With FTX Insolvent, What Happens to Its Esports Beneficiaries?
After filing for Chapter 11 and ousting its CEO, the crypto exchange will leave a litany of unfulfilled commitments, particularly in gaming.
It’s been a rocky week in the cryptocurrency market, as FTX filed for Chapter 11 bankruptcy and ousted its CEO, Sam Bankman-Fried.
Since founding the company in May 2019, Bankman-Fried became the face of the cryptocurrency industry and a national figure in politics as one of the highest spending donors to Democratic politicians.
The company became a global figure in sports—signing naming rights deals for the Miami Heat arena and Mercedes-AMG Petronas Formula 1 team, inking an ad deal with MLB for its logo on umpires’ jerseys and striking partnerships with Naomi Osaka, Steph Curry and Tom Brady. It even notably advertised during Super Bowl LVI in a commercial gloating about its stability, ironic in hindsight.
But Bankman-Fried’s personal interest seeped into the company too. A 30-year-old gamer, Bankman-Fried personally pushed the company to do nearly half a dozen esports deals over the past year—committing hundred of millions of dollars in deals that ranged from one-to-10 years. A year later, it’s extremely likely almost every single one of them is dead.
The biggest headline of them all is FTX’s $210 million, 10-year naming rights deal with TSM, once the most notable and successful team in North American “League of Legends.” The origin story of that deal—or at least as they tell it—is that Bankman-Fried personally reached out to TSM’s founder, Andy “Reginald” Dinh, via a direct message on Twitter. From there, their teams brokered the deal, and the rest is history.
TSM is not FTX’s only commitment in gaming, though.
It signed a seven-year deal with the League of Legends Championship Series; a one-year, $3.2 million partnership with FURIA, one of the most successful teams in Brazilian “Counter-Strike: Global Offensive”; and another sponsorship with Philadelphia-based tournament organizer Nerd Street Gamers. (Nerd Street is a co-production partner of my company, Overcome, on a forthcoming podcast.)
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With esports receiving extra scrutiny from investors amid an unclear path to profit—if one even exists for most of these companies, truly—a set of aggressively-spending cryptocurrency exchanges provided a new and paramount revenue stream. It has not gone exactly to plan, though, as G2 Esports filed a lawsuit against its former sponsor, NFT provider Bondly, in March.
In traditional sports, Miami-Dade County is terminating its agreement with FTX for the arena and Mercedes is “suspending” its partnership. But the esports companies, other than FURIA, have remained silent—leading to many questions and speculation as to what happens next.
TSM’s deal might be the most in jeopardy, though. In April, I interviewed TSM senior vice president of sales Ned Watkins and asked about the company’s deal with FTX—specifically how much of it was fiat currency and whether or not TSM took a portion of the deal in crypto.
“We wanted to be authentic and we believe in FTX and we believe in crypto,” Watkins told me on April 6. “And so first of all, the deal was in U.S. dollars, but at the same time, we did make a major crypto purchase to get our players, our staff just familiar with it.”
Watkins did not specify which coin (FTX’s own FTT sunk this week), nor the specifics of how the crypto in question is held, be it on the FTX exchange or via a cold wallet. It’s also unclear if TSM was obligated to hold those crypto assets through the entirety of the deal. The team has not made a statement this week as FTX’s began to tumble.
At the center of FTX and Bankman-Fried’s downfall is hypocrisy. A known critic of bad actors in crypto, Bankman-Fried effectively used FTX’s customer funds as leverage to aggressively trade via Alameda Research, another company that Bankman-Fried owns.
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On Nov. 2, CoinDesk reported that much of Alameda’s balance sheet assets consisted of billions of dollars worth of FTT. Five days later, the CEO of competing exchange Binance, Changpeng Zhao, said it would liquidate all of its FTT holdings. Over this past weekend, users of FTX ran to cash out their cryptocurrency holdings—putting the company in need of billions of dollars in cash it did not have, thanks to Bankman-Fried’s antics. The Wall Street Journal later reported that Alameda owed FTX $10 billion.
On Tuesday, Binance agreed to bail out FTX for pennies on the dollar, losing late-stage investors massive amounts of value. Binance would help its competitor weather the storm, Zhao said on Twitter. But after less than 24 hours of initial due diligence and fearful of reports that FTX and Bankman-Fried were under federal investigation, Binance pulled its offer and FTX was left to sink.
Now it has. The company announced its filing for Chapter 11 and fired Bankman-Fried from his CEO position, stating he would stay on to help transition to new leadership. Much of its compliance and legal teams resigned on Nov. 9, according to a report from Semafor.
And while the sports world is taking action to untangle itself from the freefall, esports is quiet, brooding, with questions unanswered and hundred of millions of dollars in commitments being all for naught.