Update (Nov. 11th, 4pm UTC):
FTX and almost all of its affiliated companies have filed for bankruptcy in the US and the CEO has stepped down ending a tumultuous week for the company which saw it lose its entire $32 billion estimated value, and its owner lose almost all of his $16 billion personal fortune.
Should FTX miss their next payment to TSM as part of their 10-year naming rights deal, TSM can try to recover funds owed via litigation. This means TSM does have an incentive to continue using the "FTX" in their name until it has legally exhausted all options to continue the deal and recover the money owed by FTX.
With tens of billions of dollars involved in this bankruptcy, however, it is likely that TSM's claim will be a fairly low priority and it's fairly unlikely it will be able to recover too much more from their FTX partnership. It is therefore possible TSM could cut its losses and either ditch the FTX tag, or find an alternative naming rights partner.
FTX Trading Ltf. (d.b.a. FTX.com), announced today that it, West Realm Shires Services Inc. (d.b.a. FTX US), Alameda Research Ltd. and approximately 130 additional affiliated companies (together, the "FTX Group"), have commenced voluntary proceedings under Chapter 11 of the United States Bankruptcy Code in the District of Delaware in order to begin an orderly process to review and monetize assets for the benefit of all global stakeholders.
Original article (Nov 11th, 9am UTC):
In Jun. 2021, TSM signed the largest naming rights deal in esports history with the cryptocurrency exchange FTX, worth $210 million over 10 years. This added this to a list of partners for FTX, which included LoL’s LCS tournament, Major League Baseball, Tom Brady, Golden State Warriors, Miami Heat, Mercedes-AMG F1 Team, Shaquille O'Neal, and Stephen Curry.
FTX is also notably partnered with FURIA in a one-year deal worth a reported $3.2m.
Now, FTX, which was valued at $32 billion in Jan. 2022, is nearing collapse, which could put these partnerships at risk.
This comes after a report by Coindesk on Nov. 2 revealed that FTX’s sister company owned a very large amount of FTX’s coin, the FTT Token. This led many investors to worry that the sister company lacked liquidity -- that a lot of its balance sheet couldn’t be turned into any other currency due to a lack of demand for that amount of FTT -- implying that its financials were not as good as initially seemed. This also raised questions about FTX’s financials and dropped their token price.
Four days later, on Nov. 6, Binance, the world’s largest cryptocurrency exchange, announced it was selling off all of its FTT Token due to liquidity concerns, dropping the token’s price further from $25.78 on Nov. 6 to $4.64 on Nov. 8.
At this point, FTX began talks with Binance to possibly be bought out. The following day, Binance tweeted that they had rejected the offer. The FTT Token was now worth $2.66, and FTX was on death’s door. On Nov. 9, investors were reportedly told that FTX needed $8 billion to save the company or would need to file for bankruptcy while on Nov. 10, Reuters reported that officials in The Bahamas had begun freezing assets of an FTX subsidiary.
This is obviously a massive worry for TSM, who would have built long-term plans based on the $210 million deal. However, the future of the TSM FTX partnership may not be dead yet.
The FTX issues mentioned above are primarily affecting FTX Trading Limited -- the global company based in The Bahamas -- and not FTX US, which is run separately from the central global business. FTX US is reportedly operating normally and was not a part of the proposed Binance buyout.
FTX US is, however, according to the Wall Street Journal on Wednesday, currently being investigated by both the United States Department of Justice and U.S. Securities and Exchange Commission for securities fraud.
The TSM FTX partnership was a joint deal between FTX and FTX US and means that the deal will still be impacted massively by the issues affecting FTX, but it is unclear how deep the shocks will spread. It is possible that even if FTX goes out of business, FTX US could still keep the partnership alive:
TSM, the premier global esports organization, today announced a $210 million, multi-year partnership deal split between FTX Trading Limited and West Realm Shires Services Inc, owners and operators of FTX.com and FTX.US, respectively. FTX.US has partnered with TSM in relation to the US, and FTX.com internationally. As part of this historic new relationship, FTX.com and FTX.US have, together, secured exclusive naming rights for TSM, which will now be known as 'TSM FTX'.
FTX US is the company that signed most of the American-based sports sponsorships mentioned previously, meaning a lot of their commitments are likely to remain. As such, their willingness to continue a $210 million deal without their other half involved may be limited even if they have the funds to do so.
Even if FTX US are not directly affected by FTX global’s actions, they will be hurt by the reputational damage. Many users will likely be wary of FTX US's ability to store their money after FTX almost went bankrupt and limited transactions in less than a week, possibly leading them to move to rival crypto exchanges such as Binance.
However, this depends on the future of FTX and the exact wording of the TSM deal, which is unknown to the public.
For FURIA, their partnership deal with FTX itself likely cuts off a future revenue stream just after they announced plans to further expand into North America following a major rebrand.
In August, FURIA put aside $1 million to create an esports venue in Miami, Florida. While funded by FURIA itself, FTX was “involved in making the project”. This is a part of attempts to make FURIA into a more global brand, which was given a massive boost by the announcement in Sep. that FURIA would be in the 2023 VALORANT Americas League, which is based in Los Angeles.
FTX’s deal with the LCS was with the main FTX company, while Nerd Street Gamers had partnered with FTX US.
This week-long collapse in the $32 billion company highlights how fickle some of these partnerships can be, especially when a key promotional point for the cryptocurrency industry is a lack of regulation.
Earlier this year, an analysis of the cryptocurrency partnerships around the 46 esports organisations involved in Rainbow Six’s five professional leagues’ found that a total of 25 teams -- just over half -- has or had public-facing crypto partnerships at the time of writing:
- NAL - TSM, Parabellum, Astralis, and XSET
- EUL - Wolves, NAVI, Empire, Secret, G2, Heroic, Virtus.pro, and Rogue
- BR6 - NiP, FaZe, Black Dragons, Liquid, MIBR, FURIA, and oNe
- APAC-L - Fnatic, Talon, Knights, Wildcard, Gaimin, and SANDBOX
Notably, this includes eight out of 10 EUL organizations as of Jul. 2022, with four of these eight being involved in scams or “suddenly failed projects”.
More relevant now, however, is the following assessment of large cryptocurrency sponsorships, such as the TSM deal:
The very reason that we’ve seen relatively few scams compared to other crypto scenes is also why a lot of organizations may be in trouble, as these sponsorships have led to a lot of money flowing in from this now suddenly struggling sector.
If an NFT launch fails, it probably hasn’t lost an organization too much money, but if your primary sponsor goes bankrupt, then that’s likely your biggest income stream gone.
No matter how well crypto markets fare over the next few years, regulations are coming from both governments and sporting bodies, which will further decrease the amount that these crypto sponsors have to splash around and could threaten sponsorships further.
The collapse of FTX has possibly accelerated upcoming regulations, with U.S. Senators John Boozman and Debbie Stabenow stating this week that “the events that have transpired this week reinforce the clear need for greater federal oversight of the digital asset industry” and that they “remain committed to advancing a final version of the DCCPA”.
The Digital Commodities Consumer Protection Act bill was introduced in August and effectively aims to give the Commodity Futures Trading Commission authority over all “digital assets” that can be considered a commodity. This would include Bitcoin and would effectively regulate the crypto market and cryptoexchanges such as FTX in the USA. The fall of FTX in such dramatic fashion brings this bill into the limelight
While FTX is just one company involved in the world of cryptocurrency, the market is struggling across the board. Bitcoin is the most notable example of this, with prices dropping over 70 percent in the space of a year at the time of writing from $48,000 to $14,000.
Solana -- another cryptocurrency which FTX had several partnerships with -- dropped in value by 46 percent in 24 hours this week, while Ether -- the second biggest cryptocurrency behind Bitcoin -- dropped 30 percent in value from Tuesday morning to Wednesday evening.
FTX is just the latest victim of the “crypto winter” that has effectively turned into a year-long downturn. Whether any more major esports investors will be impacted is truly impossible to predict.
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