Crypto industry’s hold on Formula 1 sponsoring under pressure in Singapore

Many countries have intensified scrutiny after digital asset prices soured, billion-dollar projects collapsed and major market players went bankrupt

When Singapore hosts the Formula One Grand Prix this weekend, the visibility of digital assets will relatively subdued. Bloomberg

At Formula One’s Miami Grand Prix in May, the displays of cryptocurrency companies sponsoring the sport were inescapable, with Crypto.com’s blue branding covering every imaginable surface along the racetrack.

When Singapore hosts the most popular motor sport this weekend, the visibility of digital assets will be far more subdued.

The Monetary Authority of Singapore will let teams show their cryptocurrency sponsors’ logos only on cars and uniforms at the Singapore Grand Prix, but no advertising will be permitted around the track or in the local area.

The shift underscores the changing mood around cryptocurrency, both from a regulatory and a financial standpoint.

Jurisdictions in Singapore, the UK and France have intensified scrutiny this year after digital asset prices soured, billion-dollar projects collapsed and major market players went bankrupt.

As a result, F1’s newest throng of advertisers are finding ways to make their mark without moving too boldly.

The rout in cryptocurrencies in recent months, which has wiped out around $2 trillion in value since November, has left cryptocurrency brands more cash-strapped but still keen to maintain what they have already invested to keep a foothold on the world stage.

Jeremy Walls, a senior executive for the Miami venue who helped to close the deal with Crypto.com, said that current market dynamics may make cryptocurrency companies “be a little more thorough and thoughtful” about the deals they sign going forward.

“I’m still seeing people doing crypto partnerships now, it’s just maybe not the pace that it once was,” Mr Walls said.

Partnering with an F1 team has turned into a status symbol for cryptocurrency companies, a flashy multi-million-dollar accessory that signals affluence and success at a time when market prices reflect the opposite.

Around 80 per cent of F1 teams have at least one cryptocurrency partner, in addition to Formula One Group itself, which has its own $100 million deal with Crypto.com.

Zak Brown, head of McLaren Racing, said that F1 teams “don’t want to get left behind” when a new sponsor or trend emerges.

McLaren signed a five-year deal worth hundreds of millions of dollars with cryptocurrency exchange OKX in May and will debut a special cryptocurrency-themed car for the circuits in Singapore and Japan in compliance with the stricter advertising guidance.

Rob Bloom, chief marketing officer at Aston Martin Lagonda Global Holdings’s F1 team, said the need to alter sponsor branding to suit different locations is par for the course in the sport.

Certain locations require bans on alcohol or tobacco marketing, for example, where companies like Philip Morris International historically showed the shape or coloured branding of their cigarettes without actually displaying a logo.

Aside from emblazoned logos across drivers’ uniforms and cars, F1 teams are also getting into cryptocurrency themselves. Several now offer fan tokens — team-specific cryptocurrency assets that can be earned, traded and used to pay for experiences or rewards — and non-fungible tokens assigned to individual car parts.

What makes F1 a promising proposition for sponsors is the sport’s global and loyal audience. Next year’s competition is expected to reach a record of 24 races in 21 countries, held over the course of nine months.

Cryptocurrencies - in pictures

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Dogecoin, supported by Elon Musk, is about 90 per cent down from May last year, yet it is outperforming Bitcoin and Ethereum in the current crash. Unsplash

The government of El Salvador has invested $105 million in Bitcoin. President Nayib Bukele's embrace of the cryptocurrency as legal tender is being questioned as the market crashes. Getty

Changpeng Zhao, founder of crypto exchange giant Binance, has compared the current market turmoil to the dotcom bubble of the early 2000s. Still, the company is aggressively pursuing licensing in international jurisdictions and introducing new products. Getty

Tether is the biggest issuer of stablecoins, a type of cryptocurrency pegged to a traditionally stable asset like the US dollar. Most stablecoins are meant to maintain a constant price of $1 and are backed by real reserve funds, making it easy to convert crypto investments into cash. But Tether's financial statements show that may not be true, leaving the issuer and its investors vulnerable. Unsplash

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On June 12 crypto lender Celsius Network said it had paused customer withdrawals, saying it needed “to stabilise liquidity and operations”. Investors are still waiting, with no signs that the current meltdown will let up. Getty

Fans are also typically wealthier thanks to the sport’s high cost of entry, where tickets start at hundreds of dollars and TV channels pay high fees for exclusive broadcasting rights.

Whether cryptocurrency companies will be able to keep up the pace of deal-making in sports remains unclear, with waning demand for digital assets now taking its toll.

Crypto.com and Bybit were among several major companies to lay off staff earlier this year, while the likes of FTX opt to value their F1 partnerships on an annual basis, according to Avi Dabir, the exchange’s vice president for business development.

Since signing with Mercedes, Mr Dabir said FTX had seen a “noticeable” increase in new customers, as well as more interest from existing clients who want to take advantage of access to F1 races.

McLaren also had a previous cryptocurrency partner in Turkish exchange Bitci.com, which at the time was the first to run a fan token for an F1 team.

The deal was quietly wound up in February after less than a year, Bloomberg reported at the time, along with two other Bitci.com deals with European football clubs after it failed to make payments to certain partners.

“That was one that we jumped into pretty quickly,” Mr Brown said. “You need to do your homework to understand” a cryptocurrency deal. As a result, the subsequent partnership with OKX was scrutinised by a 15-person external advisory board, he said.

Due diligence has become even more important this year amid a spate of major cryptocurrency collapses, in addition to rising regulation.

McLaren is now exploring a new fan token with OKX, which it hopes to launch in 2023 after taking its time to ensure “really robust” development, the team’s director of licensing, e-commerce, e-sports and gaming, Lindsey Eckhouse said.

Despite racing team sponsorships typically being more expensive than other sports, Crypto.com chief marketing officer Steven Kalifowitz said its F1 deals were among the first that the exchange made.

“I was really looking for ways to meet a global audience and meet them quickly,” Mr Kalifowitz said. “F1 really delivers on that in a way I don’t think really any other sport does.”

But with cryptocurrency hovering around yearly lows and the general economic environment signalling a potential turn for the worse, the future of F1’s multiyear deals hang in the balance.

It is typical in the sport for partners to come and go, if a sponsor suddenly cannot meet the millions of dollars required to stay in the race, said Ted Dobrzynski, president of F1 sponsorship agency VIAGP.