Crypto.com and FTX Bet Big on Stadium Naming Rights Before the Crypto Crash. What Happens if They Can't Afford to Pay Up?
As the latest cryptocurrency hype-cycle peaked in 2021, two exchanges that had grown rapidly in just a few years decided to put their names on pro sports stadiums. FTX bought naming rights to the Miami Heat basketball team's stadium in March 2021 in a reported $135 million, 19-year deal. Crypto.com took an even bigger swing, committing $700 million for 20 years' worth of naming rights for the former Staples Center, iconic home of the L.A. Lakers, in November 2021.
Cue the sad trombones: November, of course, was the precise peak of the crypto market.
If those immense financial commitments were made based on assumptions of continued steady growth, the numbers might not be looking so great anymore. And while FTX at least appears financially solid, it's still unclear whether all of the damage from the crypto-credit bubble burst by Three Arrows Capital has been revealed.
As I wrote at the time, these deals resembled certain prestige-chasing stadium naming deals that came at the height of the dot-com boom: Enron Field and CMGI Field didn't last very long. History could very easily repeat itself.
But how exactly does a stadium naming deal unwind if, hypothetically, the rights-leaser goes bankrupt? It seems like a real hassle, from taking down all those signs to finding a new sponsor. To find out more, I called Joel Feldman, co-chair of global trademark and brand management at the law firm Greenberg Traurig.
Naming deals are "really not that much different than any sponsorship deal, which is really just an amalgamation of contracts," said Feldman, who specializes in endorsement deals. "There will be termination provisions, and it will vary from agreement to agreement."
Naming rights are not property or assets in the conventional sense. In fact, they're mostly liabilities because they're usually financed over the long term. In other words, Crypto.com probably didn't actually hand $700 million over to the Lakers in November.
"There's not really a 'one size fits all' financing," Feldman said. "But most frequently there's a startup amount, and then an escalating annual fee." As a hypothetical example, Feldman said a payment schedule might rise from $22 million in an early year of such a deal up to $30 million five years later.
That's important because it would mean a naming rights holder that entered restructuring or liquidation – as a grab bag of crypto businesses have over the past four months – would still be on the hook for those payments.
"It's almost no different than if you sign a 10-year lease and then you're out of business in three years," Feldman said. "The landlord goes after the company to get as much as they can, and then they go lease it again." The exact obligations of the lessor, and the priority of the stadium owner as a creditor in a restructuring, would vary with the specific agreement.
Finding a new naming sponsor in the event of a partner's collapse is not fun for stadium owners. Not only are there a limited number of sponsors willing to pay for pro-stadium prestige, but the practical elements are more involved than you might guess.
"When you look at every sign that exists with a stadium name on it, [the cost of changing them] does add up," Feldman said. "Typically, that even includes highway signs" directing visitors to the stadium.
So with all that hassle and risk, how closely do stadiums examine their new partners before signing over naming rights? Feldman said the rigor of a sale's due diligence varies widely, depending on who owns the stadium. And while the reputation of a partner company matters, it's not what it used to be.
"Generally, you would think that they would want to have the most respected brands that they can get. The most wholesome, iconic brands in the world, any major sports team would love to have that on their stadium.
"But I think that money talks. And what we've seen, especially with crypto, is that [companies] were just willing to pay obscene amounts of money," Feldman said.
Whether that obscene cash keeps flowing, however, remains to be seen.
– David Z. Morris
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