FTX deal looked too good to miss; it was too good to be true

When Sam Bankman-Fried’s net worth fell from $16 billion to zero in seven days as his cryptocurrency exchange FTX went bankrupt Friday, taking with it all value of FTX’s sponsorship of the county’s Miami Heat arena, we got lessons that should have been obvious but weren’t heeded.

First, don’t gamble on sponsorships to fill government coffers.

Second, whenever we name a public property for a living person or organization, we are taking a big risk.

Third, going after the riches of the glittering new fin-tech economy is a lot like mining for gold: you must beware of the fool’s gold around the mine.

Fourth, if you can’t understand how a company you’re dealing with works and be sure of its soundness, you may be entering into the modern equivalent of a Ponzi scheme.

Fifth, if financial returns in anything look too good to be true, that may well be the case.

Of course, it’s easier to point out the pitfalls after we have fallen into the pit. But the signs were there beforehand if anyone wanted to see them – which too few of us did.

If you were on Mars last week, you may have missed the catastrophic collapse of three-year-old FTX and its 30-year-old founder Mr. Bankman-Fried, leading to a move to bankruptcy in fewer than seven days, with investors in the exchange unable to recoup their billions in funds.

I can’t explain to you simply what happened or why, showing that dealing with FTX in the first place never met Rule Four: if you can’t understand it, don’t get involved. Yet clearly, in its less than three years of existence FTX’s value on paper rose to $32 billion by January. By last weekend, it was zero. If you were among those caught, I am sincerely sorry.

Miami-Dade County was certainly one of those caught.

For years the county had been trying to market the naming rights to the arena on Biscayne Boulevard after American Airlines decided to depart from its 20-year $42 million naming deal, which it eventually did in December 2021. The county had decided that it would retain the rights by paying the Heat ownership $2 million a year and sell the name itself for more, pocketing the difference.

The county listened to the Superlative Group of Cleveland, which said it could get far more money by marketing the name than the Heat was paying, an estimated $6 million or more a year. The county would pay Superlative 5% of the deal. But after two years of hunting, Superlative had no takers.

Then along came FTX flashing a $135 million offer for 10 years. They couldn’t resist the bait.

It wasn’t a bad payment amount if FTX paid, and it did pay the first $20 million. With bankruptcy, that’s all it will pay. At $2 million a year that would just pay the Miami Heat, leaving the county nothing.

County commissioners got a warning before they voted: “We of course recognize that there is risk in this deal,” Chief Operations Officer Jimmy Morales reportedly told them, “particularly with a relatively new company in a relatively new industry.” But they gambled on the big payout they will not get.

By naming the arena for FTX the commission also insured that no matter what happens in the bankruptcy case the FTX brand will be staying prominently on the arena as an unpaid ad for a defunct company. The county doesn’t plan to take the name down until a new sponsor is named.

It is probably better than having to say that the Miami Heat plays in No Name Arena, but leaving that name up is going to leave a very bad taste in the mouths of investors who also gambled on FTX and lost their money. Is that also worth it?

Selling that arena name for enough to pay $2 million a year to the Miami Heat plus 5% to Superlative Group and still leave the county able to fund the millions it had planned each year from the sponsorship to deal with youths at risk is going to be difficult.

It was Superlative, after all, that advised the county in 2008 that it could get millions in naming rights payments each year for its South Miami-Dade Cultural Arts Center. This year the county finally gave away those rights for nothing, naming the center for former county commissioner Dennis Moss and violating our dictum that naming a public site for a living person is fraught with risk. Think about all those streets here we have named for living persons and been embarrassed by, and later had to remove several of the signs for real or perceived misdeeds.

With FTX, the county didn’t have to give away the arena name. It decided that a Hong Kong company that then was less than two years old would be the perfect name buyer. Since then, the company moved twice, first to the Bahamas and last week to oblivion.

The county had been told before that it could get revenues for sponsorships. Another advisory firm said in 2009 that the county could get up to $48,000 per year for allowing companies to put their names on the various Metromover stations. Thirteen years later, no sales – fortunately.

Perhaps most embarrassed by the FTX scandal will be not Miami-Dade’s county hall but Major League Baseball: as more than $400 million in “unauthorized transactions” at FTX are being investigated, in the irony of another sponsorship deal gone awry the company’s name is emblazoned on the uniform of each umpire, the men who insure baseball’s on-field integrity.