The conversation started with a direct message on Twitter from one 29-year-old entrepreneur to another: “Yo, what’s up?” It ended with one of the more lucrative naming rights deals in recent sports history.
On Friday, TSM, a competitive video game organization based in Los Angeles, announced that it was changing its name to TSM FTX — and getting paid $210 million over 10 years in the process. FTX, an up-and-coming Hong Kong-based cryptocurrency exchange, will foot the bill.
The annual $21 million payment is larger than many deals corporations have struck with traditional sports teams in recent decades to have their names attached to stadiums and arenas. It is similar to recent transactions like Citibank’s deal with the Mets ($21 million per year), MetLife’s contract with the Giants and Jets (about $19 million per year) and the British bank Barclays’s agreement with the Nets ($20 million per year).
Of course, the big difference here is that TSM is changing its actual name — the equivalent of the New England Patriots, who play in Gillette Stadium, rebranding as the New England Patriots Gillettes.
The agreement between the two companies comes as both cryptocurrencies and gaming have taken on new relevance during the coronavirus pandemic, with people stuck at home searching for online entertainment and ways to invest and make money, sometimes in unconventional (and risky) ways. Interest in video games has increased significantly over the past year — including in e-sports, where some professional players make millions of dollars and vie for championships in leagues devoted to games like Fortnite and League of Legends. More than 57 million people in North America watched an e-sports event in 2020, according to Newzoo, a gaming analytics firm.
The value of cryptocurrencies like Bitcoin have also skyrocketed in the last few months; even with a recent downturn, one Bitcoin was worth more than $36,000 on Thursday, up from just under $10,000 a year ago. That has led to tremendous business for cryptocurrency exchanges, which help consumers buy and sell digital currencies through a so-called digital wallet, taking a cut of each sale.
Sam Bankman-Fried, the chief executive of FTX, which stands for Futures Exchange, said he quickly saw the parallels between his company and TSM after a series of Twitter messages with Andy Dinh, a TSM founder and chief executive.
“Taking a huge industry and then reimagining it in a digital age: that’s sort of what e-sports are to sports, and it’s sort of what crypto is to investing and to finance,” Bankman-Fried said.
TSM, which was originally known as Team SoloMid before switching to its three-letter abbreviation, fields teams in more than 10 different video game leagues and was valued by Forbes last year at $410 million — making it the most valuable e-sports company in the United States.
Dinh said he initially reached out to Bankman-Fried intending to invest in FTX, but the naming deal quickly came together. He said the money would go toward attracting star players with better salaries and putting together teams in more e-sports leagues. TSM, Dinh said, would also open offices in China, Europe and South America.
“It gives us a strong foothold to really grow our brand globally,” Dinh said. “We want to truly be a global e-sports team. We have to invest in having bases in multiple places.”
After the deal was announced on Friday, Riot Games, which runs two of the most prominent e-sports leagues in which TSM participates, said that TSM would not be allowed to display the “FTX” letters on its uniforms or go by its new name in those leagues, League of Legends and Valorant. The news of the restriction was first reported by Dot Esports.
Chris Greeley, the commissioner of the North American League of Legends organization, said that cryptocurrency exchanges are part of a category of sponsors that carry “activation restrictions.” Riot restricts sponsors that relate to industries including crypto, alcohol, pornography and gambling, the company said.
Emilio Collins, chief business officer for Excel Sports Management, a sports marketing agency, said that the cryptocurrency industry has been looking for ways to spend its newfound cash within the sports world. The willingness of crypto companies to fork over large sums of money to sports teams, he said, “raises the stakes” for companies in other industries.
“There is a bit of fear of missing out happening with the standards that the FTXs of the world are setting with the Miami arena and now this deal,” Collins said.
But Darren Heitner, a lawyer and sports law professor at the University of Florida, said that he doubted whether the deal would be a useful guide for traditional sports teams that make naming rights agreements in the future.
“While leagues have become more liberal as of late” with advertising opportunities, Heitner said, “I believe they are still a bit away from allowing teams to sell their actual names to the highest bidder.”
For FTX, the deal gives the cryptocurrency exchange greater recognition in the United States, where it operates a small platform. Earlier this year, FTX signed a deal with the Miami Heat and Miami-Dade County, Fla. for $135 million over 19 years to secure the naming rights to the arena where the Heat play. By working with TSM, Bankman-Fried said he hoped that the crypto exchange, which launched in 2019, would become familiar to more Americans and make them more comfortable with doing business with the exchange.
FTX is currently raising money that would value it at $20 billion, he said.
The majority of FTX’s sales happen outside the United States, where FTX allows people to buy and sell what are known as tokenized stocks and crypto derivatives: essentially, bets on the future value of currencies like Bitcoin, as well as wagers on other future political and financial possibilities.
Such bets are relatively new, largely unregulated and can be risky, so they are generally not offered by U.S. cryptocurrency exchanges or legal U.S. sports books (some casinos outside the United States allow gambling on elections). FTX’s U.S. operation only offers traditional cryptocurrency trading.
Some international exchanges might offer tokenized stocks without collateral, compounding the riskiness of dealing with offshore exchanges that might make it difficult for customers to find them or pursue legal action against them if necessary. “The effect is to deprive its users of the right to exercise their rights against that exchange if something goes sideways,” said Christine Duhaime, a lawyer who is a financial crime expert.
But FTX says it is no fly-by-night operation: its tokenized stocks do have collateral through a registered brokerage firm, and it is safer than other offshore exchanges, the company said.
Bankman-Fried, a graduate of Massachusetts Institute of Technology who was described in a Wall Street Journal profile as a “vegan billionaire” who sleeps on a bean bag in his office in Hong Kong, has sought to bring some credibility to the practice of trading such stocks with FTX.
He said FTX was simply ahead of the curve in offering currencies and bets that people were interested in, and predicted the U.S. would eventually regulate such actions.
“There are some sketchy exchanges internationally; I think there are also some professional ones,” he said.
Friday’s deal, the two chief executives said, was just the beginning of their companies’ partnership.
“TSM could potentially have a larger and brighter future than just what this means today,” Dinh said.