The demise of the cryptocurrency exchange platform FTX hit Miami-Dade County and the Miami Heat basketball team right in the arena.
In 2021, Miami-Dade County commissioners approved a 19-year, $135 million deal naming rights deal with FTX to change the name of the American Airlines Arena to FTX Arena.
County commissioners at the time said the deal would let it invest $90 million into programs to help the local economy. FTX also committed to provide $5 million to local communities to fight poverty and gun violence.
FTX Trading Ltd. announced Friday that it, along with West Realm Shires Services Inc., Alameda Research Ltd and about 130 affiliated companies, had entered voluntary proceedings under Chapter 11 of the United States Bankruptcy Code in the District of Delaware.
The firm said John J. Ray III was appointed chief executive officer of the FTX Group after Sam Bankman-Fried resigned.
“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,” Ray said in a press release.
Cryptocurrencies are decentralized and digital lines of computer code that are digitally signed each time they transfer from one owner to the next; the chain of custody is kept in ledgers known as blockchain.
FTX was a cryptocurrency exchange, allowing clients to trade digital currencies for other cryptocurrencies or regular money.
It was headquartered in the Bahamas, allowing it to offer trading options that are not legal in the United States, according to one New York Times explainer.
Miami-Dade County Mayor Daniella Levine Cava said the hunt for a new name for the arena — and the associated naming rights revenue — will begin soon.
“The reports about FTX and its affiliates are extremely disappointing. Miami-Dade County and the Miami Heat are immediately taking action to terminate our business relationships with FTX, and we will be working together to find a new naming rights partner for the arena,” Cava and the Heat said in a joint statement released late Friday.
Published reports have said FTX still owes the county $5.5 million for the naming rights payment that came due in January, after making an initial payment of $14 million last year.
It’s a pittance compared to the billions of dollars of liabilities entangled in FTX’s bankruptcy.
“We are proud of the impact our Peace & Prosperity Plan — sponsored by County Commissioner Keon Hardemon and funded through the original deal — is already having in preventing violence and creating opportunity for young people across Miami-Dade, and we look forward to identifying a new partner to continue funding these important programs in the years ahead,” the county/Heat joint statement said.
Last March, the Government Finance Officers Association issued a warning that urged government finance officers not to use or invest in cryptocurrencies for government operations.
The group warned that cryptocurrencies lack any substantive value, are incredibly volatile by nature and are potentially illiquid.
Miami-Dade County and city of Miami politicians, notably the city’s mayor, Francis Suarez, have been vocal cryptocurrency enthusiasts.
Both Miami-Dade County and the city of Miami have made tentative forays into cryptocurrencies like Bitcoin, which they believe can make local government work faster and more efficiently while at the same time establishing their municipalities as tech-forward innovation hubs.
Last year, the County Council voted on a bill to set up a task force to study the possibilities of how cryptocurrencies, such as Bitcoin, Ethereum, Litecoin, Ripple, Dogecoin, Cardano and Polkadot, could be used for county business.
“Allowing cryptocurrencies as a form of payment for county taxes, fees, and services is one application of blockchain technology that has the potential to enhance convenience and save on costs,” said the resolution launching the study.
In Miami, the City Commission is studying several cryptocurrency expansion proposals and is looking at the opportunities and risks that the mining and use of cybercurrencies hold for local governments. The City Commission also adopted a resolution encouraging the Florida legislature to let Miami to invest some of its treasury in bitcoin.
FTX stepped in to buy naming rights for Miami’s 20-year-old NBA venue after the arena’s first namesake, American Airlines, allowed its arrangement to lapse.
Arena construction was financed by the NBA franchise’s owner, in exchange for county land. As of 2018, the county was paying $6.4 million a year for “arena management” to the team’s private owners, which can be mitigated by the sale of naming rights, according to the official statement for the county’s taxable Professional Sports Franchise Facilities Tax Revenue Refunding Bond sale that year.
According to Bloomberg News, the Miami-Dade arena naming was just one of FTX’s sports deals. Major League Baseball umpires wear FTX patches as part of a sponsorship agreement and FTX also has a partnership with the Formula 1 racing team Mercedes-AMG Petronas.
ESPN reported that FTX also had marketing deals with the Golden State Warriors and the Washington Wizards as well as with top athletes such as Tom Brady of the National Football League’s Tampa Bay Buccaneers and tennis star Naomi Osaka.
Another big arena, the Staples Center in Los Angeles, was renamed Crypto.com Arena in December 2021 when that Singapore-based cryptocurrency exchange bought the home of the Los Angeles Lakers, Los Angeles Kings, and Los Angeles Clippers.
There are always good and bad points to any new product, John Hallacy, founder of John Hallacy Consulting LLC told The Bond Buyer.
“When we discussed crypto and its potential applications last year we fully appreciated that the business in crypto resides in an unregulated market and therefore has always been subject to more volatility,” Hallacy said. “The greenback is hard to replace as a store of value. Just ask those who have accepted pay in crypto,” he said.
Clearly, the FTX bankruptcy is a setback for digital money, he said.
“But new products always have fits and starts,” Hallacy said. “I am certain that interested parties will try to improve the product and its features over time. Full adoption is not a given, but something that must be earned and become trusted.”
Miami-Dade County is rated Aa2 by Moody’s Investors Service and AA by S&P Global Ratings and Fitch Ratings. The three agencies all have stable outlooks on the credit.
Since 2011, the county has sold more than $20 billion of debt, with the most issuance occurring in 2020 when it sold $2.97 billion of debt. In August, the county sold almost $480 million of Series 2022 transit system sales surtax revenue bonds to fund some of its transit infrastructure needs.
The value of all cryptocurrencies as of August was estimated at about $1.1 trillion, falling from almost $3 trillion in 2021, according to S&P Global Ratings. According to the Federal Reserve, the M1 money supply in the U.S., which includes money in circulation and deposits in banks, was $12.8 trillion in 2020.
The cryptocurrency market has been lightly regulated by the Securities and Exchange Commission, but that may be changing.
U.S. Rep. Brad Sherman, D-Calif., who chairs the Subcommittee on Investor Protection and Capital Markets, said the collapse of FTX “has been a dramatic demonstration of both the inherent risks of digital assets and the critical weaknesses in the industry that has grown up around them.”
He said he would study options for federal legislation.
“For years I have advocated for Congress and federal regulators to take an aggressive approach in confronting the many threats to our society posed by cryptocurrencies,” he said in a statement released Nov. 13. “I believe it is important now more than ever that the SEC take decisive action to put an end to the regulatory gray area in which the crypto industry has operated.”