The Pomp Podcast - #1006 Joe Pompliano On If Crypto Sports Sponsorships Are In Danger

Episode Date: June 15, 2022

Joe Pompliano is the Founder of "Huddle Up" and is the host of "The Joe Pomp Show" podcast. In this conversation, we talk about all of the Crypto sponsorships in professional sports over the past few years and if these companies are at risk of losing their sponsorship during this bear market. ======================= BCB Group is the leading payment services partner for the digital assets industry. BCB Group provides payment services in 30+ currencies, FX, cryptocurrency liquidity, digital asset custody and BLINC, which is BCB’s free, instant settlements network for the BCB client ecosystem. Find out more by visiting bcbgroup.com/pomp ======================= Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. No extension required. Store, manage, and grow your portfolio, get NFT & multi-chain support, and more.    Download the Brave privacy browser at brave.com/Pomp, and click the wallet icon to get started. =======================

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Joe Pompliano, my brother and the founder of Huddle Up, joins me on this episode to talk about all of those sports teams that did sponsorships with crypto companies over the last couple of years. Are these companies in trouble? Will these sports teams continue to seek out these sponsorships? That's what we talk about in today's episode. I really enjoyed this episode with my brother, and I hope that you guys enjoy it as well. Before we get into it, though, I first want to talk about our sponsors. This episode is brought to you by FTX

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Download Brave at brave.com slash pomp and click the wallet icon to get started. Again, go download Brave at brave.com slash pomp and click the wallet icon to get started. This episode is brought to you by BCB Group. With a dedicated focus on institutional payment services, BCB Group provides business banking, cryptocurrency, and foreign exchange market liquidity for many of the world's largest crypto-engaged financial institutions. BCB business accounts allow businesses to load fiat currency and cryptocurrencies for payments, operations, and trading purposes. BCB's clients can trade FX and cryptocurrencies quickly and at scale with market-leading value.

BCB's Blink Network is the European crypto industry's first instant settlements network and one of the first real-time payment networks of its kind to allow free, real-time transactions across fiat and digital currencies. BCB's vision is to empower the global financial revolution through sustainable and innovative banking. You can find out more by visiting bcbgroup.com slash pomp today. Again, if you want to learn more, go to bcbgroup.com slash pomp today. is for informational purposes only. I want to talk about, I'm getting a lot of questions, a lot of people asking about crypto and sports.

Ooh, crypto and sports, all right. So everyone has seen most of the numbers by now, but for some context, Bitcoin is down 65% from its all-time high right now. Ethereum is down 75% or more than its all-time high. And the total market cap of all crypto assets has fallen 70% in the last six months. So just over $2.5 trillion,

maybe even closer to $3 trillion, now under $1 trillion as of this morning. So there's been a massive drop off in the market. Tons of value has been destroyed over the last several months here as crypto assets have fallen. So most people are asking now with that happening, there was obviously a huge trend in professional sports over the last several months, but even a couple of years now where crypto companies have been investing heavily in sports. Right. So they infiltrated the financial assets first, whether it was traditional kind of products that they could market off of. And now they moved on to ancillary things like professional sports. Most of that was driven by data, really just telling them that professional sports were the next best thing to market on relative to who might be interested in their product.

So FTX, they did multiple deals. They did over $500 million. They've committed to at least not spent yet, but at least committed to on deals with Miami Heat, esports franchise TSM, Major League Baseball, and others. Crypto.com has shelled out a ton of money. They've spent over $700 million, even close to a billion probably at this point now, because they spent over $700 with just Staples Center. They renamed the Staples Center as Crypto.com Arena. They did a deal with the UFC, which I think was $100 million.

They did a deal with Formula One, which was close to, if not $100 million also. So these companies have committed between them two alone, that's $1.5 billion, probably closer to $2 billion once you count all the others, whether it's North American sports or international sports. So a lot of people are now like, okay, what the hell happens here, right? How do these companies afford these deals? Some of them are hundreds of millions of dollars, some are less than that, but they go multiple years in length, right? Some of them are five years, some are 10 years, not all of them were paid up front. What happens with these deals, right?

And the way I think about it is a few different ways, and I'm curious your opinion also, but the way I think about it is, right, there was deals that were done with those companies that I mentioned, Crypto.com and FTX and others like that, which are what we'll call more of the blue chip exchanges or companies within the crypto space. And an example of that is FTX, right? So FTX was one of the major partners in the space. They've committed hundreds of millions of dollars. And they were doing $85 million in revenue in 2020.

Last year, they did over a billion dollars in annual revenue. They've obviously raised money. I think they're close to, if not a $50 billion company at this point, $40 billion plus, something like that. So massive business, grown tremendously over the last several years. And CEO, Sam Bankman-Fried, said that at the time when they did their first deal, the Miami Heat deal, that they could afford to pay it all up front with the cash just on their balance sheet today.

right so uh he wasn't worried at all from a liquidity perspective if they'd be able to pay this stuff later on down the road and then also we've heard uh and i've heard from other cmos that are in the crypto space that are working on these large partnerships and they've said that uh basically a lot of these these companies or these businesses or these teams or these leagues have asked them for uh financials right they want to make sure that they're going to be able to pay this stuff not only financials today but projections and kind of where they expect to believe and make sure they have the amount of cash on hand today, but also in the future to be able to pay some of these deals, if they didn't even require them to pay up front, some of these deals

required upfront payment. So when I think about the other side of that, right, which is where do the problems arise? And in my mind, it comes down much more to the longer end of this stuff, right, of the risk curve, where you start seeing people agree to deals with companies that don't have necessarily a strong of a balance sheet that are taking more of a risk that aren't hedging it properly, that aren't asking for financials, that aren't asking for upfront payment. And there's, you know, there's several examples of this. If you look across European soccer or football or whatever you want to call it, there's tons of teams that have agreed to deals with smaller cryptocurrencies or tokens or whatever they are and have reneged on them, right? They've

taken the sponsor off their shirts, they've taken them off the signage, they've taken them off their website, their social media, et cetera, because the token lost value, they couldn't pay, et cetera. So in some cases, they paid up front, they did the deal, they ended up leaving the agreement, both parties were happy. But in other cases, that didn't work. And I think one of the examples of kind of putting people in charge of these deals that maybe not know what's going on, there was an example with Terra, right? so the washington nationals did a deal with them it was a five-year 40 million dollar deal with them and uh they agreed to this deal it included signage and advertising throughout the stadium and then there was a video series component of it where they were going to help uh promote crypto and do crypto 101 videos so they were super pumped up about it the the owner the managing partner of the nationals actually said that uh part of the agreement included uh the ability to use ust to

make purchases at the stadium so tara is obviously super excited users of the of the network and the platform are super excited and then we all know what happened with tara right it went from essentially uh pegged at a dollar to less than a cent and it crashed you know 40 billion dollars in value was destroyed overnight and the washington nationals posted this tweet on twitter literally like two days after that basically doing crypto 101 here's what you need to know about tara and everyone else right and it's a good example because uh one it was a five-year deal so we're we're only a few months into this deal now. Uh, if they didn't get their payment up front, they're certainly not going to get it now because there's just no value left for them to be had.

And then secondly, uh, people who aren't involved in the space who don't know what's going on, who aren't read the news, aren't doing any of these things. Like obviously we're running the Twitter account and had no idea because they posted these videos, uh, and, and people that were burned or got hurt or lost money, uh, perceived it as pretty tone deaf. Right. So I guess the question is like, how do you think about the sponsorships in context of not only their ability to pay going forward but how teams and organizations should look at this in the future i'm gonna break it down into three buckets the first is the teams don't appear to be losing money they appear to maybe not capture additional revenue but in these situations it's not like

they got paid in some altcoin and they're holding on their balance sheet right if they got paid cash they got cash they got paid in the altcoins from what we understand they're selling it four dollars uh so they're not losing money which i think is a key piece if you're viewing the sports teams themselves now the second point is that they definitely are signing deals or have signed deals in the past and some of them may not be fulfilled in the future so basically you thought that you were going to get some revenue you didn't maybe you can backfill it with some sort of sponsor maybe you can't i would be interested to know how many of the non-crypto sponsors don't fulfill future obligations versus crypto. Uh, I could see an argument for both, like the crypto industry

still has a lot of economic prosperity and, and, uh, has done a lot, uh, from a economic growth standpoint. Uh, and so it may actually be better insulated from kind of the macro environment than other industries. Uh, but at the same time, if you went and you signed deals with kind of lower grade, uh, uh, projects or companies and they don't survive, then obviously you're not getting anything. So I don't know how that plays out in comparison crypto versus non-crypto, but that would be an interesting thing of like which sectors contribute the most unfulfilled obligations for these teams. And then the third thing is similar to what you're seeing with investors going back for a flight to quality with Bitcoin's dominance increasing. Anthony Scaramucci was on

CNBC this morning talking about Bitcoin's dominance back over 50%, all that. I think that you're starting to see, uh, teams, uh, individuals, uh, and companies flight to quality as well. Right. It's a thing where, uh, if somebody shows up in the yard, I'll write big ass check. That sounds awesome in good times, in bad times, everyone's mind shifts from like, how much money can we make to how durable is our business? And now all of a sudden in hindsight, if you were a team and you signed, I don't know, you said one of the deals was a 40 million for five years but somebody had come in and offered you 20 million for five years if you're looking at upside you're like well i'd rather the 40 million for five years but if you're looking

at durability like actually what is the percentage probability i'm going to get paid yeah and if it was 100 with the 20 million for five years and it was 50 for the 40 for five years then you got to make a decision yeah i think it would be different managing risk was a huge part of this right because there's obviously people that took the financial temptation and went further out on the risk curve because it was a good time they saw it as an ability to especially in sports you have to remember a lot of these teams don't actually profit that much money annually right so they may have uh revenue and all these things but their expenses are super high and the operating income is not necessarily as high as you might think for some of these organizations now depends per team

per league etc but in a lot of cases this was seen as like a very bullish sign for sports valuations because revenue was increasing at such a drastic rate so quickly depending on what you were able to sign. So organizations that try to take advantage of that quickly and compound that growth, I think got themselves in a particularly difficult situation because they weren't able to manage that risk because they were they were falling for the financial temptation that some of these larger deals brought. And I think ultimately, like it's the same thing. If you did deals with those top providers that we talked about earlier, the top exchanges, you're probably not necessarily nearly as worried as someone else in this space, because you know that they have a

strong balance sheet they have the ability to outlast a bear market a recession whatever might come and you're probably going to get paid and even if it's not 100 like you might get from uh kind of like a like a budweiser or someone like that like you're still much much much higher chance of actually getting paid on this deal than some of the lower smaller cap tokens and stuff like that is there a sports sponsorship that you saw where you're like yep that is the way to do it well any of those those larger ones right like if you think about i mean we've talked to some of these cmos and in the case of ftx right or crypto.com or people like that uh in the case of some of those sponsorships like a lot of these people did their due diligence right and they're

not idiots and they say uh not only let's look at your business today let's look at it in the future but let's also realize how much cash you have your ability to pay this and we'll get super favorable terms. Because the reality was that crypto companies were not getting any slack, they were not getting any sweetheart deals, they were not getting any, any, you know, issues or financial disclosures that other companies wouldn't have got, they had to give all this information up front, they had to share information, they had to do all that. So I think in a lot of cases, those top companies make a lot of sense, like there's no reason why crypto.com or FTX or those providers are going to not be able to pay their deals, I think they'll be able to pay them.

So those are easy ones to look at. And then, yeah, obviously, like, it depends on the situation that you are financially. If you're the Staples Center or the previous what was called the Staples Center, like, you're an iconic venue. You can find another naming rights partner. Maybe it's not nearly as big of a deal, but you have the ability now to go tell crypto.com what the terms of the agreement are. And it's the same thing when it comes to NBA arenas. It's the same thing when it comes to Major League Baseball. It's the same thing when it comes to Formula One.

any of those large big name sponsorships in a lot of cases they dictated the terms versus just receiving the terms from a partner like they might do in some other cases do you feel like teams will seek out more crypto sponsors over the next 12 to 18 months or do you feel like that's going to cool off now well i think it's going to cool off but not necessarily because teams aren't willing to do it because the crypto crypto exchanges and companies are are spending less on marketing. Yeah. Right. Like in good times, there's, there's a lot of froth, not only that, but like there's, there's, uh, you know, people are excited. They want to go spend money on marketing. The bed budgets are obviously bigger. There was money flying around,

right. More than there probably should have been. And now when people are tightening their belts, seeing a recession coming, seeing the market draw down, knowing that their business has to last, they literally can't run out of money. Right. So, uh, in those cases, I think what we're going to see is the deal flow will slow down and the capital will slow down, but not necessarily because teams are scared to do it maybe some are maybe some aren't but more so because uh the crypto companies themselves will be spending less on marketing yeah it's uh it's fascinating to kind of watch this play out because there's so much money involved uh but i tend to agree with you that teams are still open for business yep i agree all right where can we send people to find

you on the internet read huddle up.com check it out let's get the newsletter sign up every morning get it directly in your inbox i just dropped your uh your twitter and your newsletter link in the chat anyone want to go twitter go to twitter follow me there uh podcast the joe pomp show i appreciate it big dog boy right there looking smooth i don't know who's looking smooth you asked me if i was smooth look at that picture and tell me i am smooth yeah that's called that's called catfishing thanks so much for listening to today's episode i really hope you guys enjoyed this one make sure you're subscribed on apple spotify or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or

crypto industry, we've got you covered. Head over to pompscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to pompscryptocourse.com to learn more and I'll meet you guys for the next episode.