Crypto.com (CCC:CRO-USD) is a website that is, not surprisingly, devoted to the trading of cryptocurrency assets. The exchange was not particularly well-know until recently. However the CRO coin has leapt up the popularity tables following a bold advertising strategy.
Crypto.com has splashed out tons of money to sponsor professional sports teams, the UFC, and Formula 1 racing, among other ventures. It also hired movie star Matt Damon as a brand ambassador. And, most recently, it made a huge move, paying $700 million for branding rights for the stadium formerly known as the Staples Center in Los Angeles.
As a result of all this marketing, the price of CRO tokens rose from 10 cents during the summer to 90 cents in November. Since then, the price has dipped back to the 50 cent range. Still, it’s been an impressive run amid a sell-off in the broader cryptocurrency markets. But will CRO live up to the hype?
The Infamous Stadium Curse
The flip side of this shrewd marketing is that it has a bad historical track record, at least where stadiums are concerned. Generally, when firms make a big splashy purchase but have a limited budget, it indicates that management may be getting ahead of itself.
I recently documented the stadium curse in relation to SoFi (NYSE:SOFI). SoFi is another firm with an unproven business model that is throwing around gobs of cash to name stadiums without having the underlying cash flow to back up such expensive marketing deals.
Just think back to some other companies that paid up for stadium naming rights. There was Enron Field, Invesco Field, the Adelphia Coliseum, Chesapeake Energy Arena, and the American Airlines Center among others. All of those firms had dramatic falls from grace, with outright fraud in some cases.
Is a company like SoFi or Crypto.com necessarily the next Enron or Adelphia? Of course not. However, it’s always a red flag when a management team prioritizes frivolous expenses before reaching strong sustainable profitability.
Why Crypto.com Might Break The Curse
I’m actually less pessimistic for Crypto.com than SoFi as it relates to the stadium curse. Why’s that? In the case of SoFi, it’s attempting to disrupt the traditional banking system. That’s a low-margin business where SoFi is trying to make money selling products such as student loans. The timeline to getting payback on a massive stadium deal is unclear, to put it kindly.
With Crypto.com, the core business relies far more on hype than actual fundamentals. So much of cryptocurrency right now is getting a first mover advantage. A crypto that has name recognition can obtain a high valuation despite having zero real-world utility whatsoever. Look at the parade of dog-related meme tokens if you doubt me on that point.
There’s a flood of upstart cryptocurrency exchanges out there. So what to do to stand out? Buying a stadium naming contract certainly fits the bill.
Crypto.com Paid A Fair Price For Massive Publicity
There were hundreds of dot-com companies that crashed and burned without anyone remembering them today. Yet, if you mention Pets.com, many people can remember that silly Pets.com sock puppet. Why’s that? Because Pets.com took the crazy step of buying a Super Bowl ad despite not having any serious revenues or even a coherent business model. A publicity stunt can work even if the underlying business has little merit to it.
With crypto, so much of the battle is just getting publicity. Since traders are used to the crypto tokens having no actual utility, hype is the primary barometer of success. That’s a stark contrast to something like SoFi, where the advertising budget has to turn into more actual student loan customers.
In regards to getting mainstream attention, Crypto.com pulled a wildly successful move with its stadium play. For $700 million, it bought a massive amount of publicity up-front. Sure, most of it was media outlets bashing the company for its grandiose spending. But, as they say, there’s no such thing as bad publicity. Crypto.com generated enough buzz to add billions of dollars to its token’s market capitalization. And it will generate some ongoing branding benefits from continuing to have its name on the stadium as well.
Crypto.com Coin Verdict
Crypto trading is not the easiest business to model out financially. As we’ve seen with Robinhood (NASDAQ:HOOD) this year, once trading interest dries up, revenues can drop off a cliff. This is not nearly as stable a business as, say, a stock exchange. Crypto is a frontier market, and investors in the space should size their positions accordingly.
Adding to that, Crypto.com was hardly a household name before the stadium naming rights gamble. With something like Coinbase (NASDAQ:COIN), there’s already a well-established brand, user base, and solid group of partners and backers. Crypto.com has a lot of work to do to reach a similar level of business sustainability.
For now, though, I’d have to judge their stadium naming rights play as a success. The price of its token, for example, has surged hundreds of percent during a generally bad stretch for cryptocurrency as a whole. And in cryptocurrency, simply having a token that is going up is the best sort of marketing available. It remains to be seen if management can convert the buzz into a lasting business. But at least there’s a shot at making it work.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.