FTX filed for bankruptcy on Friday. Sam Bankman-Fried resigned. Somewhere between $1 billion and $10 billion in customer funds appear to be missing. And Tom Brady, Steph Curry, Larry David, and the entire Miami Heat arena are having a very bad week.
Let's talk about brand partnerships and due diligence. Or rather, the total absence thereof.
Here's a partial list of brands and celebrities that partnered with or were sponsored by FTX: Mercedes F1, the Miami Heat (naming rights for the arena), Major League Baseball, Tom Brady and Gisele Bundchen, Steph Curry, Shaquille O'Neal, Larry David (who filmed a Super Bowl ad saying crypto was a bad idea, which is now the most accidentally prophetic advertisement in history).
Every single one of these entities is now associated with what appears to be one of the largest financial frauds in recent history. And every single one of them presumably had teams of lawyers and agents review these deals.
Every single one of these entities is now associated with what appears to be one of the largest financial frauds in recent history.
So what went wrong?
From a brand strategy perspective, I think this exposes a fundamental flaw in how partnerships are evaluated. The checklist for most brand partnerships is: Can they pay? Is the association aspirational? Will it drive awareness? Those are the questions that got asked. The questions that didn't get asked: Is this company real? Are their financials legitimate? What happens to our brand if they implode?
We don't do enough catastrophe modeling in brand partnerships. We should.
The Larry David situation is particularly instructive. His Super Bowl ad for FTX was built around the premise that throughout history, skeptics have been wrong about great innovations. The implicit message: don't be a skeptic about crypto. Don't be a Larry David. Turns out being a Larry David was exactly right. The brand literally built its marketing around suppressing the rational skepticism that would have protected consumers.
For strategists, here are the lessons:
Money is not validation. FTX had money. They had billions. They spent lavishly on partnerships and sponsorships. That spending was read by the market as a signal of legitimacy. But spending is not the same as being legitimate. A company can be simultaneously rich and fraudulent. The ability to write a check should never be the primary criterion for partnership.
Hype cycles make due diligence feel uncool. During the crypto boom, asking hard questions about fundamentals made you the buzzkill. Nobody wanted to be the person saying "but where does the money come from" when everyone else was printing returns. Brand teams felt the same FOMO as retail investors. That's not strategy. That's peer pressure in a blazer.
The downside scenario has to be part of the calculus. When you put your brand next to anything, you're betting that the association will remain positive. What's the worst case? What's the probability? What's the exit clause? If the answers are "catastrophic," "higher than you'd think for any company this young and this opaque," and "unclear," maybe don't put their name on your stadium.
I feel for the organizations that now have to explain these partnerships to their audiences. But I also think this is a system-level failure of the brand industry to prioritize flash over fundamentals. We got dazzled. We should be better.