WE’VE ALL seen the advertisement on TV; the honest retired worker, sitting on a 40-year pension pot, exploited by a crooked “advisor” who promised huge returns on his savings. “He took the lot,” says the heartbroken pensioner.
There are many other examples, such as the whizz-kid trader selling FX derivatives to honest working class people and promising unrealistic returns from what turned out to be a “Ponzi fund”. The buyers didn’t have a clue what they were getting into. It’s hard enough for City professionals immersed in the markets to keep up with the developments and mechanics of modern finance, let alone the earnest folk who drive taxis, install boilers or lay bricks.
The football industry has an insatiable obsession with money and get-rich-quick schemes. Just as clubs and leagues are happy to take money from the gambling industry, which has questionable values, the new snake oil in town is crypto currency.
For years, financial technology (fintech) has been disrupting the status quo, trying to make banking and other services cheaper, more accessible and, ultimately, more nimble. There have been good and bad aspects of this sea change but the initial noise seems to have subsided. Take it a stage further and you have the creation of new forms of currency. Unregulated, virtual currencies that exist in the clouds. Given the value of these currencies can soar and plummet in a short space of time, they cannot possible be classified as “stable”. And in the age of high regulation and compliance demands, the fact that many products seem to be part of “the Wild West of Crypto”, investors should tread with extreme care.
Football clubs have been hit hard by the pandemic with more than £ 1 billion of losses incurred. They are always looking at new revenue streams and hence, they take money from the gambling sector and find owners from the most dubious corners of the globe. And no matter how many clubs become victims of irresponsible owners with shady back stories, the game doesn’t seem to learn very easily. Like the hapless and trusting investor, clubs will often bite the hand off anyone that promises riches with all the precision of Spielberg’s latex shark.
Clubs and players are lining-up to make friends with the travelling salesperson peddling crypto as the latest wonder elixir. The attraction for a crypto company is obvious; football is a global game, followed by hordes of people with little knowledge of blockchain, Crypto or distributive ledgers. They don’t always understand risk or that the genial salesperson, calling his clients “guys” and other examples of fake bonhomie, is not interested in the punter, selling is the game they are playing. How many people on the Clapham omnibus would understand what a “Decentralised finance trading analysis and advisory technology company” actually does?
Many clubs have already dipped their toes into this somewhat murky world. Issuing instruments like non-fungible tokens (NFTs) is a way for them to raise money without tampering with their corporate model through share issues or the creation of special purpose vehicles. Inter Milan, the Italian champions, have been so entranced they ended a 30-year relationship with Pirelli to put Crypto firm Socios on their famous blue and black shirts.
Barcelona, Juventus, Paris Saint-Germain and Manchester City have all taken the plunge, although City have suspended their partnership with 3Key after discovering that the company had no credible digital presence. Similarly, Barca ended their NFT agreement with Ownix less than a month after announcing the tie-up after so-called Crypto mogul Moshe Hagog, was arrested for alleged fraud and sex crimes.
Supporters groups, naturally, are concerned that fans who “invest” in these products will be the people that get will their fingers burned. Leeds United’s Supporters Trust believes fans will be forced to enter a cryptocurrency eco-system, something they have little, if any, knowledge of. Meanwhile, fan representatives of both West Ham and Arsenal have expressed their disapproval and lack of trust in Crypto tokens.
Yet in the first half of 2021, crypto brands have spent over US$ 100 million on sports sponsorship and 17 of the 20 Premier League clubs have already sealed some form of partnership. Since early 2020, Crypto assets have grown to around US$ 2 trillion.
When will people learn that when something sounds too good to be true, it often is just that? The financial crisis of 2008-2009 demonstrated that, without due diligence and appropriate regulation, the system can cause ordinary people huge problems. This new form of finance may seem exciting, may be cutting edge, but it largely comes without the assurance of strong policing. The International Monetary Fund has warned of the possibility of financial instability caused by Crypto and there’s a good reasons why compliance professionals are among the most sought-after individuals in financial services these days. Never has the term, caveat emptor been more appropriate.