July 2023

Athlete Endorsers of Crypto: Victims or Fraudsters?

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image: Congressman Charlie Crist, Public domain, via Wikimedia Commons

Cryptocurrency and NFTs are highly volatile and athletes have been increasingly drawn into endorsement deals with various projects and exchanges.

Some athletes find themselves entangled in legal battles as endorsers.

Should Athletes and Endorsers be Liable For Failed and Fraudulent Crypto Exchanges?

One of the key arguments in favor of athletes' limited liability as endorsers of crypto exchanges is that they are often unaware of any underlying fraudulent schemes orchestrated by the project's founders. Take the FTX case, where athletes endorsed the platform in good faith even suffering losses themselves, only to later discover that the founders committed fraud and stole money.

As potential victims of the scam themselves, athletes should not be the held accountable for the deceitful actions of company officials.

Unless they actually knew or had reason to suspect that FTX was committing fraud, Tom Brady, Steph Curry, Naomi Osaka, Shaq, Shohei Ohtani, Trevor Lawrence and Udonis Haslem who've all been named as defendants should not be placed in the same category as the  "Forbes celebrated genius" Sam Bankman Fried.

Athletes weren't getting credit for the rise of FTX and SBF's genius, the same should apply to their liability.

By allowing the endorsers to share the headlines, the true responsible parties are able to shield and share the public scrutiny that accompanies their wrongdoing.

NFT Projects are a Completely Different Story

On the other hand, NFT projects that utilize athletes' likenesses and promise direct interactions and experiences with them enter a different realm of responsibility. When athletes actively participate in NFT projects, offering personal engagement or exclusive content, they are taking on a greater level of involvement and accountability. In such cases, athletes should be held responsible for the project's fulfillment of promised deliverables.

Getting rich quick with crypto

With agents usually heavily engaged in athletes' affairs, not letting anyone in, and negotiating a hard bargain... claiming that they've not done diligence in partnering with scam artists who've rug-pulled their fans isn't an excuse.

Promising to do something yourself vs promoting someone else's product.

De'Aaron Fox's NFT project "rug pulled" his fans and left them hanging. Creating NFT projects requires partnering with developers, creating a roadmap, and generating hype with a team similar to how a company is founded. The project and the creators are all co-founders of "the business" and part of the inner circle.

If you've ever tried getting in touch with NBA players, you know it's notoriously difficult, and they're not just partnering with anyone.

They did their diligence, decided to partner, and invited people who trust them to invest in their business. It's a huge difference.

Endorsement versus Active Participation

The crux of the matter lies in distinguishing between passive endorsement and active involvement. Athletes acting as endorsers merely promote a product or service, where due diligence can only extend so far. Consumers generally understand that endorsers may not have an intimate connection with the project beyond their role as a paid spokesperson. This is akin to athletes appearing in commercials for brands like State Farm or Gatorade.

We know athletes aren't underwriting insurance policies and concocting gatorade recipes.

Conversely, NFT projects that tout direct interactions and experiences with athletes imply their active participation and endorsement. In such instances, athletes have a more significant role in the project, and any overpromising and underdelivering should warrant legal action.

While athletes should not be held liable for fraudulent schemes orchestrated by crypto exchanges they endorse, their involvement in NFT projects that promise direct interactions should make them accountable for delivering on those promises.

By distinguishing between passive endorsement and active participation, the legal framework should strike a balance between athlete endorsements and their responsibility.

It's already tough enough for athletes to get sponsorships and endorsements, they are paid contractors who aren't making company decisions just doing a job. The companies are making the money and the decisions, athletes should be shielded from liability.

related: Michael Jordan's Nike Deal May Be The Biggest Wealth Transfer in Sports History

Issa Hall, Esq

Issa has founded multiple ventures, is an author, and founding partner of Hall & Dixon law firm, with over a decade of experience in tech and law.

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