflation in the US.
In sports, there are concerns about sponsorships backed by crypto. There was an estimated $1.5 billion in sponsorship agreements agreed upon by crypto companies. This includes exchanges and tokens, and many more. Crypto.com paid around $700 million to rename the Staples Center in Los Angeles while FTX spent north of $500 million on deals with esports franchise TSM, Major League Baseball, and the Miami Heat.
What will happen to these deals?
There are a lot of questions plaguing these deals. Will these companies be able to pay? Does this mean that the partnership between sports and crypto is over? There are different ways to explain this, as there are a number of outcomes.
FTX and Crypto.com bring in dollars in annual revenues, as they appear to be well-run businesses, so they should be able to pay for their deals regardless of what happens. In the case of FTX, before they signed those deals, they had to provide growth projections and show financial statements, before they signed the large 9-figure deals.
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The main problem is with teams that took a lot of risks
The reality of crypto assets falling in value is more evident that teams and sports franchises that took quite the risk with crypto. Before the start of the MLB season, the Washington Nationals signed a deal with Terra that included advertising and signage around a video series. The series explains crypto be published by the team, and the 5-year deal worth around $40 million.
Mark D.Lerner, the managing principal owner of the Nationals, said at the time of the announcement, that, “We are excited to partner with Terra to name our most exclusive club and explore bringing powerful new fan experiences to Nationals Park, including the use of UST cryptocurrency to make purchases,”
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However, just a few months later, more than $40 billion in value was destroyed overnight, when UST, the algorithmic stablecoin, dropped from its $1 peg to less than a cent.
At the expense of being tone-deaf, the Washington Nationals continued to fulfil its contractual obligation, as they posted a “crypto 101” video on its social media account.
The future is still sketchy
There are currently nearly 20,000 cryptocurrencies in existence, and 99% of them will probably end up being worth $0.
This doesn’t mean that all crypto deals will be bad. However, teams and organizations in sports must be masters of risk-taking during bull markets. Professional sports teams must also be careful and do due diligence when they choose marketing teams, while retail traders must also be careful when picking investments.