Baseball Owners Score Big Win

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube search Bloomberg Clovel News. Let's get right to our guest. Lucky for us, he's back again. Andy Kurtzig's founder and CEO of Just Answer. Just Answer. It's based in San Francisco. It helps connect people with experts for professional advice. Uh. Andy, it's good to chat with you again. We talked to

you just a few weeks ago. Because you have such a large portion of your your staff in Ukraine, two hundred plus employees in Ukraine, I just want to start with how how are they doing right now and what are they doing well? So they're all live and uh and doing as well they could possibly be doing in the situation that we're in. So all of our preparations have paid off. We've been asking to keep them all

safe and so far it's working. And you in your notes you said that six of them are currently fighting,

and those who are fighting are still being paid a salary. Yeah, so what we what we promised to them even before the war started, when we thought that this might happen, was we'd pay them fifty percent of their salary in addition to the sellary and they get for being in the military, and then we guarantee their jobs when they come back, because hey, and if we can take a step back, um, and we're grateful that you've given us

some time. What are you here, I mean, it's hard for any of us, UM, I think in terms of some of the atrocities that we're seeing in some of the news coverage of what's going on in Ukraine right now. What are you hearing, um from your team members who are on the ground in Ukraine. I'm hearing pretty much what you're seeing in the news, which is it's dreadful.

It's terrible. I mean the that that seeing the bodies and the torture and the reality now that they've taken back some of their territories near Kiev is just awful, I mean, and they're horrified for those who the rest of the world is. For those that have stayed on the ground um and decided not to leave Ukraine, why

is that, Well, so a few reasons. I mean. So we have of the two eight now employees that we have in Ukraine, thirty nine of them have We've been able to get them out, but the rest either they can't get out because of there are men between eighteen and sixties, it's against the law for them to leave the country. And then we've got people that that you know, maybe their spouse or their their family members are stuck

there and so they don't want to leave either. So some of the women are staying by the side of the men that are forced to stay in Ukraine. And then we've even got like what the woman that leads their office in Ukraine, her son just turned eighteen, so he can't leave, and so she's not leaving her son behind. What's the message that that you want to send to other people? And still can Valley other Americans who are here in the United States and really just just watching

this play out. I mean, I think a lot of people have this feeling that well, Okay, the government is doing what it can do. There's only so much I can do. You know. The first thing is that this suspects all of us. This is not some small skirmish in Eastern Europe. This is about democracy and about freedom and East versus West. This is everything that we worried about during the Cold War. It's actually happening now. And you know, this aspects all of us, and so we

all need to do our part to help. You know, Andy, I do wonder too. And obviously you're doing everything and anything you can to help UM your team that are there in Ukraine. How do you though our audience, a business investing audience as well, obviously caring though about the

humanitarian aspect. But when you look at the market over in Europe, you know, will this ultimately lead to kind of business rethink about exposure, whether it's in Ukraine, whether it's Russia, Like, how what's what's the what is it the longer lasting UM strategy that stays with us because of this? Yeah, so we've already seen lots of companies boycotting Russia. And hopefully more will continue to do that.

And you know, as this goes on, what my hope is that companies will not just think about boycotting Russia but also buying Ukrainian goods and services. I mean, this war is about you know, Russians aggression and bombs and tanks, but it's also about the economy and sanctions, and we can all do a part to help the Ukrainian side of this. And so that's what just Answers trying to do, and I hope any other companies will do it as well. Andy, you and your family are actually planning to go to

the border of Ukraine. This is a mission to deliver medical aid, body armor, laptops and more. Um, you're taking your kids. Why why is this important to you? Well, so, when my family and I got together a few weeks ago and we're deciding what we wanted to do for spring break. You know, normally we would go to Hawaii, where my mom lives and we love. We just couldn't bear to go somewhere fun for spring break when our friends and colleagues and the people of Ukraine are suffering

so much. And so we got together, the family, and we decided that we wanted to go and help. Is there a message in terms of the governments that are out there who have already imposed a lot of certainly economic and business sanctions, as you mentioned, a lot of companies pulling out. Um, what more do you think should be done at this point? Well, I mean they should continue to escalate the sanctions. They should continue to send military equipment and and any humanitarian supplies as well. So

there's a lot more to be done. I mean, they've got a lot of people in Ukraine that are ready and willing to fight, but they need the the supplies in order to maintain the this war and too and to beat back Russia and for democracy. They're fighting for our democracy just as much as their own. And the less less bit of time with you just about thirty seconds left. What's your message to to other CEOs who have employees in Ukraine right now or thinking about hiring

in Ukraine? As we know it's a huge tech hip. Absolutely, I think that I think they should go for it. I mean, we we had some offers outstanding when the war started. We've honored those offers. We've actually hired a few more people since the war started. You know, We're trying to support the economy as much as we can and and hiring people there is one of the best things we can do. You know, Unfortunately most of the

Ukrainian economy is crippled right now. Right trucking business or a warehouse or you know, chocolate company, whatever it is, you're probably not operating. But I can kind of operate, and so we're able to support that we have to run. We wish you well, um safety on your journey, and your family are well as well. Andy Kurtzik of Just Answer. You're listening to Bloomberg Business Week with Carol Measure and

Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. All right, for those of you even sticking around, we're going to finally do the great reveal. Almost almost the story is among the most read on the Bloomberg today and it involves probably the most followed individual on Wall Street. We're talking about Jamie Diamond, the JP Morgan Chase CEO and

board chair. Is that with his annual letter he's calling for more sanctions on Russia, expresses pity for the Fed as well, says, hey, they got a tough task ahead of them. Hanna Levitt is finance reporter for Bloomberg Near. She joins us on the phone from New York City, Hannah, what is the before we get to the details here, what is the change in tone of this year's letter versus last year's letter? Hey, guys, thanks for having me. Um. The last year's letter, if you remember, gave a pretty

rosy outlook. It was, you know, Jamie was saying this boom could run into three. He was saying, you know, everything could add up to a Goldilocks moment um. And so it's definitely a change in tone when you know, in the four four pages of the letter this year, he's you know, really breaking down all these massive issues that we're facing globally at the moment. Well, and so among those massive issues is of course the war. Talk to us a little bit more about what he said

about the Russian war and invasion of Ukraine. Yeah, so he called for increasing sanctions UM in whatever way security experts recommend. And he also said that he's not worried about JP Morgan's exposure to Russia, but that it could cost the firm a billion over time UM and that the firm continues to look for secondary impacts are on

the globe. And that's something that we've heard a lot in recent weeks, is that, you know, even if a firm may not have a huge impact right now, um, you know, it's kind of tv D on what could happen six months from now or what what kind of you know, how it will impact companies and countries and what impacts that will end up having having on these things. And a billion dollars is a lot of money to a lot of people, but over an extended period of time to you know, the bank with the most assets

in the United States. Uh, is it is that a lot? Uh? No revenue projected for this year, right, it's a lot. Yeah. Well so then when he says that, though, it's a reminder that you know, when you're thinking about either the financial markets or economic growth, like little bits and pieces of things though from different places, whether it's the war, whether it's inflation, whether it's supply strain constraints or they

were supply chain constraints. All of this though, it's important, right, Hannah, because I'm curious how you see it that it can add up to significant eating into economic growth. Yeah, for sure. I Mean one of his key points was about the energy crisis, which you know has been obviously influenced by the War Ukraine. Um. But it's exacerbating inflation. So that's just one of the examples of where we're seeing, um.

You know, these big issues all being interconnected. Um. And he called for the US increasing energ reproduction and also getting more lergy to Europe immediately um and and wrote a bit about how he doesn't view it as mutually exclusive with longer term clean energy goals, which I also thought was interesting. Okay, let's get to monetary and fiscal policy, and I'm wondering about his comments with regard to the FED and what the FED has ahead of it in

order to get inflation under control. Yeah, for sure. UM. Well, he said he does not envy the FED for what it has to do. Um. But you know, really his point was that in hindsight, all the fislan monetary stinglass in one was probably too much for too long. Um. And so he's predicting that the FED could raise rates more than the market currently expects or is pricing in and you know, if they get it right, there could be years of growth still, but the process will cause

a lot of volatility either way. Um, and it's definitely challenging and the whole thing listen, this is your world, um, Hannah. You know, and Jamie Diamond, you know, when he speaks, we kind of sit up a little straighter and take notice of it. And it certainly he's always among the most on the Bloomberg. I do think he thinks about his words because he knows, um, that people do listen to what he says, you know, pretty closely. What was

the most stark thing for you? Um? I think for me reading it just kind of the the tone change that we talked about at the beginning, um, compared with last year, and it's not you know, he still did say that, like the economy is in good shape, consumers and companies are still in the US, you know, flushed with cash for the most part. But it wasn't like

he was saying everything is terrible by any means. Um. But you know, his his outlining of the challenges ahead don't really start to me to begin anything on whether he's going to stay there longer. What's his deal? Girl? More years? Always hashtag five more years? Um, exactly, Hannah, thank you so much. Really appreciated Hannah of it. She's financial reporter at Bloomberg News. As we said, this is among our most read on the Bloomberg has been all day on this Monday. There is the big reveal when

people when he talks, people listen. But I think it's interesting at tone right, and we keep hearing about a lot more negative tone out there in terms of the outlook. Yeah, I think that's a real fair characterization. A lot has changed in just a year. Yeah, exactly. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stenovic on Bloomberg Radio Opening day for Major League Baseball

it's happening later on this weekend. With that in mind, Bloomberg Business Week tapping into who are the real winners already of the season. We'll give you a hand. It's not the players at this point. Joel Weber is editor at Bloomberg Business Week. He's with us in the Bloomberg Interactive Brokers studio. Ben Writer is a freelance contributor. He's also the author of astro Ball, The New Way to Win It All. He's a freelance contributor Bloomberg Business Week.

He's his story is featured in the current issue of Business Week magazine. It's available on newsstands, on the Bloomberg and at Bloomberg dot com slash Business Week. So, Joel, they've got the most powerful union when it comes to pro sports. Why are their salaries falling? Though franchise values continue to go higher, they can't quite win the negotiation and in like a real, real meaningful way. And and obviously the lockout was something that um got all of

our attention. And there's this labor element to it that I was really captivated by. Ben being a long time sports illustrated writer. Also, in addition to the book that you mentioned, he's uh hosted a podcast called The Edge UM and I basically you know, got him on the phone with um Max Chafkin colleague and said, you know what, what do you want to write about baseball? And I think you know he did this step back story. This is Opening day week, right, if you want to go

watch baseball, it's finally going to start. And what been really I thought, this iscinctly summed up, was that the players, you know, you can root for millionaires or billionaires first of all, and the owners are the billionaires and the players are the millionaires. UM. So sympathies might lie a little bit more with the players at this point. But but really, um, they did not come out with the

upper hand here, did they been. No, they didn't. And let's be clear, this is a hard thought labor negotiation, a nine nine day lockout. The players union were resolute, they had solidarity, and they did emerge with some games. You know, the minimum salary for players went up quite significantly. Um, But overall, this is a case in which the owners maintained the upper hand in a business that, despite everything

you've heard about baseball's decline, is booming. Revenues exceeded ten billion dollars in twenty nineteen, while player salaries went down. The medium salaries declined from one point six million in fifteen to one point one five million in one This was the economic This is the economic landscape that the players were contending with as they were negotiating this new labor agreement. Um, they did gain some concessions, but on

the overall landscape, the owners held strong. You know, the economics of this been Let's just break it down a little bit, because there's there's the upper echelon of player who's doing great. No matter what you're in your out. Those marquee players are are getting bigger and bigger contracts, But what about the rest of it of the league? Right? Well, everybody sees the big contracts, right. Major League Baseball has ten players with guaranteed contract exceeding three hundred million dollars

in value. Make no mistakes, these are some of the largest contracts for any athlete in the world. But the vast maturity of the player body is not doing so well. More than half the league operates on the minimum salary, which was five seventy thousands there about last year. That was the lowest among major sports. And teams are getting

smarter and smarter. They know that it is beneficial to them to pay superstars more and where every year, but keep the majority of their teams to those minimum salary players. That helps to suggest why that media has fallen and also why the average salaries fallen as well. Okay, so let's talk about Bob rob Manfred h a central figure in this. The Commissioner of Baseball, a Harvard trained labor lawyer,

served as the chiefs. The league's chief negotiated for several collective bargaining agreements going all the way back to two thousand two. Where does he come into all this? Right? A lot of people think that the commissioner is, you know, an impartial figure, right, operating for the best interest of the sport as a whole. That's not true in any professional sport. He works at the pleasure of the team owners.

In baseball's case, the thirty team owners. That's really whose interests Rob Manfred was representing, and he's always represented them very well, and it's not a constituency with uniform interest. You have some owners like Steven Cohen of the Mets, who is the wealthiest owner in the league, and he wants to spend whatever he wants to spend. His tirole is gonna be two undred and fifty million dollars this year. You have a lot of owners that don't want to

spend at all or as little as possible. One of the problems structurally in baseball is that spending on your team has been decoupled from profit. You can turn the very handsome profits uh not spending a lot and not winning at all. So you have four teams this year who are going to be spending about forty million dollars or less on salary. To do the math, you know that that's a fraction of what some of the higher

spending teams are. These are the interest that Manfred had to represent these negotiating uh sessions, and clearly he satisfied all of them because the owners came away, in my opinion, very well. Then how did it go over with in the middle of negotiations, when Manfred was practicing his golf swing, How did that go over with players? Right? Well, this is a very tense negotiation. This is the second longest labor stoppage in the history of the league, second after

only the horrible strike of Rob. Manfred was about to, you know, do something that is very serious. You know it's a lot of people, which is to actually cancel games. Like no matter how nasty negotiat Asian get, the cancelation of regular season games is kind of a bridge that nobody wants to cross. An Associated Press photographer captured him practicing, practicing his golf swing and the string taining stadium the

day that he was going to cancel those games. Clearly, no matter how brought these things got, Rob Manfred remains in control and confidence, and he had every reason too, because the fact is, no matter how bad in the industry is the whole cancel games would have been for all parties. The players have much less capacity when push comes to show to withstand that and the potential lots

of salaries than the far wealthier owners. All right, So what's the likelihood that anything changes in the near future, Because it's not like you know, sports contracts with media, I mean especially baseball, they're doing just fine. So there's still a lot of money coming into this, you know, sport if you will. So what's the likelhood anything changes for players more broadly? Well, you know this, this collective bargaining agreement tarrell last for five years, a long time.

We're we have five years of labor peace quote unquote ahead. As Gene Orza, who is a long time players union official told me, collective bargaining produces incremental change, it doesn't produce a revolution. Did the players win some incremental change in this deal? Yes, especially for those minimum salary guys who really might never be millionaires, whose careers have no guarantees as far as their longevity, they will be better compensated.

But as far as the big structural things that tilts toward the owner's advantage, no, that's not gonna change anytime soon. So who wins Opening day? Owners? You know, it seems like the owners always wins and they swart the negotiations. So yeah, I think we have to talk this one up to the owners. The players put up a very good fight. They didn't make some gains, but you know, it's another one for the owners, something we already know about the season. Yeah, I was gonna say, might not. Hey,

Ben writer, it's a great read. Thank you so much, freelance contributor. Check out his book Astro Ball joining us on the phone in New York, and of course or thanks to Joe Webber. He's the editor of Bloomberg Business Week magazine. This story in the current issue. Find it on the Bloomberg and also at Bloomberg dot com. A really great read. Go pick up the issue now. Check it out at Bloomberg dot com and of course on the Bloomberg terminal. This is Bloomberg Radio and this is

Business Week. Roy. How about you let me drive? Oh no, no, no, who's home? All right? Please? I'll do vels. I want to drive. It's a good question, good drive. This is the drive to the closed on Bloomberg Radio. All height folks were just about ten minutes away from the closing bell, and we have seen some buying, certainly in the last half hour hour of trading, so we are pretty much hovering near our best levels of this session. So let's get to it. Let's get to the drive to the

clothes and with us right now. Back with us is Alan Zaffron, who's founding partner and co CEO at I e Q Capital. He's with us once again on the phone from Foster City, California. Hey, Alan, nice to have you back here on Bloomberg Radio. How are you and how do you think the markets are doing? Hey, Carol is doing great, Thank you? Do you? And Tim? How the markets doing. I think they're trying to reconcile all the risks inflation Ukraine. Uh. Not clear about what the

inflation does to earnings growth rates going forward. But you know what we're actually seeing even today a semblance of light because you know, when we start talking about the yield curve being inverted, here's the interesting thing. When a two year bond is yielding you as much or more than a tenure bond, it's telling you that the tenor bond you'll probably isn't going to go up much more, if at all, it's signaling to you that's going to raise rates to the point that it's going to either

stop inflation or sadly put the economy and recession. Let's hope the former, not the latter. But this is the hint well, and that box up sex because the interest rates are the people are saying rates just probably aren't likely going to go that much more. On the long end, I can now buy long duration growth stocks, so it's interesting.

What's interesting about that too, And we've been focusing on Okay, oh, what the longer end is telling us is that the Fed is gonna have to start cutting rates because there's gonna be problems in the economy. But is there that possibility that the Fed gets it just right in terms of policy and rate moves, that it doesn't do anything to over stimulate growth or slow it down too much. Is it possible that we can kind of get back to that lower for longer scenario even with a higher

rate strategy, it's still gonna be pretty low historically. But what's what's your betting that the Fed gets this just right? Because it sounds like it's pretty tricky for the FED to do that. My my betting is the said does get it just right, and I'll tell you why. Um. First of all, through a long term investor, eventually things reconcile, thing go up into the right and companies grow the profits.

But secondly, we all know even once the curve inverts, it takes twenty four to thirty months before you see equity prices peak and actually go into recession on average. And see, you have plenty of time to figure out whether or not you think the market's going to peak or not. And it turns out if you look in eight of the last night said tightening cycles, stop, some people haven't went up knock down during the tightening now

didn't go up as much ten percent per year. You go back to two and you look at the last nine tightening cycles, stocks were up on eight of them. The place you want to avoid, obviously, or it was, was long term bonds because they're sensitive to rates, and particularly now when interest rates are so darn loan bonds to begin with, the risk reward still isn't that compelling. But stocks, you've got earnings growth estimates if anything going up.

And so this year's decline has been driven by the multiple going down greater than the fact earnings estimates actually have still been going up a bit. So I'm still betting on equity so the wrong and but I'm also betting on the said, may it well, it may in fact get it just right. And that's what I think the bond curve is telling you is there's only so many tightenings that economy cantolerate. Alan what happens before the long run? Though, what does that path look like with

the US equity market? And I asked, because you know, we are only about four and a half percent off of all time highs right now, but it's been a rocky It was a rocky first quarter, and uh we see us we saw quite the recovery in the last two weeks. Yeah, I think what what's going on right now is I think you're watching a market which is still trying to get its head around what the implications

are of all these cross dynamics. But you know, recognize valuations have driven so selected software stocks have fallen out to their average valuations of the last five years. So this whole um argument stocks over valued, stocks overvalued. I don't think they're overvalued anymore. And so you know, crisis begets opportunity. There are certainly selected stocks that I'll pick on the growth stock in a market that is going

to struggle with long term secular growth. Fine companies that can persistently grow earnings regardless of the economic environment still willn't be winners, and so in the market hands you that opportunity and drives valuations down, those are the names out of the rubble that you want to start picking at, along with the large big camp winners, which clear they

have held up. So I think the short run is you know, you have a little bit more of stock selection, but I would tell you growth is likely to continued out pulform value in the long run, that's not going to change. But because we've seen longer term yields also moving up, is there some expectation that that's some confidence maybe about growth, but also a danger that eventually it'll crimp growth in equity valuations, which is I think something similar to what are John Author is writing about this

what we saw back in two thousand seven. Well, first of all, John Author's a plug rint He's a fabulous writer, so I welcome people read his writings on Bloomberg. But what we would argue is obviously you want to look at selected names, but as a generalization, there are a lot of comings that have a durability in the revenue streams and licensing models that people renew payments, and in fact, if if you're in a modestly inflationary environment, these can go up, just like rents can go up on real

estate alongside rates going up. So if the drop in valuation is driven exclusively by rates and not by the business model itself, it's the actual costs of the business haven't gone a materially or can be passed on fully

to the customers, those businesses are going to flourish. It's the businesses that are over leveraged and are very dependent on economic growth that will indeed struggle in that rising rate environment and will continue to struggle Allen one thing I would say, you sound like you have a lot of conviction and confidence, and you've seen a lot of market cycles. But I feel like, man, no one would have set us up. This is not what we're expecting in December, and I feel like the carpet got pulled

out from under us in a lot of ways. Even though a lot of folks are saying, you know, we're getting overvalue. We're getting overvalued. But the war, the continue move in inflation, people rethinking global energy supplies. What is the big caveat to what you're saying? And only got about twenty thirty seconds here. Uh COVID created an additional four trillion dollars of cash sitting on bank balance sheets. So Ukraine high inflation interest rates to the market and

all can do is fallen peak the valley. That's telling me there's a ton of money on the sidelines ready to support this market, along with a strong dynamic US econmudists growing. So don't sell the US short, stay long term oriented, stay on your goals, but don't don't neglect the fact of love capital just aiming to get into this market at any kind of debt. It's still pretty

slashy out there when it comes to liquidity. All right, Allan, thank you so much, Alan Zaffron, he is founding partner in co c I O at co CEO excuse me at i e Q Capital. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube. Search to Bloomberg Global News