Crypto & Sports: “From Breaking Records to Pushing Boundaries” Preventing the Next FTX Scandal

Jimmy Bisharat
Investment Advisor Representative
02.06.23

Crypto & Sports: “From Breaking Records to Pushing Boundaries” Preventing the Next FTX Scandal

In the world of sports, we are used to seeing athletes breaking records and pushing boundaries, but what happens when athletes turn their attention to the world of crypto? Starting around the time that Bitcoin hit an all-time high in November of 2021, we saw an influx of headlines touting that our favorite celebrities had become more involved in the space. From NFL superstars like Odell Beckham Jr. choosing to be paid in Bitcoin to household names like Tom Brady and Stephen Curry getting caught up in the FTX financial fraud scandal; the stories were never-ending. The crossover of sports and cryptocurrency is becoming historical, and what we learn from history is that it doesn’t repeat - it just changes form.

The growing acceptance of cryptocurrency among investors is evident as more and more athletes are testing crypto as a form of payment and investment. Russel Okung, a former offensive lineman for the Los Angeles Chargers and Carolina Panthers, set a precedent by becoming the first athlete to be paid in Bitcoin. Aaron Rodgers, the back-to-back MVP quarterback for the Green Bay Packers, quickly followed in his footsteps and converted a portion of his salary into cryptocurrency.

Rodgers & Okung weren’t the only athletes to expose themselves to crypto. Odelle Beckham Jr, the wide receiver most known for his incredible one-handed catch, took it one step further by opting to be paid his entire $750,000 salary with the Los Angeles Rams in Bitcoin. However, the value of Bitcoin has since decreased, resulting in the deal being worth slightly over $200,000 today. Despite this, Beckham is still required to pay taxes on the $750,000 salary, which includes Federal and California State taxes of approximately 50.3%. This means that after taxes if Bitcoin were never to recover, Beckham's experiment would cost him around $180,000 for the season. And this isn’t even the worst case for the athletes involved in crypto.

Trevor Lawrence, the NCAAF phenom and first overall pick of the 2021 NFL Draft, previously partnered with Blockfolio, a cryptocurrency investing app. Lawrence went as far as opting to have his entire FTX signing bonus (not NFL signing bonus) placed into crypto. However, the partnership has since become problematic as Blockfolio's parent company, FTX, has faced a class-action lawsuit for allegedly violating state laws and causing consumers to lose over $11 billion.

Lawrence, along with other athletes such as Tom Brady and Stephen Curry, is named as a defendant in the lawsuit. Additionally, FTX had sponsorship deals with the Warriors,held naming rights to the Miami Heat's arena, and was even a sponsor of Mercedes' Formula 1 team. The phenomenon observed is a common case of FOMO or fear of missing out. Even the most renowned organizations, athletes, & celebrities are not immune to it. The same way many investors on Robinhood jumped on the Dogecoin bandwagon when its valuation exceeded well-established companies such as LuluLemon, Marriott, and Uber.

People are drawn to crypto for the same reasons they are fans of teams such as the New England Patriots: excitement and winning. But just like the 2015 Patriots, too much winning in a short amount of time typically means someone’s not playing by the rules. However, the issue with athletes endorsing FTX is that they did not only damage their own reputation, but they also misled and harmed investors and fans who trust their endorsements.

The collapse of FTX could have been prevented if skepticism toward the brand had been higher. Ross Gerber, Co-Founder & CEO of Gerber Kawasaki, one of the fastest-growing financial advising firms as named by the LABJ, had expressed concerns about FTX’s legitimacy as early as July of 2022, months before the collapse. Gerber tweeted, "I can't tell you how much this man [Sam Bankman Fried] scares me for the future of crypto. He seems to be running something very questionable. I learned this lesson taking apart AIG when it went down. If the glove don't fit…”

In conclusion, while we may not be able to control the actions of all fraudulent individuals or organizations, we can take steps to protect ourselves and others by providing the proper education and resources to those who may be at risk of being misled. This includes professional athletes, NIL student-athletes, celebrities, and influencers who may be approached to promote such enterprises. By working with a trusted team of advisors who do proper research, due diligence, and know your personal risk tolerance, individuals can make better-informed decisions about their investments and endorsements.

It is important to remember that financial success takes time, patience, and a well-thought-out plan that weighs potential risks and rewards. By being proactive, we can work to lessen the potential of future financial losses and protect ourselves and our communities from the next SBF.

If you have questions about your cryptocurrency holdings and overall investment portfolio reach out the Jimmy Bisharat for a complimentary portfolio review.

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Jimmy Bisharat is a Financial Advisor of Santa Monica, Calif-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately ~$1.8B billion in assets under management as of 09/30/22. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn't buy any investment without doing their research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results."