Pushkin. Hey there everyone, it's Michael Lewis. We're about to go on a brief holiday break. It against the rules, but we have some banger episodes in the works about the rise of sports gambling in the United States and the ride we might be about to go on. For instance, I said to LJ, my producer, to Kansas, where she meets up with college students not only drinking while underaged,
but possibly even gambling on sports. And we take a little tour of countries where gambling is even more entrenched than it is here, just to see how god forsaken things could get here if we really try. And then I try to redeem myself by learning a thing or two about how we can gird our brains to resist the onslaught of addictive temptations. But that's all to come. In the meantime, I can offer you a little treat.
One of the great pleasures I've had while making the season, and it is a chance to talk with other folks about our reporting. Just recently I spoke with Scott Galloway on his podcast. Scott's a professor of marketing at the NYU Stern School of Business and a very smart guy. We talk about the sports gaming industry, of course, but also about a whole bunch of other things. Anyway, here's my conversation with Scott Galloway on his show Prof g.
Michael. Where does this podcast find you?
Smoke Tree Ranch off the side of Palm Springs, which is a gated community created by Walt Disney and some of his pals way back when.
Wow, let's buzz right into it. In the latest season of your podcast Against the Rules, you investigate sports betting, which we talk a lot about here on the pod, which you refer to as a great social experiment. Walk us through the state of play of this experience and where you think we're headed.
So in nineteen ninety two, Bill Bradley said, it created essentially a federal ban on sports betting. It exempted Nevada, but basically it has been against. It was against the law, and the Supreme Court repeal that in twenty eighteen, and the new law of the land is states can legalize it if they want to, and thirty nine states have and about two thirds of the American population has access to sports betting on their phones. About one third still doesn't.
And the industry here is dominated by two companies, fan duel and draftings. They have a little hard to say exactly, but say roughly seventy percent of the market. And they were before they were sports gambling companies. They were daily fantasy sports companies, which gave the actually was the perfect the perfect thing to be before mobile sports gambling is legalized. As a daily fantasy sports company, you know all the customers, you have data on all the customers. Sports bets in
America have skyrocket. It's a little again, a little hard to say. It is hard to know what numbers to trust because there was an illegal market that presumably is not quite as big as it used to be, but it's gone from the legal market, has gone from a few billion to over one hundred billion a year, and there's just starting to be some academic research showing the social effects of this. I mean, it's kind of cool.
This the way it's rolled out has created these natural experiments that you have because you have states that are side by side. One is legalized that one has not legalized it, so you can sort of you can sort of tease out the effects of legalizing it. But bankruptcies are up, savings rates are down. If it follows the path that have followed in the United Kingdom and Australia, suicide rates will be up, so there's some social costs
to it all. But I think, like really early days, I mean, you know, it's only been legal for six years. There were companies that have really only been up and running in most states for just a few years. It's kind of not hard to make some predictions about where it's going, but it's not there yet.
So I'm a glass half empty kind of guy. But you cited some stats. I've seen twenty to thirty percent increase in bankruptcys and states illegalize it. I see young men with kind of less structure in their lives who are more prone to addiction. I think six out of seven gambling addicts are men. My understanding is gambling has the highest suicide rate because if you're addicted to meths, people figure it out and try and intervene. You can get in way over your skis with gambling and nobody knows,
and you decide there's only one way out. I'll use an academic. I think this is a fucking disaster.
Your thoughts, yeah, I'm totally with you. This is why I was trucked to the subject. I couldn't believe. Well, look, once it's legalized, I'm a little shocked by the insensitivity of the social to the public health crisis it's going to trigger because it's essentially a wild West in how
you can get to the customer. And they aren't, you know, the sports gambling companies, they were mistake for casino companies that people kind of thought, oh, it's going to be like a casino business, so that the kind of vague with the house takes about roughly five percent. It's always been kind of five percent, will remain kind of five percent. This number keeps going up with these companies, it's like
at fifteen percent. And effectively, what they are doing is mining the entire US population for people willing to make stupid sports bets. And they have a finely honed ability to identify anybody who actually knows what they're doing, like the sharp gambler, someone who actually might have some edge in a sport, and toss them out or limit them to the point where they're effectively tossed out, so that their business is built on people who don't know what
they're doing. And it's further in a way that you know, casinos. When you're in a casino course is manipulating you in all kinds of diabolical ways. But when the casino's in your pocket, it's like your whole life is in the casino kind of thing. And they have an ability to sort of like nudge people into doing stuff that they just wouldn't think to do it it is and it's making the number and dumber bets and you kind of think about, Okay, like what's the disaster going to look like?
It's not just men, it's young men. Young men are the real target. The Lancet of the Medical British Medical Publication just came out with a study that said, I mean, this number is so high that I want to just pause before I say it, but the twenty six percent of young men who were exposed to gambling develops some
sort of gambling problem that seems very high. But even if it's half that, It's like the NCAA, whose new president, Charlie Baker, was just shocked by the gambling activity he was seeing on campuses, commissioned to study to see how many people were doing this, and more than sixty percent of young men on college campuses is a sports gambling. So you do the mad It's like, you got it. We're like, it's almost like we're creating a pool of
future gambling addicts. And you're right, it's very interesting. You're right about like when you think about what's going to stop this train, if you compare it to like opioids, Like opioids was able to run for twenty years before anybody really put a stop to it, and and seven hundred and fifty thousand people die, and it was about as visible an epidemic as you can have. This is
it's invisible. You don't see what's happening to people until So you wonder, if it takes twenty years for the society to get its hands around the opioid industry, how long is it going to take it to get its hands around the gambling industry. So, I yes, I agree with you. It's like, how on earth do we let this happen? But it's of a piece with other things we have let happen.
I mean, when I think about it, it's not only My fear isn't only about gambling addiction. But when you put kind of an on demand DOPA bag in young people's pockets, just as they're kind of hardwiring their brain and learning about life and reward that we're just setting them up to be just fucking dopa monsters. And if they can't get it from gambling because they run out
of money, they're going to find it somewhere else. Have you seen any of My thesis is we are literally unleashing into the economy, into the world, millions of dopa monsters that will are just going to find whatever way they can opiates sex porn, online shopping. They're just going to be so hungry for that rush because their brains will have been wired to expect that rush, that it's going to have all sorts of ramifications outside of gambling. Am I catastrophizing here?
I mean, it doesn't sound unreasonable to me. My first thought when you started down that little path was it's interesting that sports used to be a place where you learned the slow rewards that come from a modification.
Yeah.
Yeah, you learned the opposite thing, and that we're turning that this mechanism that used used to take young men and teach them a certain lesson, and were you taking it to teach a different lesson. So it was disturbing enough to me that I have. My youngest is a
seventeen year old son. Like I gave him some money and an adult supervision so he could learn how to navigate this world, because it does feel like, not only are we creating a world of you know, dopamine addicts, but the signal you send, especially to young men because it's so susceptible to this, is the world actually doesn't give a shit about you, that it's out to get you.
When I got into this, when I started working on the story, what motivated me was the book I wrote about stuff I'd learned in the book I'd written about the pandemic. I got interested in it because the US response in the beginning was just so appalling, and we had, like, you know, twenty percent of the world's deaths with four percent of the world's population in the first six months.
And I learned in the in the process that this is that in the few years running leading up to the pandemic, we'd had experienced the decline of life expectancy in three straight years, and that had not happened since nineteen eighteen. And I thought, well, the pandemic's happening in the context of a society that's already not taking care of its people, that some basic failure is occurring, and this feels like part of that. That it's like it's a public health problem, and that it's not that hard.
Even if you can't do anything about legalizing sports gambling, it's not that hard to do some things to blunt its effects. So here's my solution. I'm trying to work within the constraints of the society. I don't think actually me going off about how diabolical it all is is going to help anything. They're doing something that I think is kind of interesting the company, the sports gambling companies they are because they're so good at chucking out of
their business as anybody who knows what they're doing. They're isolating people who don't know what they're doing. So, by definition, if you have an account in good standing at FanDuel and DraftKings and you're doing a lot of sports betting, you have signals of the world you don't know what
you're doing. I think that if we get that message out and that if you say, like, if you're looking for someone to manage your money, the first question you should ask them is they have account in good standing and FanDuel and DraftKings that they do. You should never give them your money to manage that. If you make it, if you make it a point of shame that you're in good with the industry, that you might stigmatize it in a way that makes it less dangerous.
We'll be right back your book going infant. I'll under some of what I call the same texture of criticism as Walter Isaacson's biography and Elon Musk and that of us. You were kind of seeing lessly as having a front row seat, but not seeing what was going on. Do you think that's a fair criticism.
I didn't write it until after it all collapsed. When I sat down to write the first words, there wasn't much I didn't know had happened. I mean, very little happened came out of the trial that wasn't already kind of known. But it is true that I was there a fly on the wall from kind of end of two thousand and twenty one through the collapse of November twenty twenty two. And if you'd have said he has the money, the customer's money in Alameda, I would have said,
you're insane. There's no way that would be so dumb. So I did poke. Everybody did this, everybody who saw the structure of the business. He's got his own private hedge fund on our trading on the side of it in exchange, and he owns them both. I did ask lots of questions about conflicts of interest, but what I imagine
would be the problem wasn't the problem. I imagine the problem was that his trading firm would have the same sort of privileged access to the exchange that high frequency traders get on the New York Stock Exchange, and privilege access to data and so on, so front running whatever, and that wasn't the case. I did not see that, like, oh, yeah, the money's in the wrong place, so that's true. Did I in retrospect think I should have seen it?
Not?
Really, no one else saw it either. You know, there wasn't the interesting thing. There are many interesting things about the story, but one interesting thing is, Yeah, a lot of people said, I wonder if they're shady like FTX, But that's the in crypto, that's easy. Like as a heuristic, if you're a successful crypto business, you're you know, you're largely unregulated, and you're twenty six years old and no one's paying that much attention the specific criticism, Oh he's
got the customer's money in his hedge fund. No one said. Zero people said so, not even any ad whatever, one hundred and something professional investors who owned a piece of them, and they didn't say it. So I don't know. I don't know. That would have been very hard. I don't know how you would have detected that.
Well A couple follow up questions there, so when I'm sort of follow the story a little bit from an adjacent I actually bought claims.
I know this. You bought the claims, and if I could have, I would have. Oh right, oh my god. I mean it just seemed pretty obvious that they weren't worth ten cents on the dollar.
Well I wasn't that smart. I bought him for twenty three cents. But because it's better to be lucky than good, because of the surge and crypto, they're now probably the payout's going to be somewhere between one hundred and twenty cents on the dollar one hundred and fifty cents, and other than other than patting myself on the back for one of the few good investment decisions I've made in the last year, if everyone gets their money back. Now,
granted he committed fraud. He took customer accounts from people who thought they were investing, you know, putting their money in a deposit, not even investing, and then he used it to take risks they had not signed up for. So that's illegal, but one given that everyone's given their money back. Given I don't understand the difference between what Sam bankman Free did and what John Corzon did at MF Global.
I think it was called you're taxing my memory there?
But yeah, remember that, Yeah, you do it with the same thing.
Can I back you up a set? Because I really wanted to ask you about this. I was I took a keen interest in the market in claims on FTX because because it seemed really clear to me that what the bankruptcy people were saying are signaling. It's like it's this dumpster fire and there's nothing there and boy, just be incinerated all this money that that wasn't true. And it was to me how cheaply these things traded it first, how did you even think to buy claims?
I'm fascinated by I've invested across every asset class from Angel to venture to growth the public, and by far the best asset class is distressed. Is similar to biology. People don't want to hang around old people, so the best businesses are businesses dealing with old people, and the best asset class is distressed. So I look at bankruptcy filings and I was fascinated by this. I got the
bankruptcy filing from the court. I read through it, and in the bankruptcy claim it listed all their assets cash, some bitcoin, et cetera. And one of the assets that just popped out to me is they had invested five hundred million dollars in Anthropic. Anthropic is the number two AI company LM, and I couldn't find for the life of me what evaluation was that they invested at, but I figured it was somewhere between three and five billions.
So I took the most conservative, which meant a number, which meant that one of the things that the that FDx, a bankrupt FDx had that wouldultimately be distributed to the claimants was ten percent I assumed of Anthropic. I valued Anthropic at four at approximately approximately forty billion, So I thought the steak is worth four billion claimants. Total claimants nine billions. So just they at stake and anthropic I valued at forty four cents on the dollar, claims were
selling for twenty two cents. To me, this was the easiest trade I.
Ever made, And why do you think other people didn't make that trade?
Occasionally you find something I don't know. This doesn't happen to be very long. I'm like, oh my god, they've missed it. And that is people didn't see the five hundred million dollar number. They could see the five hundred million dollars. What they couldn't see was the numerator of the denominator, and that was the valuation they invest that they invested at. And I thought, there's no way they don't own at least ten percent of this thing. And then you have to value another unknown and that is
what is that ten percent now? But I thought it's worth probably forty sense a minimum of twenty three cents. So all the crypto, all the cash, everything else was just gonna be gravy.
To my bewilderment. People weren't paying attention it was. I mean, what he did. He didn't take whatever it was, eleven billion dollars of customer assets and spend it on you know, blow and hookers and private jets. He put five billion of it into into venture capital investments and this was just one of them. And there was this pile of stuff. And I keep waiting for someone to come and ask
the question, how good a VC was? Sam Bankman Free he was doing it it Listen, he was, you know, like, how how well did he perform compared to his peer group? Because it wasn't He has a piece of You may not even know this. He's a piece of space X in there. He has it through Michael Kievs, but so you don't see it. But he's got he's got pieces of some really valuable stuff, even if even if crypto goes to zero, and and never mind all the crypto
businesses he bought. So so so one last question is because I'm just I'm curious, because I haven't because I knew you made this trade. Someone told me about you being in the market, and I thought, well, that's kind
of that's kind of cool. Did you worry at all that the bankruptcy process itself was going to incinerate your profits, that it was so expensive, it would be so expensive that you would just you wouldn't end up seeing you should have seen the money, but in the end it would go in the pockets of Solo them and Cromwell lawyers.
That's that's a great question. But part of the analysis I did want to put together the spreadsheet was it's the same administrator that handled Enron, and I estimated the cost at about a billion dollars and I thought, okay, if if just the anthropic steak is where it's four billion, the coins are worth three I saw seventy cents on the dollar, and then take out a billion, so sixty cents on the dollar. And then what it ends up. It looks like the payout and a lot of the
stakes were talking about have already been sold. But it looks to me what they're saying, the court administrator saying that they now think they're going to I get somewhere between one hundred and twenty one hundred and sixty cents on the dollar. A lot of that because crypto has surged. But the lesson I take away from all of this, and this is a larger lesson about investing in life, is the greatest return on invested capital is inversely for
related to how sexy something is. This isn't true of sports, which you know better than me, because there's no shortage of billionaires with midlife crises, and it's a regulated monopoly the control supply. But generally speaking, outside of sports, the best asset classes are the least sexy, and this was a really unsexy investment. Everybody thought this thing it had fraud,
it had crypto, which was out of vogue. This thing was supuzzedly going to zero, and any reasonable diligence said, no, this is this is all upside.
I didn't really answer your question about what was different from between what he did andto what John Corzin did, and you've taxed my memory about what John Corzin did. But I do think, what do I think? I think that there's a kind of misapprehension in the general tenor of the response to Sam Bankman freed that people still talk about it as if what he did was intentionally set up a business to steal customer money, stole the customer money, and the customers don't have any money now.
And what he actually did was set up a business that was I mean, it was jenkinitly set up in the first place, but it was clearly not start. It didn't start as a fraud was in and of itself, a successful business if he'd just not done the idiot things he'd done with his edge fund and then got himself in a pickle in June of twenty twenty two when crypto lenders asked for the ten billion dollars they'd lent him back, and instead of just telling them I don't have it, I put it in VC Investments used
the customer money to fill the hole. And that was a really stupid thing to do. It is fraud, but it's it's just it's different than like evil person sets out to do evil. I feel boat. I feel sad about him mainly, and I think that what it is is like the vice, the character flaw, if you will, or the pattern. It's more the pattern in his character
that leads to this behavior. It was that was visible in every other aspect of his life, and it was a pattern of foisting risk upon other people without their permission. And he did it. He does it. He did it over and over. He did it in his romantic life, he did it in his friendships. And he comes by this vice. Honestly, I think he himself has sort of numbed to risk and kind of thinks he's right all the time anyway, so he didn't actually probably completely grow
the risk that he was foisting on others. I thought this is all going to work out. That was stupid and a crime, but I can understand how he got there. And I do have a problem with twenty five years in jail. I think, like, okay, jail, that makes some sense, but like, I don't know how you even measure these things, but it's like.
Twenty five years for like that is almost a death sentence.
Yeah, so I just don't I think that's excessive and I don't get it. But people will argue with me.
But I want to put forward a thesis because you're a storyteller and just love the way you think through stuff. I would argue, and I want you to respond to the thesis that the difference between playing golf at Centennial and going to Wimbledon, which I imagine I would be doing if I were John Corzon right now, I don't see a lot of difference in the criminal behavior here.
The difference is is brand management, and that is what you have with Sam bankmin Fried is a guy who had this kind of floppy I just rolled out of bed crypto thing. He's purposely set up this organization of the Bahamas, which felt sketchy. He was sleeping with and doing drugs with his coworkers. He decided to go on the most ridiculously ill advised apology tour, which entirely backfired. Whereas Corson listened very smart people who said, shut the
fuck up. Nobody speaks to anybody but your lawyers go quiet. Act like the victim. You didn't know what was going on. Act contrite. You were terrible fiduciary. You had no idea as opposed to going and speaking to Andrew Ross Sorkin in cargo shorts in crypto. The difference between Corsine again going to Wimbledon and Bankment freed with a life sentence is poor communications and brand strategy.
Your thoughts, well, you're absolutely right that the way he handled it from the minute it all fell apart was catastrophic. Uh, You've got to remind me what John Corzine actually did, because I don't remember.
MF Global customer deposits. It ends up were being used to expect alative investments in the market. John Corzine, My understanding is sid interest rates were gonna head one way, and he claims he didn't know these deposits were being co mingled. It was pretty much the exact same crime. And Corzon got banned from the industry or you know,
paid a fee MF Global I think went away. But these things, you know, tomato tomato, as far as I can tell, and one guy's got a life sentence and the others at Wimbledon, I don't I don't even know if who watches tennis, But to me, it speaks to the notion of public perception.
It also speaks to the moment, to the moment that there's a frustration with the ability to get our hands around the necks of rich people who do bad things. And when you get alive, when now the sort of the speed with which the justice system leaps into action is incredible. Sam was really easy to prosecute, you know, he was just like anything he gave me everything is so think about this. I always stop myself just short of thinking he has a death wish, because his behavior
kind of suggests it. And he even when things were good, he was always extremely vulnerable, like no bodyguards, no, you know, you could sneak into his office any hour of the day. You could he really was? He was. He has a sense that like he doesn't protect himself almost willfully, and so that just extended into what happened in the legal process.
So, Michael, I love this and I'm you're fascinating storyteller. Just a couple questions to wrap up here. I find one of the most fascinating characters in all of us. Was is it Caroline Ellison? Caroline Ellison any any inside? A lot of people didn't think that she ended up being what a my description or I think the Southern District called her the ultimate perfect example, quintessential government witness, but they put her in prison. We know a little
bit about Sam, we know almost nothing about her. What were your impressions or what can you provide us some texture on Allison?
She was a math kid who thought of herself. I think she's kind of there was a bit of a split personality thing going on with her. She had a loss for a stable and normal life and at the same time thought of herself as someone who would do radical and crazy things. And was she in college, joined the effective altruist movement and seemed to be kind of all in on that. And I tell you she was very susceptible to the charms of Sam Bank and Freed.
Here's a texture for you. She told a colleague. This didn't even make the book, but she told a colleague that even after she and Sam had broke off their relationship, it was worth her having sex with Sam because it made Sam more efficient, and making Sam more efficient was the best thing she could do for mankind, because Sam was the person who most likely to save humanity. So that gives you an idea of how.
She had I'm going to try that at a bar. Just the world to be a better place if I'm more relaxed, and I so this this will be the last question.
You have.
I look at I mean, granted, you know my idols are different to most people's, but I look at you and I think I want to be this guy. You're just doing cool shit, telling great stories, writing interesting books, going to movie premieres. I think you make an exceptional living. But by all, at least from an exterior perspective, you're in a great seat. We have a lot of young
men and women who listen to this podcast. Can you give us any one or two pieces of advice for someone who looks at you and thinks you know, I'd like to be in that seat where there any things that you wish you'd done more or less of. What advice would you have to your younger self.
Well, first off, I never thought that way about what seat I wanted to be in. I never thought I want to be that person. I always just wanted to be me. It's like the best me. And there were things that made me feel the best me and I could and writing was writing was one of them. Writing was the big one, and I just thought, I've got to do this, So not trying to be someone else would be the would be one of the first things
I would say. Another thing that led me to like lots of the good things that have happened in my life. It's related. It's like not paying attention to what you're supposed to be paying attention to, Like what everybody else is paying attention to. If everybody else is paying attention to it, it doesn't need your attention kind of thing.
What needs your attention is the thing that you're interested in that no one's paying attention to and no one encourages you to pay attention to, like your FTX investment that it's like, oh, there's something here and I really care about it. And if you can find that and nobody else is there, that seems like a lonely place, but it's it's the golden place. And you've got to like lean into that rather than lean out of it, Like learn to recognize that moment where God, I love
doing this thing. No one is saying I should be doing this thing. No one else is doing this thing, but I love it. Go with it with that feeling. It's great for an investor, it's great for a writer, but I think it's great beyond that. It's sort of like you're arbitraging your personality against the world that you are finding where you are special in the level of
interest you have in something. And that's when I find my subject matters are the most exciting to me when nobody The thing that troubled me most about Sam Bankmanfried is a subject is I was genuinely interested in him right from the moment I met him, But it worried me that so many other people were uh and and the only thing that kept me going was that I had this privileged view of it. But what I really like with the subject is like the Oakland A's when
nobody gives a shit about them. But I see there's something great there and that that's the that's the stuff. It's like, that's when you know you're in the right place. It's like you're there for some genuine reasons, because there's no ingenuine reasons to be there.
Arbitrage in your personality against the rest of the world. I love that. Michael Lewis is the host of the podcast Against the Rules, also a New York Times bestselling author of several books, including The Fifth Risk, Flashboys, and The Big Short. In addition, some of these have been made into great movies, The Big Short, Moneyball, and The
blind Side, all nominated for Academy Awards. Grew up in New Orleans and remains deeply interested and involved in the city, but now lives in Berkeley, California, Alma mater Gobars with his wife, Tabitha Soren, and their children. If I could give my kids any skill, Michael, it would be your skill, and that is you are a fantastic storyteller. Really appreciate your time.
Thanks for having me, Scott. Thank you so much to Scott Galloway for having me on a show. You can go and subscribe to the proft G Pod, wherever you get your podcasts,