Formula One fans have collectively complained about how saturated the sport and liveries have become with sponsorship adverts. Normally, those advertisers and sponsors are pretty low-risk, with the exception of experience packages and high-end timepieces. But in the past decade, however, crypto currencies and digital art have become a mainstay in professional sports, so when you consider recent lawsuits, perhaps it’s time for Formula One to review its relationship with the crypto space, or at the very least, arm itself from the rise in high-profile lawsuits.
To preface this, I am not a crypto aficionado or expert. I own Bitcoin and a few other currencies, but if I’m being honest, in the last year, I haven’t checked my wallets. In part, because of the massive drops in their value, but also because of their efficacy and how saturated the market is. I also have an issue with how many celebrities are getting involved in crypto and non fungible tokens (NFTs), and encouraging their fans to blindly invest based simply on “trusting the influencer.”
Historically, taking financial and investment advice from celebrities is a bad idea. And yet, with the rise in influencer marketing, conditions have never been more perfect for companies looking towards social media and sporting events to push their products and securities.
In October 2022, global superstar, Kim Kardashian, agreed to pay the Securities and Exchange Commission (SEC) a $1.26 million settlement for failing to disclose that she was paid to promote EthereumMax via her Instagram. In the settlement, Kardashian also agreed not to promote assets or securities for three years. Attorney Duncan Lewis told MSNBC, “The SEC is interested in sending a message to other potential celebrity endorsers of securities, to make sure their posts are not misconstrued as financial advice.” One important point mentioned in the MSNBC story was that celebrity endorsements “artificially inflate the value of the asset” which we know to be true.
Kardashian was initially paid $260,000, but her failure to disclose that in the original Instagram post was a violation of the Securities Act, which requires celebrities to disclose if they’re receiving financial compensation for their advertisements, among other variables. Even if a celebrity says the post isn’t financial advice, fans could still view it as a vetted endorsement. After all, celebrities have the resources to vet investments at a level that’s unavailable to most, so failure to disclose every single detail are financially irresponsible practices, for all parties involved.
As crypto disclosures and scandals relates to Formula One, Mercedes found itself involved in one of the most egregious crypto scandals in history, with the complete collapse of FTX.
When the company imploded back in November of 2022, everyone from businessmen and women to celebrities, politicians, and athletes were stunned, and many of them were sued. This is for a number of reasons.
For starters, after America’s 2022 midterm elections’ campaign audits began, it was noted that FTX founder Sam Bankman-Fried donated nearly $40 million during the campaign cycle–most of which went to Democrats or liberal-backed Super PACs. Bankman-Fried was immediately under scrutiny from federal prosecutors on allegations that he broke campaign finance laws through “farm”-style donations. This is when donations come from a single source but are falsely reported as being from individuals.
Also in November, high profile celebrities such as Tom Brady and Gisele Bundchen were sued over their endorsements of FTX. Similarly to Kim Kardashian’s settlement with the SEC, the celebrities in the FTX lawsuit are alleged to have failed to disclose their involvement with FTX.
Following the fallout of FTX, its lending arm, Genesis, “suspended redemptions,” according to CNN. This was due to “abnormal withdrawal requests which exceeded its current liquidity.” Essentially, investors were unable to withdraw and recover their investments, or very little, as the market was in free fall at the time. FTX was forced to file for bankruptcy after it was left with an $8 billion hit.
It’s difficult to assess how many regular people invested in FTX because of these celebrity endorsements, but several personal lawsuits have already been filed. It’s also difficult to assess how much influence Formula One has had in terms of attracting fans to F1-sponsored crypto companies. I haven’t read about any Tom Brady-style lawsuits in F1, however, the now severed Mercedes and FTX partnership should be sounding some alarms in terms of future partnerships between F1 itself, and within the teams and drivers up and down the paddock.
Following FTX’s meltdown, Mercedes’ boss Toto Wolff said that “It’s difficult, because we all know crypto has relevancy.” Wolff continued by saying, “We considered FTX because they were one of the most credible and solid financially sound partners that were out there. And out of nowhere, you can see that a crypto company can basically be on its knees and gone within a week.” Wolff acknowledged how “vulnerable the sector still is” due to its unregulated conditions, but he also noted that he “strongly believe[s] in blockchain as a way of transactions in the future.”
I think it should be noted that blockchain is the technology that Wolff and others adamantly believe in, which is essentially an open asset ledger within a business network that records every transaction. This could be all tangible transactions related to land or a car, to intangible assets such as the design patents on the front wing of a Formula One car.
Like others who find it to be entirely too volatile, Wolff echoes the need for some regulations within the space to stabilize it and protect it from itself. Perhaps, founders are the ones who need more regulations rather than the crypto or blockchain technology itself. However, with crypto founders donating heavily to politicians, parties, and political action committees–which help elect those who would enact regulatory laws–it’s difficult to assess how regulations could occur that would keep crypto and politicians honest.
It’s a slippery slope, as it’s a massive conflict of interest for lawmakers around the globe.
What should be alarming for Formula One are that professional sports teams were named in FTX lawsuits, including the Tampa Bay Buccaneers (NFL) and the Golden State Warriors (NBA). The lawsuit (which is the largest one to-date) says, “Part of the scheme employed by the FTX entities involved utilizing some of the biggest names in sports and entertainment–like these Defendants–to raise funds and drive American consumers to invest, pouring billions of dollars into the deceptive FTX platform to keep the whole scheme afloat.”
It’s unknown if or how Mercedes will have to deal with FTX fallout in the future, but these lawsuits should be troubling to Formula One. F1 is the largest growing sport on social media in the world, and with that should come an incredibly strong urgency to protect its fans from opportunistic parties.
According to 2022 data, there were 299 sponsorship deals across Formula One and all 10 of its teams. Immediately following FTX’s implosion, Mercedes terminated its partnership, although, it’s unknown how much money Mercedes lost in the deal. That wasn’t the only crypto-F1 deal to implode during the 2022 season. Before the season even began, McLaren Racing terminated its sponsorship with crypto company, Bitci.com. It’s said that this was because the Turkish company failed to make payments, although, according to Bloomberg, McLaren’s official statement made no mention confirming why the partnership was being terminated.
Currently, Crypto.com has a $100 million deal with Formula One as a title partner for the Miami Grand Prix, which is now one of three races in the United States. Additionally, most Formula One teams are sponsored or tied to a crypto company in one way or another, so I doubt the fall of FTX or the multiple celebrity lawsuits will deter future partnerships or sponsorship extensions. However, given the volatility of the markets globally, it’s important for Formula One in its entirety to review its partnership agreements that will either clarify responsibility for, or absolve them of FTX-level legal liabilities in the event another major collapse occurs.
