Cryptocurrencies carry risks for fans

A good general principle is that if you don't understand an investment, you shouldn't buy it. However, what appear to be 'get rich quick' schemes can always attract subscribers, although if the returns appear to be too good to true, they often are.

Levels of financial education are not generally high. However, if a brand you trust offers something, you may be tempted. That is particularly the case when it is something you identify with as strongly as a football club. 18 to 45 year old individuals that are affluent or emerging affluent and attend matches at top clubs are attracted by novel forms of investment.

Football clubs themselves are often attracted to risky products because they offer an apparent means of boosting financial returns. Although one shouldn't make too much of one week's trading markets are currently in a volatile state, enhanced by geopolitical tensions, not least those between the United States and China.

In recent years, a number of football clubs have agreed sponsorship deals with spread betting companies and foreign exchange brokers that offer risky products that can result in steep losses for customers, even as European regulators intervened. With new restrictions operating, some clubs have turned to the cryptocurrency market.

It should be noted that many see cryptocurrencies as a wave of the future, a means of exchange outside the deadening control of central banks and governments. However, they also offer opportunities for organised crime. Individuals investing in them may not understand what they are getting into. Against that, if market capitalism is to flourish, it does involve taking risks.

In August, seven Premier League clubs - including Leicester City, Newcastle United and Tottenham Hotspur - signed one year partnerships with eToro, a website that offers cryptocurrency trading. As part of the partnerships, the clubs received payment in bitcoin. Clubs see it as a way of developing a closer relationship with their fan base which these days is global for leading clubs.

Wolves have agreed a partnership with Coindeal, a Cyprus-based cryptocurrency exchange and Arsenal has signed a deal with CashBet of the US. Individual football players such as Lionel Messi have become 'brand ambassadors', lending their reputations and followings.

Paris Saint-Germain is creating its own cryptocurrency in partnership with Malta-based group, Socios.com. They will develop a 'fan token offering' that fans will be able to buy for special 'privileges' such as voting for man of the match awards. Socios hopes to generate between $15m and $20m for the French champions.

Many people bought into cryptocurrencies when their value rocketed last December. Generally the wrong time to buy an asset is when it is at or near peak. One leading English football club has been approached several times about cryptocurrency endorsements over the past year, but has refused because of concerns about the lack of regulation and the potential for reputational damage.

A senior executive at the club told the Financial Times 'The danger is that [a football club] endorses an [Initial Coin Offering, ICO], investors lose a lot of money when it dies and the only reason people have invested in that is because their sports team have promoted it.'

Anyone contemplating a substantial investment of any kind should seek independent financial advice.

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The Political Economy of Football V2

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