FTX’s Unraveling Is Latest Blow to Softening Ad Market

On national television, three major crypto companies spent $153.9 million on advertising this year through the end October, $58.1 million of which came from FTX. That is more than triple the $46.2 million the three companies spent during all of last year, the TV ad-measurement firm iSpot estimates.

Ad experts expect other crypto brands to pare back their marketing spending now that FTX is out of the mix, because of reduced competition as well as the cloud now hanging over crypto in general.

FTX’s bankruptcy isn’t expected to have any near-term financial effect on

Dentsu Inc.,

4324 0.56%

which handles some ad-buying and creative-development tasks for the crypto exchange, a Dentsu spokesman said. Dentsu had required payments from FTX in advance, a person familiar with the matter said.

Before the implosion of FTX, crypto brands had begun to slow their spending as cryptocurrency valuation declined earlier this year and as scrutiny from regulators grew over some of the sector’s marketing practices. The Securities and Exchange Commission started a public-service campaign in June that cautioned investors about relying heavily on celebrity endorsements.

Estimates from iSpot showed that crypto brands spent a paltry $3.5 million on TV ads from August through October. By comparison, the sector spent $84.6 million in February.

The Super Bowl, which was held Feb. 13, was the culmination of crypto companies’ efforts to make their names as ubiquitous as Coca-Cola. The big game, during which 30 seconds of ad time went for as much as $7 million, featured commercials from FTX, Crypto.com,

Coinbase Global Inc.

and eToro Group Ltd.

In FTX’s spot, Mr. David is offered a chance to get into crypto using FTX. The comedian takes a pass, saying, “I am never wrong about this stuff.” Mr. David is earlier shown at different points in history, in which he dismisses inventions such as the wheel and the lightbulb.

FTX had signed deals with a rash of celebrities, such as Mr. Brady, the National Football League great; the National Basketball Association star Stephen Curry; and the retired basketball star Shaquille O’Neal. Mr. Brady and model Gisele Bündchen starred in a $20 million ad push that helped introduce FTX to the masses in 2021.

FTX’s two crypto exchanges—Bahamas-based FTX Trading Ltd. and U.S.-based FTX U.S.—spent more than $220 million on sales and marketing last year, up from about $6 million in 2020, according to their 2021 financial statements, copies of which were viewed by the Journal.

FTX didn’t respond to a request for comment.

The slowdown by the crypto sector comes at a particularly vulnerable moment for the advertising and media business. Digital companies such as

Snap Inc.,

Alphabet Inc.’s

Google, some U.S. television networks and some news publishers have already felt the effects of a pullback in ad expenditures as brands start to rein in spending. Advertising is often among the first expenses cut by companies looking to trim spending in times of economic uncertainty.

Ad experts expect the sports-sponsorship business to suffer the most from the unraveling of FTX. During the boom, FTX and other crypto companies splurged on stadium-naming rights, league sponsorships and sports-related marketing efforts, helping to bolster the sports-sponsorship business, which had been stung by the pandemic.

They were “spending money hand over fist, and the sports properties accepted it willingly,” said Peter Laatz, global managing director of

IEG,

a sponsorship consulting firm.

Crypto companies signed roughly 70 new sports sponsorship deals last year, spending an estimated $200 million on the agreements, according to IEG estimates, about $35 million of which came from FTX.

FTX Trading and FTX U.S. had committed to spend more than $900 million on sponsorship as part of multiyear deals, according to both companies’ 2021 financial statements.

The partnerships included naming the venue where the NBA’s Miami Heat play FTX Arena, as well as having the company labeled as the official cryptocurrency exchange for Major League Baseball, a deal that put the FTX logo on umpire uniforms.

Miami-Dade County and the Miami Heat said last week that they were ending their $135 million, 19-year naming-rights deal with FTX, a pact that the parties signed in 2021. The Mercedes-AMG Petronas Formula One Team suspended its deal with FTX last week.

Ad executives said it will be hard for sports leagues to replace the cryptocurrency category quickly given the sector’s onetime prominence and the dimming economic outlook.

“These deals typically take months, if not years to negotiate,” said Jason Kanefsky, managing partner of marketplace intelligence at the ad-buying firm Havas Media.

Mr. Laatz of IEG said the brands outside crypto that might be interested in sports-sponsorship deals “aren’t spending like the crypto companies are spending.”

Write to Suzanne Vranica at [email protected]