How the collapse of FTX hits the sport

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The football window is filling up. Liverpool FC are the latest club to start looking for new investments, joining city rivals Everton and Italian giants Inter Milan. Liverpool owner Fenway Sports Group, whose other sports affiliates include the Boston Red Sox and Pittsburgh Penguins, has recruited Goldman Sachs and Morgan Stanley to generate interest. The process could result in a full sale in what would likely be football’s largest transaction to date.

It’s only been a few months since Chelsea and AC Milan set new benchmarks for judging football clubs in Europe, but it feels like the mood music is changing. Borrowing costs have skyrocketed while other asset classes have suffered. Liverpool, Everton and Inter offer very different investment prospects – how talks with potential buyers progress will tell us a lot about whether the optimistic case for the sport remains intact.

This week we look at one of the big stories of the week – the implosion of FTX, one of the biggest players in the crypto world. What does this mean for the sports industry? We also look at online sports betting and a half-billion dollar failed gamble at the US Midterms. Continue reading – Josh Noble, Sports Editor

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How FTX exposed the sport’s zeal for crypto riches

Tom Brady: FTX Ambassador © AP

What connects them intense heat‘s basketball arena, NFL Star quarterback Tom Brady and the Mercedes Formula 1 Team? As always in sport, it is a question of sponsorship. And in this case, they partnered with FTX, the crypto exchange that filed for bankruptcy in the US on Friday. The group’s lightning-fast crash has once again raised questions about the connections between crypto and esports.

The way sport reaches millions of people around the world is the envy of almost every company. Win or lose, fans stay loyal. Imagine reaching that fan base, connecting with them and making your brand mainstream. That is the core of sports sponsorship.

Led by Sam Bankman-Fried, FTX forged athletic partnerships as it grew into one of the world’s largest crypto exchanges, a key piece of infrastructure in the complex world of digital assets. FTX was not alone. Crypto groups have poured money into esports. At the heart of the investment was a desire to go beyond your average crypto geeks.

FTX’s sports partners are already forced to act. The Miami Heat announced late Friday that it would be terminating its agreement with FTX and beginning a search for a new arena naming partner. Mercedes F1 said it has suspended its relationship with FTX and that the crypto exchange’s logo will not appear on its cars at this weekend’s Brazilian Grand Prix. Questions to Brady (also an FTX ambassador) went unanswered.

Another concern is that Bankman-Fried has become the respectable face of crypto. He designed magazine covers, prevailed in Washington and with regulators, and attracted established institutional investors to FTX’s shareholder list. He even interviewed Bill Clinton and Tony Blair at a conference. So if FTX can implode, are there safe bets in this volatile industry?

The broader question for esports is whether clubs and leagues have been too eager to bed with crypto groups looking for legitimacy. By nature, fans are not demanding financial investors. Still, teams, leagues, and athletes have lent their reputation to the burgeoning sector, bringing crypto brands to the attention of fans who risk losing large sums of money trading volatile assets on an infrastructure prone to glitches.

Now with FTX in Chapter 11 proceedings, questions about esports and crypto will increase.

Busted Flush: The online betting industry is losing heavily in California

California Sports Betting: Declined © AP

Forget about running for governor in Arizona or fighting in Georgia for control of the US Senate. The most expensive vote in this year’s midterm election was for two voting measures in California: Proposition 26 and 27.

Proposal 26 would have legalized sports betting — as well as roulette and craps — in the state’s tribal casinos, while Proposal 27 would have introduced online sports betting. Proponents of the measures spent $527 million to garner voter support, a signal of the potential wealth on offer should the largest US state open up to them. Eilers & Krejcik Gaming, the research and advisory firm, estimated that the state would have generated $3.1 billion in annual revenue, making it the largest sports betting market in the US.

But both measures failed miserably. With 60 percent of the votes counted, Proposal 27 – backed by bookmakers such as FanDuel, DraftKings and BetMGM – lost out by a margin of more than 4 to 1. Less than a third of voters support Proposition 26.

“Our internal poll has been clear and consistent for years: California voters do not support online sports betting,” said Anthony Roberts, tribal leader of the Yocha Dehe Wintun Nation, part of the campaign to oppose the measures.

The failure had little impact on listed betting companies as the rejection was already ingrained. And those companies are doing well in the US anyway — Flutter this week raised its full-year sales estimate in the US by $100 million, money that could be used to pay down debt as interest rates rise.

They could try again in two years time in the next general election, since California is too big a potential market to ignore. Peter Jackson, chief executive of FanDuel parent company Flutter, told FT’s Oliver Barnes that the outcome was “frustrating” but the industry “can be patient”.

But it looks like a real long shot. Gaming analyst Adam Kreijk said: “There’s a good chance there will be another initiative in 2024 – I don’t think they have a chance unless they try a completely new approach.”

Paul Leyland, an analyst at consulting firm Regulus Partners, went even further: “The correct narrative for failure in California is to admit a colossal and predictable strategic error that squanders millions of dollars and makes the commercial sector appear immature and self-serving. Only with a complete rethinking, based on a deep recognition of the causes of failure, can the economy hope for success the ‘next time’.”

He concludes, “To go again in 2024 is just to cover up incompetence by wasting more valuable resources that could actually be used to do some good.”

Countdown to Qatar

Qatar World Cup: take off © REUTERS

  • Qatar was far from the most obvious choice for this year’s tournament World Championship. But if you want the true story of how the tiny Gulf state secured the right to host the world’s most famous football tournament, then look no further than FT Middle East Editor Andrew England‘s magazine feature.

  • Ever wondered why real Madrids French striker Karim Benzema does it just get better with age? Or what Lionel Messi keeps making the killer pass? Simon Kueper has the answers in his column about why the most effective players going to the World Cup are in their mid to late 30s.

  • What does it take to win the World Cup? We speak to seven previous winners – including Kylian Mbappe and Gerard Pique — to get their tips and their memories of past victories.

highlights

  • The Saudi Arabian led owners of Newcastle United have poured a further £70m into the English Premier League club, bringing their total investment to almost half a billion pounds, including the £305m purchase price.

  • Futures traders and insurance brokers in Hawaiian shirts dressed as Super Mario cheer. But the return of Hong Kong Sevens Rugby tournament this weekend means more than just costumes. Questions arise as to whether the sport signals Hong Kong’s revival as a financial hub after strict Covid lockdowns damaged its standing on the global stage.

transfer market

Bjørn Gulden: new crosstown gig © Evan Agostini/Invision/AP

  • Adidas hired a new manager Bjorn Guldenthe Norwegian industry veteran, will join the company in the new year from crosstown rivals puma. The appointment ends a long search for troubled Adidas, which last week issued its third profit warning in five months after its split with Adidas Her, the rapper and designer formerly known as Kanye West. Gulden, a former professional soccer player who worked at Adidas in the 1990s before moving up to Puma, replaces the outgoing Kasper Roersted who ran the sportswear company from 2016. Both Adidas and Puma were founded in tiny Herzogenaurach, Germany by brothers Adi and Rudolf Dassler.

  • Giorgio Furlani was appointed as the next managing director of AC Milan, successor to Ivan Gazidis. Furlani is a native of Milan who has spent his career in finance, with stints at Lehman Brothers, Apollo and most recently Elliott Management, which appointed him to Rossoneri’s board in 2018.

final whistle

Sure, the US midterm elections were the story of the week in Pennsylvania, which had one of the most competitive Senate races in the country. But Philadelphia had another winner this week in an individual now known as chicken man: He just ate 40 whole fried chickens in 40 days, in front of an enthusiastic local audience. His last meal came the day after not one, but two local pro sports teams — baseball Philadelphia Phillies and football PhiladelphiaUnion — lost national championship titles. Hey, everyone’s gotta have a dream.

Scoreboard was written by Josh Noble, Samuel Agini and Arash Massoudi in London, Sara Germano, James Fontanella-Khan and Anna Nicolaou in New York, with contributions from the team producing the Due Diligence Newsletter, the global network of correspondents and data FT visualization team

crypto finance — Scott Chipolina filters out the noise of the global cryptocurrency industry. Register here

Not protected — Robert Armstrong analyzes key market trends and how the brightest minds on Wall Street are reacting to them. Register here

https://www.ft.com/content/31117b83-eb52-4165-a7fd-cf7ce0b5b9f7 How the collapse of FTX hits the sport

Adam Bradshaw

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