Cryptocurrency brands are shaking up the sports sponsorship world by spending significant sums on high profile partnerships with teams, leagues and athletes.

Understandably, rightsholders are taking note – however, given the nature of these deals, both parties should be aware of the risks involved from a legal, regulatory and compliance perspective.

Do your due diligence

This shouldn’t differ significantly from the usual due diligence before entering into any sponsorship. Rightsholders should bear in mind that the cryptocurrency industry is still in its relative infancy (compared to the industries of some of the more traditional sporting sponsors) which naturally makes the financial and legal risks of the partnership more difficult to assess. As part of their due diligence, rightsholders should put a plan in place to respond to any PR backlash from its fans once the partnership is announced.

Payment

Rightsholders should consider appropriate protections if any part of the sponsorship fee is to be paid in cryptocurrency. It’s common for a larger proportion of the sponsorship fee to be paid upfront if accepting payment in a particularly volatile cryptocurrency. Rightsholders should also consider whether they wish to retain the cryptocurrency as an investment or exchange it immediately for a fiat currency.

Scope

To avoid breaching any exclusivity restrictions in their existing sponsorships, rightsholders should consider exactly what type of partner they are looking for. Is it a cryptocurrency trading platform, a blockchain technology provider or a third party who can deliver cryptoassets to its fans?

Legal protections

As with any sports sponsorship, rightsholders should ensure they have robust termination rights if the sponsor fails to pay (especially if payment is in cryptocurrency) or brings the club/league into disrepute. As regulation in the UK is beginning to catch up with the commercial realities of these deals, rightsholders should request appropriate assurances from the sponsor that they will comply with all applicable regulation and will obtain all necessary licences/permissions that may be required in the future.

Conclusion

While the cryptocurrency sector is fast becoming a major player in the sports sponsorship world, all parties should enter into these agreements well versed on the potential pitfalls and should keep up to date on the ever-changing UK regulatory landscape.

This article was first published as part of our “Expert insight on advertising, marketing & sponsorship” publication. Read insights on similar topics in the full publication here.