7 ms·

I have always wondered about the economics of these massive marketing campaigns. Take crypto.com for example: > Crypto.com buying the naming rights to the L.A.

I have always wondered about the economics of these massive marketing campaigns. Take crypto.com for example: > Crypto.com buying the naming rights to the L.A. Lakers’ home arena for $700 million I guess they hope people see the stadium name and go use their site, right? crypto.com makes their money from trading fees. Let's take their most expensive fee of 0.4%[1]. $700M ÷ 0.4% = $175B. They would need to do $175 billion in trading volume just to make their money back. That's not happening any time soon. Do these companies even care about ROI? [1]: https://crypto.com/exchange/document/fees-limits https://crypto.com/exchange/document/fees-limits

mwill 4y ago
I would guess the ROI from their perspective is legitimization, both of their brand and of crypto in general. Presumably the have exposure to the crypto market as a whole, I've always guessed big crypto companies doing advertising blitzes are mostly concerned with the market going up and new money entering, if it enters via them that's just a bonus? This might be cynical, but I suspect its bigger scale version of the ads and spam for random coins, assuming the coin isn't an outright rigged scam, whoever is paying for the ads probably collects marginal fees, the real aim of the ad/spam is to hopefully increase the value of their own holdings.
- deleted 4y ago
  [deleted]
gumby 4y ago
It’s 175B over (presumably) 20 years, so only something slightly less absurd like $10B/year. Still a major drag on free cash flow.
MR4D 4y ago
Interesting stuff. Here’s a couple more pieces to add: The contract is for 20 years. Presumably the money will be spread out fairly evenly (as governments prefer predictable revenue). So for simplicity, let’s say $35 million per year. Second, according to this article [0], it seems the arena hosts over 240 events per year, including the Grammy’s. That works out to roughly 145,000 per event. So the question I would have is does Crypto.com expect to make $35M ÷ 0.4% = $8.75B per year in trading volume. That is a much more reasonable proposition, even though the overall number sounds insane [1]. [0] - https://theathletic.com/2995939/2021/12/06/why-crypto-com-made-a-700-million-bet-to-rename-staples-center-and-doesnt-even-expect-you-to-use-the-name/ https://theathletic.com/2995939/2021/12/06/why-crypto-com-ma... [1] - you also have to take into account inflation which reduces that effective cost a bit each year, so year 20 will be cheap compared to year 1 when measured in real dollars (dollars after adjusting for inflation)
- Aperocky 4y ago
  Funny that whoever controlled Staples Center believed that crypto.com have a high probability to last 20 years.. Even 2 years would have been an unknown.
  - mattmaroon 4y ago
    Can't be sure they did. Perhaps they got a good downpayment and good annual payments and even if it only lasts two years they'll be happy with what they got and just find another sponsor. The LA Lakers don't have a hard time selling naming rights.
- TedDoesntTalk 4y ago
  These are vanity purchases that have nothing to do with ROI or stockholder interest. It’s like buying a vanity license plate. There’s no ROI. Probably some exec is a fan of that particular sports team and get it in their mind to buy the naming rights to claim himself “biggest fan ever”
- Jabbles 4y ago
  > So the question I would have is does Crypto.com expect to make $35M ÷ 0.4% = $8.75B per year in trading volume. That's $8B extra due to the stadium naming, not in total.
axg11 4y ago
Crypto.com 24h trading volume is ~$400m, so they're doing $175B in trading volume every ~450 days. By those metrics, the sponsorship deal doesn't seem unreasonable? Clearly they're not getting $400m in incremental volume as a result of the sponsorship but over 20 years the ROI is in the right magnitude. It's also notable that retail traders (the target audience of a sports sponsorship) are the most lucrative and pay the highest fees.
- Ecco 4y ago
  So they spent over a year of revenue on a local marketing stint. That’s pretty far past the reasonable line to me. Now maybe it was a good bullish move, but the article’s point is that so far this has never been the case for every other company that pulled something similar off.
  - paxys 4y ago
    It is very far from local. NBA has an audience of tens of millions per game and the viewership is growing fast in international markets.
- etempleton 4y ago
  They also sponsored the Miami GP and have a larger sponsorship with Formula 1 and other sporting events. Not to mention the tv commercials with Matt Damon. They have easily spent billions of dollars in marketing this year alone.
interestica 4y ago
There's a lot of value in legitimizing cryptocurrency on the whole. I think it serves as a signal that the industry is mainstream and can help push those that are on the fence. Also, can induce a bit of fomo for some.
- johnsanders 4y ago
  This is what I was thinking, but couldn't quite articulate in my head.
TrainedMonkey 4y ago
Somewhat cynical point of view is that primary goal of most crypto tokens is to make founders wealthy. Price of CRO briefly went up almost 4x around the purchase. I think it is safe a fairly safe assumption most that founders and execs have a decent amount of CRO. I do not have hard data if any of them took profits around that spike, but they would be dumb not to. So when you look at it from this lens, this netted CRO whales a massive payday. One interesting thing to look at is adjusted CRO/BTC market cap (https://i.imgur.com/9dlvZ0Z.png https://i.imgur.com/9dlvZ0Z.png). There are two interesting points there. First is - BTC spiked around the same time which would imply that all of the marketing did absolutely nothing or it was only enough to keep up. Second is that CRO/BTC market cap ratio dipped by roughly half since the acquisition. I am going to count this as a sign of a large sell-off which is consistent with some whales getting out. edit: ugh, I took a second look at that graph and the axis are not labeled. Green is CRO price and it is measured on the left y-axis, yellow is how much BTC you get per CRO and it is measured on the right y-axis.
renewiltord 4y ago
I run eng at a prop fund that did over a trillion dollars worth in trading volume last year on the crypto-exchange side and that's not big. Jump is probably like colossal in comparison, and Alameda. We don't pay those fee rates, of course, but there's someone on the other side as well, and if it's retail (which it often is) they're paying retail fees.
gnopgnip 4y ago
But what if crypto.com would be the largest and only crypto exchange, 400m to grow faster and push out competitors is worth it
dehrmann 4y ago
This might be Crypto.com's best investment. At least it can be sold off to someone else.
- Ecco 4y ago
  So best as in least terrible?
- saghm 4y ago
  The domain name itself is a pretty good investment too, I imagine. It used to belong to a professor I had in college, and I remember reading his tweets over the year or two before the sale about how many inquiries he had been getting for it: https://www.mattblaze.org/blog/newaddress https://www.mattblaze.org/blog/newaddress
  - pcthrowaway 4y ago
    I imagine that domain had a higher RoI than any cryptocurrency could have to the prof. Of course we can't know what it was sold for, but $10 million wouldn't surprise me.

mwill 4y ago

I would guess the ROI from their perspective is legitimization, both of their brand and of crypto in general. Presumably the have exposure to the crypto market as a whole, I've always guessed big crypto companies doing advertising blitzes are mostly concerned with the market going up and new money entering, if it enters via them that's just a bonus? This might be cynical, but I suspect its bigger scale version of the ads and spam for random coins, assuming the coin isn't an outright rigged scam, whoever is paying for the ads probably collects marginal fees, the real aim of the ad/spam is to hopefully increase the value of their own holdings.

deleted 4y ago
[deleted]

gumby 4y ago

It’s 175B over (presumably) 20 years, so only something slightly less absurd like $10B/year. Still a major drag on free cash flow.

MR4D 4y ago

Interesting stuff. Here’s a couple more pieces to add: The contract is for 20 years. Presumably the money will be spread out fairly evenly (as governments prefer predictable revenue). So for simplicity, let’s say $35 million per year. Second, according to this article [0], it seems the arena hosts over 240 events per year, including the Grammy’s. That works out to roughly 145,000 per event. So the question I would have is does Crypto.com expect to make $35M ÷ 0.4% = $8.75B per year in trading volume. That is a much more reasonable proposition, even though the overall number sounds insane [1]. [0] - https://theathletic.com/2995939/2021/12/06/why-crypto-com-made-a-700-million-bet-to-rename-staples-center-and-doesnt-even-expect-you-to-use-the-name/ https://theathletic.com/2995939/2021/12/06/why-crypto-com-ma... [1] - you also have to take into account inflation which reduces that effective cost a bit each year, so year 20 will be cheap compared to year 1 when measured in real dollars (dollars after adjusting for inflation)

Aperocky 4y ago
Funny that whoever controlled Staples Center believed that crypto.com have a high probability to last 20 years.. Even 2 years would have been an unknown.
- mattmaroon 4y ago
  Can't be sure they did. Perhaps they got a good downpayment and good annual payments and even if it only lasts two years they'll be happy with what they got and just find another sponsor. The LA Lakers don't have a hard time selling naming rights.
TedDoesntTalk 4y ago
These are vanity purchases that have nothing to do with ROI or stockholder interest. It’s like buying a vanity license plate. There’s no ROI. Probably some exec is a fan of that particular sports team and get it in their mind to buy the naming rights to claim himself “biggest fan ever”
Jabbles 4y ago
> So the question I would have is does Crypto.com expect to make $35M ÷ 0.4% = $8.75B per year in trading volume. That's $8B extra due to the stadium naming, not in total.

axg11 4y ago

Crypto.com 24h trading volume is ~$400m, so they're doing $175B in trading volume every ~450 days. By those metrics, the sponsorship deal doesn't seem unreasonable? Clearly they're not getting $400m in incremental volume as a result of the sponsorship but over 20 years the ROI is in the right magnitude. It's also notable that retail traders (the target audience of a sports sponsorship) are the most lucrative and pay the highest fees.

Ecco 4y ago
So they spent over a year of revenue on a local marketing stint. That’s pretty far past the reasonable line to me. Now maybe it was a good bullish move, but the article’s point is that so far this has never been the case for every other company that pulled something similar off.
- paxys 4y ago
  It is very far from local. NBA has an audience of tens of millions per game and the viewership is growing fast in international markets.
etempleton 4y ago
They also sponsored the Miami GP and have a larger sponsorship with Formula 1 and other sporting events. Not to mention the tv commercials with Matt Damon. They have easily spent billions of dollars in marketing this year alone.

interestica 4y ago

There's a lot of value in legitimizing cryptocurrency on the whole. I think it serves as a signal that the industry is mainstream and can help push those that are on the fence. Also, can induce a bit of fomo for some.

johnsanders 4y ago
This is what I was thinking, but couldn't quite articulate in my head.

TrainedMonkey 4y ago

Somewhat cynical point of view is that primary goal of most crypto tokens is to make founders wealthy. Price of CRO briefly went up almost 4x around the purchase. I think it is safe a fairly safe assumption most that founders and execs have a decent amount of CRO. I do not have hard data if any of them took profits around that spike, but they would be dumb not to. So when you look at it from this lens, this netted CRO whales a massive payday. One interesting thing to look at is adjusted CRO/BTC market cap (https://i.imgur.com/9dlvZ0Z.png https://i.imgur.com/9dlvZ0Z.png). There are two interesting points there. First is - BTC spiked around the same time which would imply that all of the marketing did absolutely nothing or it was only enough to keep up. Second is that CRO/BTC market cap ratio dipped by roughly half since the acquisition. I am going to count this as a sign of a large sell-off which is consistent with some whales getting out. edit: ugh, I took a second look at that graph and the axis are not labeled. Green is CRO price and it is measured on the left y-axis, yellow is how much BTC you get per CRO and it is measured on the right y-axis.

renewiltord 4y ago

I run eng at a prop fund that did over a trillion dollars worth in trading volume last year on the crypto-exchange side and that's not big. Jump is probably like colossal in comparison, and Alameda. We don't pay those fee rates, of course, but there's someone on the other side as well, and if it's retail (which it often is) they're paying retail fees.

gnopgnip 4y ago

But what if crypto.com would be the largest and only crypto exchange, 400m to grow faster and push out competitors is worth it

dehrmann 4y ago

This might be Crypto.com's best investment. At least it can be sold off to someone else.

Ecco 4y ago
So best as in least terrible?
saghm 4y ago
The domain name itself is a pretty good investment too, I imagine. It used to belong to a professor I had in college, and I remember reading his tweets over the year or two before the sale about how many inquiries he had been getting for it: https://www.mattblaze.org/blog/newaddress https://www.mattblaze.org/blog/newaddress
- pcthrowaway 4y ago
  I imagine that domain had a higher RoI than any cryptocurrency could have to the prof. Of course we can't know what it was sold for, but $10 million wouldn't surprise me.