Explained: Cryptocurrency, football sponsorships and why a Liverpool shirt deal could be controversial
With gambling deals on the decline, cryptocurrency companies are the latest wave of controversial money to flood football, with many top European clubs having struck deals with companies in the sector.
The latest and perhaps most important so far is Liverpool who, while trying to earn a quadruple on the pitch, are in talks with a number of companies from different fields including crypto companies. -currency, to replace Standard Chartered on the front of the iconic red shirts next year — as revealed by David Ornstein.
Should they strike a deal, they would be the first Premier League club to have a cryptocurrency company as their shirt front sponsor.
Right here Athleticism explains what cryptocurrencies are, the agreements the companies have already signed with the clubs and if there should be any concerns about partnering with them.
What are cryptocurrencies and who’s in on the Liverpool shirt sponsorship deal?
Cryptocurrencies are digital assets based on blockchain technology, the computer networks that underpin Bitcoin and Ethereum.
Companies in the running for the Liverpool shirt include a crypto exchange company – a platform for buying and selling digital currency – and a blockchain platform, a decentralized computing network that underpins cryptocurrencies .
These types of companies are increasing their presence in sports but are controversial for reasons such as the environmental impact of their products and an association with volatile financial speculation.
What other major crypto sponsorship deals have been struck in esports?
In football, many top European clubs, including Manchester City, Arsenal, Barcelona, Paris Saint-Germain and Juventus, have sponsorship deals with Socios.
This “fan engagement” company creates cryptocurrency tokens that grant access to surveys and rewards, but a survey by Athleticism revealed that the company’s products are subject to rampant “pumping” and “dumping” by people who view volatile tokens as financial investments.
The Italian elite’s tech sponsor is cryptocurrency exchange Crypto.com, which means that VAR ads on Italian TV are accompanied by a shoutout for “crypto punto com”. The website will also sponsor this year’s FIFA World Cup.
In the US, big budget crypto sponsors are even more established. Crypto.com recently signed a massive 20-year, $700 million sponsorship deal with the Los Angeles arena, formerly known as Staples Center, home to several sports teams, including the LA Lakers and LA Clippers. of the NBA.
The company also has agreements with Formula 1 and the UFC (the Ultimate Fighting Championship).
FTX, another big exchange, has a deal with Major League Baseball and named after the Miami Heat basketball arena in Florida.
There are many other cryptocurrency companies in different sports around the world appearing on shirts and renaming stadiums.
Why is a crypto sponsor controversial?
First, performing cryptocurrency transactions using blockchain technology requires significant computing power, which is directly associated with voracious energy consumption and therefore environmental destruction.
This is especially true for the original Bitcoin blockchain. Later versions – such as the Tezos blockchain which sponsors Manchester United’s training kit and the Polygon blockchain which underpins Liverpool’s collection of NFTs (non-fungible tokens) – say they are more environmentally friendly.
Second, and more fundamentally, critics argue that cryptocurrencies have no real purpose beyond financial speculation. The word “cryptocurrency” is a bit of a misnomer because not many people use this technology to buy goods or services. It is much more common to use them as digital assets to try to make money. But unlike conventional assets like company stocks or commodities like gold or oil, cryptocurrencies are not tied to any tangible entity.
This means that some go so far as to compare the entire industry to a Ponzi scheme, where money is transferred from late investors to early investors, who make money simply by buying low and selling high, without any product of tangible value being generated at any time.
Many cryptocurrencies, the best known of which is Bitcoin, have risen in value since their inception, making some people very rich. But over the past couple of years, as the industry has established itself, these types of gains have become harder to come by, and a lot of people have lost money.
Another concern with cryptocurrency exchanges is that being such a new form of technology, laws and regulations do not always apply to it.
Additionally, some cryptocurrency exchanges offer many products, some of which, although legal in the country of origin of the exchange, are illegal in the country where the product is traded.
For example, during Liverpool’s recent exciting draw with Manchester City, OKX, a cryptocurrency exchange, was highlighted at the Etihad Stadium.
A look at this company’s website shows that the company sells a lot of crypto derivatives, which are banned from sale to UK consumers as they are deemed too risky for retail investors. There is no suggestion that the club or company is breaking UK law and the company itself is free to advertise here.
The financial structures of some of these companies are poorly understood, meaning we don’t know if they are borrowing huge sums to fund these sports sponsorships, with the road to future profitability less clear.
What are the advantages ?
Simply put, there’s a lot of money in there. The cryptocurrency industry is booming all over the world and the sums invested in the sport are enormous.
Keeping a soccer club at the top level of international competition is increasingly expensive, with ever-increasing salaries and no cost controls like in American sport – which enforces salary caps.
While some clubs allow themselves the luxury of being funded by a state-linked entity or, until recently, an oligarch willing to bear huge personal losses for sporting glory, Liverpool are not in this position and Fenway Sports Group is trying to operate in a fairly sustainable way. .
The club’s achievements have been exceptional over the past few years, but it will be difficult to maintain these levels without coming up against their rivals financially.
Cryptocurrency advocates also claim that the technology itself has many advantages, such as the possibility of cross-border and cross-jurisdictional payments, such as in war zones or countries with poor banking systems.
Does Liverpool have a history with crypto?
The club recently launched a collection of NFTs, a kind of digital asset based on blockchain technology in the form of cartoon images of Liverpool players, which can be traded online.
The sale was not a success, with the club only selling around 10% of available NFTs, fetching only around $1m, less than 0.5% of the club’s trading revenue last year. There was also a fan reaction.
The club also has a sponsorship deal with Think Markets, a trading app that offers cryptocurrency trading as a product.
What are the risks of a cryptocurrency deal?
Given that the industry is growing so rapidly despite almost no regulation, the biggest risk – aside from a gigantic crypto crash that drives investors out of the sector – may not be something obvious right now. moment.
These companies are involved in moving money around the world in a way that is barely understood, let alone regulated, which means cryptocurrency exchanges are constantly striving to steer themselves to the right side of the law and not to violate prohibitions on money laundering or being used to fund illegal activities.
The greatest risk is that a club signs a deal with a company that one day explodes in spectacular fashion, or becomes embroiled in scandals and controversies in a way that is perhaps barely conceivable at the time the deal is is signed, as the cryptocurrency hype rages on. and while the values of digital assets generally increase.
While partnering with one of these controversial companies may be the best way for a club like Liverpool to help fund footballing glory, before swapping Standard Chartered for a new logo they may want to s ensure they are paid for this privilege in dollars or pounds, not crypto.
(Top photo: Andrew Powell/Liverpool FC via Getty Images)