On March 26, 2021, Miami-Dade County Mayor Daniella Levine Cava sent a memo to the county’s commissioners recommending a $135 million approval to rename the city. NBA arena, front of Miami Heatas FTX Arena.
The term, negotiated between the county and FTX.US, the US arm of one of the world’s largest crypto empires, will pay an average of $7.1 million over 19 years, the highest for an NBA-only arena. Levine Cava’s memo, which Sports viewed alongside a copy of the contract itself, said the amount “Significantly exceeds” the minimum estimate of the administration, and heralded the payment structure, which included $14 million due 10 days after it was signed. Despite objections about the speed of the process, the commissioners approved the agreement that day.
It’s unclear how much of the $135 million the district will spend. The sudden collapse of FTX’s international business has sent ripples of billions of dollars throughout the global economy, and after a failed takeover of a major competitor, the future is murky. If FTX.US is taken down because of the collapse — the website said Thursday that trading may be halted — that could mean the end of the company’s sports deals, including the naming rights to the Miami arena and California’s Memorial Stadium, used by the Cal football team. .
FTX wouldn’t be the first crypto lender whose financial struggles affect sports teams, leagues or facilities. The beginning of this year NWSL it was left behind due to the bankruptcy of its partner Voyager Digital, whose assets were later purchased by FTX. The Miami-Dade County FTX agreement, however, explains how special marketing contracts are structured when the payer is a deep-pocketed startup with a relatively unknown track record, and some challenges in vetting the company itself.
The Mayor’s Office said in a statement that the county is “currently reviewing and gathering information” about the future of FTX, and is prepared to take legal action if the terms of the contract are not met. Representatives for FTX and the county board did not respond to requests for comment.
Miami’s 19-year agreement is structured with an initial payment of $14 million – a two-year obligation – followed by annual payments starting at $5.5 million in 2022, and ending at $8 million in 2040, according to the contract. About $40 million of that money will be paid to the Miami Heat. When teams are cut, brokerage commissions, and PR fees are deducted, the district estimates it will be paid $89.7 million over the 19-year deal.
If FTX defaults on the contract at any point, the contract says it will owe the district the next three years of payment. That amount would be $16.5 million if the default occurs in Year 2 of the agreement, and $23.5 million if it occurs in Year 16.
Upfront costs and severance payments are important to understanding the appeal of big sponsorship deals with unproven companies in volatile industries. Not only did FTX make payments that “significantly” exceeded the district’s minimum expectations, the deal had protections for the district. If FTX defaults on the agreement tomorrow, according to the contract, the district will receive two payments worth $19.5 million in total, and owe another three years of payments, worth $17 million. That’s $36.5 million, for a deal of about 18 months.
That of course could become more complicated if FTX does not meet its severance obligations. A statement from the mayor’s office said the county would “explore all legal remedies” if FTX is unable to meet its financial requirements.
Prior to Mayor Levine Cava’s recommendation to the county council, the Office of the Inspector General was asked to assist in a thorough review of FTX. The report, dated March 17, 2021, includes an overview of FTX’s business, including FTX.US, which has been consolidated for more than 12 months. The report also describes FTX’s shareholders and their legal history. In a memo to Cava outlining the findings, Inspector General Felix Jimenez said the report was “limited by the amount of time we had to complete the review.” Cava’s recommendation to the county board, written the following week, noted that there were no major red flags in the inspector general’s review, “other than that the company has been out of business for a long time.”
As of December 2020, Bitcoin has risen from $10,000 in July to $50,000 in early 2021 amid increasing interest in the trade. cryptocurrency. FTX wants to host more of these activities, and in an all-hands meeting, founder and CEO Sam Bankman-Fried asked employees to brainstorm ways to increase brand awareness.
“What are some big ideas?” he asked, according to a Fast company report. One big idea came up: “How about we put a name on a sports stadium?”
About two months later, Miami-Dade County chief financial officer Edward Marquez contacted the local inspector general’s office. Government leaders are considering a naming rights deal for the Heat’s home, county-owned arena, and are urging FTX to do so. The Heat’s agreement with American Airlines expires in 2019, and the county exercised an option to take control of the naming rights in exchange for guaranteed annual payments to the city’s NBA team.
Initially, according to the document, the district was not sure whether the deal would be with the global brand FTX or the US company, which was created to comply with this country’s specific regulations. “Through additional questions and subsequent discussions,” the report notes, it became clear that a deal would be struck with the American arm. (This could be an important distinction, given that FTX’s immediate financial problems this week occurred with non-US businesses).
The inspector general’s office is investigating the personal background of Bankman-Fried as well as other major shareholders of FTX. Unable to determine last known addresses for some prominent shareholders. The county obtained an affidavit stating that none of its affiliated companies have commercial relations, or intend to have commercial relations, with the Chinese government.
“We were given the request, and we complied promptly,” Marie Perikles, deputy general counsel for the county inspector general’s office, said Thursday in an interview. “Sometimes you’re given the luxury of time, and sometimes you’re not. It is what it is. We do what we can with time and the information available.
Bankman-Fried, who is 29 years old, signed the agreement from Hong Kong on March 24, 2021. (Later that year, FTX moved its headquarters to the Bahamas.)
On March 26, Miami-Dade commissioners, who represent the county’s 13 counties, debated approving the deal, with FTX attorney Daniel Friedberg on hand. As part of the plan, the district will spend a portion of the money on anti-gun violence, although some specific allocations were laid out in the initial proposal.
“Maybe the prayers of many crying mothers have finally reached God’s ears,” commissioner Jean Monestime said at one point, calling the vote “the best day” she’s had in her 10 years on the commission before breaking down in tears.
Commissioner Danielle Cohen Higgins cited “red flags” related to the company’s ownership, according to the local. reportbut eventually came around to support the deal.
From a distance, Bankman-Fried tweeted, “This is the most stressful TV show I’ve ever seen.”
At one point in the process, Frieberg responded to complaints about the speed of the process by saying, “there will be additional deaths” if the deal is delayed. It seemed to only irritate commissioner René Garcia, who would be the only ‘No’ voter, as he expressed his displeasure with the legislation that was finally announced the evening before. “The way this was brought to the county commission was wrong,” he said.
In the follow up statement The next day, Garcia explained that the commissioner was given only 16 hours to review “background pages, contracts, and other materials.”
In an interview Thursday, Garcia explained that the issue goes beyond the timing of the proposal. For one, he believes a local company should sponsor one of the county’s most important assets.
“I thought it was a bad deal,” Garcia said. “Obviously you see what’s happening now. People criticized me, and now I’m right.
Garcia said he remembers people attacking him because he didn’t want to do business with a large cryptocurrency company. His vote comes amid Miami mayor Francis Suarez’s push to turn Miami into a cryptocurrency capital, which includes taking salaries in bitcoin.
Now, the commissioners wait. The next FTX check is due in January. If it defaults, the district must find another sponsor-or risk shuttering the FTX program the money has already funded. In this world, Garcia isn’t sure if the government will be any more wary of another swashbuckling young company offering ready cash than it was 18 months ago.
“Unfortunately,” he said, “sometimes we talk about money.”