Mercedes has suspended its Formula One sponsorship deal with crisis-hit crypto exchange FTX, meaning the company’s logos will be removed from the team’s cars from the Brazilian Grand Prix onwards.
Against the backdrop of a possible bankruptcy of the FTX exchange and a looming investigation by the US Securities and Exchange Commission (SEC) into the alleged misuse of customer funds, Mercedes has reacted overnight to the rapidly changing situation.
While it initially looked as though the team would retain the FTX logos on its cars and facilities for the Interlagos weekend, a Mercedes spokesman confirmed to Motorsport.com in Brazil on Friday morning that they had stopped the deal.
“As a first step, we have suspended our partnership agreement with FTX,” Mercedes said. “This means that the company will no longer appear on our race cars and other branded merchandise from this weekend. We will closely monitor how the situation develops.”
FTX suspected of misappropriating client funds
This comes as a result of the feared collapse of FTX, as the crypto exchange is in deep trouble. FTX faces bankruptcy if it is unable to raise billions of dollars to extricate itself from a liquidity crisis that erupted this week at sister firm and hedge fund Alameda Research after huge withdrawals of funds.
It is believed that billion-dollar hedge fund Alameda Research, which is 90 per cent owned by FTX and makes most of its money exploiting cryptocurrency price differentials, has run into financial trouble. This was apparently attempted to be balanced with client money.
The securities regulator in the Bahamas, where FTX is headquartered, announced on Thursday that it had frozen the assets of FTX Digital Markets. The company is suspected of having misappropriated client funds.
Alpine sponsor does not want to save FTX
An initial plan to rescue the company by rival exchange Binance, which is a sponsor of the Alpine team, collapsed after just 24 hours due to concerns about the size of the financial hole FTX is in. It is understood that around eight billion dollars is missing from FTX’s books.
As a result of the concerns raised, panic withdrawals from FTX have increased even further, only adding to the liquidity squeeze. There is talk in the financial world of a tremor in the crypto market, with comparisons being drawn with the spectacular failure of US bank ‘Lehman Brothers’, which triggered a global financial crisis in 2008.
A statement from Binance said, “Initially, we had hoped to support FTX customers to provide liquidity, but the issues are beyond our control and ability to help.”
After FTX bust: Crypto crash on exchanges
Reuters news agency has reported that the US Securities and Exchange Commission (SEC) is investigating FTX’s handling of customer funds and its crypto lending activities. The problems at FTX, one of the world’s best-known crypto exchanges, have triggered a meltdown in crypto markets and pushed bitcoin to its lowest price in two years.
The FTT token on the FTX exchange plunged from a price of more than US$25 earlier this week to a low of less than US$2 as news of the problems made the rounds and panic selling ensued. It has since recovered slightly.
FTX’s founder and CEO, Sam Bankman-Fried, is still hopeful that a rescue package can be put together to save the exchange, but there are doubts about whether he will be successful. This has fuelled speculation that the partnership with Mercedes could end prematurely, which the team confirmed in Brazil on Friday.
Wolff justified crypto deal earlier this year
At the height of its success, FTX was involved in several high-profile sports sponsorships. These included a $135 million deal for the Miami Heats’ NBA arena in Miami, which will be renamed FTX Arena by 2040, and the official cryptocurrency brand of Major League Baseball.
FTX has also signed a multi-year sponsorship deal with the Mercedes team, which was announced last September. In addition to the FTX logos on the car and the drivers’ overalls, they have also collaborated on other projects, including the launch of NFT.
At this year’s Miami Grand Prix, FTX hosted a large-scale promotion called “Off the Grid” on South Beach, which included live music and demonstrations by Mercedes show cars.
Speaking about the FTX deal earlier this year as questions arose about the risks Formula One teams were taking with the volatile crypto industry, Mercedes team boss Toto Wolff said it would have been wrong for the sport to ignore potential business opportunities.
“You can’t close your mind to modern technology,” Wolff said. “It’s definitely an area that will grow. If we look back in ten years’ time, payments that take two days and can’t be made outside working hours will be a relic of the past. And that’s where cryptocurrencies come in.”