The Crypto Crash May Leave Ad-Funded Companies With a Hole in the Budget

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Sergino Dest of USA and Milad Mohammadi of Iran battle for the ball during the FIFA World Cup Qatar 2022 Group B match between IR Iran and USA at Al Thumama Stadium on November 29 2022 in Doha, Qatar.

Matthew Ciambelli | Pictures of Defodi | Getty Images

There were Super Bowl ads, arena endorsements and celebrity endorsements. TV commercials landed during the evening news. The money poured in on Facebook, Twitter and TikTok.

Crypto companies were spending anywhere and everywhere.

Through October 2022, crypto-related brands spent $223 million on ads in the United States, up 150% from $89 million for all of last year, according to MediaRadar. Few were as aggressive as Crypto.com, which said in late 2021 it was committing $100 million to an advertising campaign that would feature Matt Damon and take place in 20 countries. The company is an official sponsor of the 2022 World Cup taking place in Qatar.

What the crypto industry gives, it can take back.

The stunning collapse this month of cryptocurrency exchange FTX and founder Sam Bankman-Fried’s broader empire is creating new problems for ad-supported media companies that had come to see the crypto as a new growth engine with money to burn. And FTX is far from the only problem, as the contagion has been spreading for months.

Coinbase lost more than 80% of its value and the company cut 18% of its workforce in June, when CEO Brian Armstrong admitted the company had grown too quickly and stressed “the need to manage expenses” . Crypto.com reportedly cut its workforce by 40%, eToro cut its workforce by 6% and canceled a planned merger with a special-purpose acquisition company in July, and BlockFi just filed for bankruptcy.

“Crypto winter is crypto advertising winter,” said Grant Harbin, CEO of performance marketing firm Headlight, which has worked with companies in the industry. “There’s probably very little attention to scaling advertising budgets right now.”

In the third quarter of this year, top crypto advertisers spent just $35 million on ads, according to MediaRadar, an 80% drop from the first quarter, which got a huge boost from the the nation’s biggest sporting event, the Super Bowl.

The pullback in spending, which is expected to intensify given worsening industry turmoil, is notable as ad-based businesses face broader challenges from soaring inflation and fears of a recession. But while crypto used to be a promising growth area, it still represents only a tiny fraction of the overall advertising market.

Overall, companies are expected to spend nearly $89 billion on TV ads this year, across linear programming and connected devices, and nearly $250 billion on digital ads, according to Insider Intelligence.

Facebook (including Instagram), Snap, Twitter, and TikTok combined are expected to pull $57.1 million in ads from crypto exchanges this year, according to SensorTower. That’s roughly on par with the 2021 numbers, although almost all of last year’s spending was on Facebook and Instagram.

During Alphabet’s third-quarter earnings call last month, the company attributed slowing revenue growth in part to reduced advertising spending by crypto companies and other financial firms. Google’s sales growth was the slowest of any period since 2013, except for a quarter during the Covid pandemic.

The spendthrift roller coaster

Data from SensorTower shows a sharp increase in crypto ad spend on digital media around October and November last year as prices peaked, and a sharp decline after the first quarter of this year. In April, the crypto selloff began in earnest, with bitcoin and ether each losing well over half of their value over the next three months.

The Super Bowl created a spending mania that the industry may never see again. A 30-second spot during the NFL Grand Finals in February averaged $6.5 million, and crypto was a huge theme.

Coinbase, Crypto.com, eToro and FTX spent $54 million on Super Bowl ads, according to MediaRadar. Coinbase ran a 60-second ad showing a bouncing QR code which, when scanned, led to a promotion offering $15 worth of free bitcoins to new users. FTX signed Larry David for a commercial, urging viewers not to miss the crypto and declaring NFTs “the next big thing.” A version of “Fly Me to the Moon” played during the eToro commercial.

Promotional costs were not limited to airtime.

In 2021, Crypto.com paid $700 million to put its name on the home of the Los Angeles Lakers for the next 20 years. FTX signed a 19-year deal worth $135 million with the NBA’s Miami Heat for the team’s arena naming rights, partnered with the NBA’s Golden State Warriors and has its logo affixed to the uniforms worn by Major League Baseball umpires.

Miami-Dade County is now trying to have the named FTX removed from the arena. Miami has become a major hub for the crypto industry, and in September FTX moved its US headquarters there from Chicago. The company has spread its wings around the city, sponsoring a three-day crypto weekend in May in South Beach called “FTX Off the Grid.”

Jordan Levy, a Miami-based venture capitalist, said that while other crypto companies have advertised in the city, FTX is on another level.

“None of them have such a significant presence in Miami as Bankman-Fried and FTX,” said the managing partner of SBNY, formerly SoftBank New York. “They tried to do guerrilla marketing that puts them at the top of the food chain from a perception standpoint.”

The money FTX was spending now probably goes to zero. According to SensorTower, the company’s online ad spend quadrupled this year to $13.3 million, about half of that in the first quarter.

Crypto.com’s online ad spend fell from about $16.2 million in the first quarter to $1.6 million in the third, SensorTower said. And Gemini, the exchange owned by the Winklevoss twins, cut spending from $8.5 million in the first quarter to $2,500 in the third.

Coinbase, the only major publicly traded exchange in the United States, said in its earnings report this month that its sales and marketing expenses fell 46% in the third quarter from the prior period to reach $76 million. The company attributed the decline to “our decision to reduce performance marketing, due to less effective spending associated with softer crypto market conditions as well as cost savings associated with reducing our workforce. “.

Coinbase did not respond to a request for comment.

A spokesperson for Crypto.com said via email that the company’s $100 million campaign ran from October 2021 to February 2022. Since then, “we have been running additional ads as part of of our marketing strategy, and we continue to focus on our global brand and sports partnerships,” the spokesperson said. This includes World Cup sponsorship.

Brad Michelson, eToro’s head of US marketing, said the Israel-based investment platform “will actively adjust spending based on performance” and plans to continue building its brand in the US.

“It’s no secret that the markets are in a pullback phase, and our budgets are being reallocated accordingly,” Michelson told CNBC in a statement.

The crypto market has suffered downturns in the past, only to rebound and attract even bigger sums and new entrants.

Joseph Panzarella, director of digital media and marketing at Katz School of Science and Health at Yeshiva University, said that even if the market begins to recover, the high-profile scandals of 2022 will force companies to take a more serious approach. when promoting their offers.

“What they said was, ‘Hey, we’re going to stick with the Fed,'” Panzarella said, referring to the industry’s emphasis on decentralization and its ability to operate without a heavy hand. of the government. “I guess they have to eat a little crow and say something like, ‘Hey, we are now, we are now. [open to] be regulated.'”

WATCH: FTX bankruptcy puts increased pressure on advertising market

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