Why FTX's crypto implosion poses major marketing concerns

FTX's dramatic collapse this week over reports that it is insolvent carries major marketing implications, including a potential spillover effect that could severely impact the future of crypto advertising.

The spiraling of the crypto exchange, one of the biggest by trading volume and a player in this year’s so-called Super Bowl “Crypto Bowl,” reached a fever pitch on Tuesday when Binance, the world’s largest crypto exchange and one of FTX’s biggest rivals, announced plans to acquire FTX. However, even this deal soon fell apart after Binance took a closer look at FTX’s books, according to The Wall Street Journal. Meanwhile, crypto assets like bitcoin and ether have dropped to levels not seen in two years, and the SEC announced it is opening a probe into how FTX dealt with client funds.

As one of the largest advertisers in the crypto space, FTX has garnered mainstream attention via sports sponsorships, celebrity ambassadors and national TV ads. The company has naming rights over the Miami Heat’s home arena, a payment partnership with Reddit as well as commercials with Tom Brady, Steph Curry and Larry David. Ad Age named FTX as a top 10 marketer of the year in 2021.

All of these deals now hang in the balance alongside the fate of FTX itself. Depending on whether the company is purchased through a fire sale by another party or left for a possible bankruptcy, experts doubt that its many partnerships will stay intact.

“If I had FTX on my shirt, and I was a sports team, I would be quite worried right now,” said Alex Baghdjian, co-founder and head of Web3 at ad agency Funday.

FTX did not return a request for comment. Dentsu Creative, FTX's agency partner, also declined to comment.

More uncertainty is added by the fact that FTX, co-founded by Sam Bankman Fried and Gary Wang in 2019, is really two entities: FTX.com—the international exchange; and FTX.US—the United States-based exchange. Both entities share marketing sponsorships. FTX Arena in Miami, for example, is a deal with FTX.US, while a sponsorship of the Mercedes-AMG Petronas Formula One team is with FTX.com. The exchange’s partnership with the MLB contains deals with both entities.

A company could feasibly acquire FTX.com without FTX.US, but whether or not the latter’s deals would remain in place is unclear. What is clear, according to Baghdjian, is that if no party swoops in and buys FTX, the marketing deals don’t stand a chance.

Deal or no deal, celebrity partners are almost certainly going to distance themselves, said Brendan Gahan, partner and chief social officer at agency Mekanism. The practice of using celebrities in crypto marketing has been under fire for some time, but that hasn’t stopped FTX from doubling down with its stars, especially NFL quarterback Tom Brady, who featured in the company’s latest ad in September.

A turning point for crypto marketing

Due to the size and surprise of the collapse of FTX, the current situation has the power to shape the very future of crypto marketing, Baghdjian said. 

While the risk surrounding digital assets is well known, demand for crypto partnerships has stayed relatively high among sports organizations, celebrities and traditional brands. This is true even despite dwindling prices in cryptocurrencies and a shrinking market for NFTs.

Even dramatic implosions in the industry didn’t turn mainstream partners away. In May, a crypto coin called Terra crashed to zero, erasing $60 billion in a matter of days. Soon after, a number of lending firms that had exposure to Terra went bankrupt, evaporating even more wealth from the industry and eroding even more trust—not only from outside consumers but from the space’s biggest enthusiasts.

Then, in response to macroeconomic headwinds, crypto companies began layoffs en masse. Crypto.com was one of these companies, engaging in headcount reductions of 30% to 40% and numerous cuts to its marketing deals, as Ad Age previously reported. Yet organizations stayed alongside their embattled crypto partners.

What makes FTX’s collapse different is its unexpectedness. The company was considered one of the most trustworthy firms in the space, keeping a lean, 300-person workforce when others scaled, and avoiding the fallout from Terra when nearly everyone else got hurt. Bankman Fried sat on the covers of Forbes and Fortune Magazine and became the de facto face of the crypto industry thanks to his lobbying efforts in Washington, D.C.

But now that even FTX has collapsed, experts fear the chapter of mainstream marketing may be at an end.

“I'm assuming there's going to be this sort of moratorium across the sponsored world where they're not going to take any crypto brands for the next 12 to 24 months because of the risk associated,” said Baghdjian. “I think a lot of trust has been broken.”

Gahan agreed that FTX will carry a major spillover effect to other crypto marketers, adding that the firm’s unraveling suggests the crypto space as a whole may not have been ready for the masses.

As for traditional brands operating in or near the crypto world, the future is also uncertain. Gahan said that growing skepticism around cryptocurrencies could discourage brands from enabling crypto payment options, but stopped short of calling for a full-on retreat from the space. 

“Marketers are going to be going where audiences are, and wherever audiences are in Web3, there's going to be a place for brands,” he said. “I don’t see that going away.”