This is Bloomberg business Week Inside from the reporters and editors who bring you America's most trusted business magazine, plus gloom oall business finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Hi, everyone, Welcome to the Bloomberg Business Week Weekend Podcast. A nothing like a mellow week during the dog days of summer. Not so much hunted.
I mean, I thought everyone was on vacation.
Apparently not.
They might be, but FED officials are not.
No, not at all.
We had FED speak more news about banks, inflation, also AI's potential impact on the financial system and the job market. We're going to get into all of that later on this hour, along with a very important story about how the US is driving gun exports and fueling violence around the world. It's a rather sobering story.
Yeah, it really is. We be in though, Carol with Disney, the world's largest entertainment company, announcing a third quarter earnings beat, also saying capital spending and outlays for movies and TV sho are coming in lower than projected. About three billion dollars worth of those savings are due to production cuts tied to the writer and actor strikes that are happening in Hollywood.
Meantime, we learned just ahead of that earnings are part, about twenty four hours before it, that Disney is getting into the sports betting business with casino operator Penn Entertainment. We asked Bloomberg News Entertainment editor Chris Paul Mary about the implications.
Well, big deal for ESPN. You know, this is something Disney historically didn't like to get into gambling. They wouldn't license their characters the slot machines or put them on their cruise lines. But a couple of years ago, then CEO Bob Japik said, Oh, I think that's changed. We really need to get some money out of the ESPN sports betting situation, and that was talked. They talked with a lot of people in the business. But now they
found their partner. Very interesting choice. Pen is a regional casino operator that bet big on online sports. Their biggest you know that was a Canadian sports betting brand called The Score. But they also had bought Barstool for about five hundred million, and Barstool, of course very controversial figure in Dave Portnoy, caused them trouble with regulators in some states, and so the CEO J. Snowden decided to do this deal with ESPN and get rid of Barstool.
What I feel like this?
I mean from hold on, Sorry, I'm sorry. Yeah, there's like no polar opposite, bigger polar opposite to Barstool and Dave Portney than Mickey Mouse and Disney.
Except except wait, go back, right, Chris, Because wasn't it a few years ago, two three years ago ESPN didn't they create a studio in Vegas and was all about sports betting?
Right? Yeah, they've slowly inched in. They've taken a lot of advertising dollars from sports betting companies everybody has, so, you know, but to actually use the ESPN brand in an online sports app, which is what this is going to be, ESPN Bet. This is this is a whole new level.
So is this a Chpeck move or an aigremove.
Sort of?
The embracing of sports betting began with Chaypeck, but he didn't close a deal, so you got a credit. I agree for this. Back then, the rumor was that they were going to partner with DraftKings, but that didn't happen. So you know, a lot of money for ESPN at a time it could use it. Frankly, one point five billion dollars to be paid over ten years. They got additional stock warrants in Penn, and Penn has the right to exclude, you know, sorry, to continue the deal for
another ten years. So a lot of long term relationship, lucrative potentially to both sides.
All right, so help me out here. We've got a company, Disney, well known for so many different businesses. It's one hundred and sixty one billion dollar market cap. It does report earnings tomorrow, and I'm thinking about the financial side of this deal. We're looking at for twenty twenty three, almost ninety billion dollars in revenue forecast. If I look at the FA function on the Bloomberg, how does a deal like this move the revenue needle? Are the earnings needle?
The financial picture for Disney, it's a.
Pretty pretty nice bump there, you know, one hundred and fifty million dollars a year, and you know, presumably there'll be some other gains, you know, on the stock that they're they're getting from Pen. So you know that's that's not nothing, and it hasn't clear yet they're going to do a presentation Ofmorrow how it's going to work in terms of advertising. So right now Penn is paying for the name. But what about additional advertisements you may put
on the ESPN networks? You know, ESPN isn't saying if this is the exclusive betting partner, but that doesn't mean they can't still take ads from FanDuel or Draft Kings or some other player.
That's a good quo.
Yeah, so potentially still a lot of money here for for Disney and ESPN.
Or if your DraftKings are fandueled, do you really want to advertise on on ESPN? You know, it's like you saw the card makers pull back from advertising on Twitter after Elon Musk bought it because you're not going to want to, you know, give the guy who runs your biggest EV competitor money. Okay, so lots of questions here, Chris. I wanted to start with like a cultural question or
like a sort of brand tarnishing question. Maybe I'm in the minority, but I associate Penn with Barstool and with Dave Portnoy, and I'm wondering if there's any brand or reputation risk to Disney associating itself with a company that literally until you know what ten minutes ago, thirty minutes ago, had embraced, had embraced Dave Portney and all the controversy that he that he brings with him.
Right, you know, the worst of the stuff about Portnoy, you know, allegations that he really mistreated women came out after the acquisition. J. Snowden, the CEO PEN, did defend Portnoy kind of publicly after those things. So there is that issue. But the very fact that they're sort of cutting them loose entirely suggests that you know, they you know, they didn't keep them around in some fashion. You know,
they're saying goodbye. That might have been a condition by Disney to your point, But I don't think this necessarily hangs on Pen so much, you know, because they are cutting them. And the question also is how much poor Noise is paying for the business. As I said, they've Penn paid about five hundred and fifty million for Barstool over a couple of years. I suspect that por Noy's buying it back for a whole lot less.
Well, okay, so as you think about Disney, right, the reporting earnings tomorrow, and I'm curious, you know, I'm sure there's going to be a few questions about this on the call. How are you thinking about the Disney story right now and the evolution and now that Bob I Go is back and we know he's going to be there for a few more years. We got that news we last month, So how are you thinking about it and what the Disney story, the Disney company story is going forward?
You know, some very interesting language in the press release about this deal. He specifically said ESPN was getting the one point five billion, ESPN was getting the warrants. You know, under Disney only owned eighty percent of ESPN and Hearst Corporales the other twenty percent. So that just may all there is to it, but it also could be establishing that ESPN is this sort of separate business that will soon start reporting entirely separate financials, you know, from from Disney.
Historically it's all been lumped together, so you can read what you're made into that.
I mean, I'm you know, am I reading like a private equity coming in and buying.
It like IPO? You know.
The last I has had sort of mixed comments about this. His most recent statements were that he believed that ESPN was a business worth keeping and they needed to be in the sports business, so he may elaborate there. They're now looking for another strategic partner. This is that's a separate issue from this this this is the sports betting partner.
They're still looking for an investor. It's presumed to be a large tech company or possibly one of the sports leagues that would sort of offer something more than money to them as they make this grand transition into the online world.
I should note that shares of Pen in the after hours right now up twenty four percent, so bouncing around, but investors are certainly happy in the after after hours. Does is this how bad of news is this for? And then this is back to you know, less on Disney as an entire company. More on this part new partnership, Chris. What about for the other companies like the Draft Kings and the fan Duels, the points bets. What does it mean for them?
Well, it's it's interesting because the business the battle is already in a way. Well then, one, I mean Vanduel has something like forty five percent market share sports betting in the US. I think DraftKings is twenty two percent. Coming up close is MGM, BET MGM, and then Caesar's. You put them all together, you're way past eighty percent, you know, controlled by just four companies. So so Penn in a way was already and also ran. It's you know,
it's interesting. You know, they're the ones paying one and a half billion dollars in cash and their stock jumps and Disneys didn't really move much. It seems like Disney's getting a pretty good deal out of this. Yeah, that's a good point, and you know, it's still a big
risk for Penn. I mean, yes, they're getting the premier name in sports media, no question about that, and all the reach that all the ESPN channels have, but they've still got to earn it back in the marketplace, which is ferociously competitive.
I will say Carol shares of DraftKings in the after hours down more than nine percent on this news.
Wow, so we're seeing certainly some reaction. So what does portnoy end up with? Am I missing something?
He's tweeted a couple of times, but you know I can't read his tweets because I'm not logged into Twitter, And you know, Elon Musk changed it, but he tweeted the barstools back and that, uh, you know, breaking news he bought it. What do you what do you think, Chris Well?
I think he was probably chatting under the corporate you know, ownership, the idea that you know, he had to answer to casino regularators all around the country. You know that probably didn't go well with him. And so now he can go back to private ownership of his his business and and continue to say whatever he wants without the same level of pressure.
I think in his Twitter bio or x bio he says he owns a ton of penstock. Do we know anything about how you know that ownership changes? Does he still have penstock? Has he divested?
I haven't heard about that. In fact, we were never ever really to crack how much he had of barstool to begin with. So but you know, it's it's a sizeable amount of money. And I haven't heard anything of any divestrogers by him.
Anything interesting about the timing of this news to.
You, Chris Well, to your earlier question about Bob Iiger and what he's doing. You know, he's had a rough time since he came back in November. Really nothing has worked a lot of trouble, continued deterioration at TV, continue losses in Disney, plus you know, the movie business and not doing great. So he's got his work cut out for him and he can at least point to this as you know, getting one deal done that's a significant one.
Yeah.
I do wonder too, Like I mean, you know, obviously kind of setting the tone by this deal that is gonna, you know, take up a lot of the oxygen on the analyst call.
But Carol, that big of a deal when it comes to Disney's business. This is a great question for Chris too. I mean, when it comes to Disney's business. Yes, we're talking about this and we've been talking about it for ten minutes because it's breaking news and it's really interesting. But at the end of the day, to what extent is this going to affect Disney's bottom line? Like you said, Chris, it's not moving Disney shares.
No, But if you think about a standalone ESPN, it becomes more significant. You know, it's not going to solve everything, but and it gets them out in the online world and you know, they obviously were big players, but you know, it establishes that relationship with the betters who are sports fans, and so this, you know, this is definitely a positive for ESPN.
So hey, listen, I am wondering, Chris, when it comes to the call tomorrow, what is it that you think investors or analysts should be asking about this deal when it comes to Disney.
Well, some of the questions there what are the ancillary benefits and revenue opportunities for ESPN here? How does it impact other you know, stream sports betting companies, Like you said, you know, it's what does this say about sort of ESPN's future as a standalone company. Does it, you know, impact anything with some of the other partners it's seeking we talked about these tech companies or leagues. So yeah, like you said, this is gonna be a big subject on the call tomorrow for Bob Biger.
You know what's what's interesting I always think about I can't even now you'll know better than I will, how many years ago was where everybody was like writing off ESPN even though it was such a juggernaut for the company. But right when those was it, the subscriber numbers started to come down, And it's just like interesting, I mean, I'm looking at our preview for earnings. Right, we're looking at what twenty five point eight million ESPN plus subscribers. Chris is like a decent number.
Chris, just in the last minute that we have with you, I'm kind of obsessed with this cultural question and cultural fit and whether or not we can still sort of like think about Disney as a company the same way we thought about it when you're really.
Worried about meeting Mickey.
I'm not.
Here's what Bob. Here's how Bob's take answered that question before. Because the issue was could Disney even be in batting at all?
Yeah?
No, and the they historically fought casinos in Florida forever. And so the Chapairs answer was the customers of Disney and ESPN were just thinking that the ESPN fans really wanted more sports betting. Uh, they didn't see an issue with it, and that's why he began this pursuit of the sports betting deal.
Well, just think about it from a content perspective too. I mean, you you you know, you see the f FX and fx X on Hulu, which is you know, you know, Disney owns a big port. Disney owns FX from its Fox acquisition. Uh, and you know, the content there is like not Disney content by any means, Chris, just you know, ten seconds.
Yeah, there's there's no question that the sports betting has just become palatable in a lot of I mean it's taken off like wildfire across the country. Uh and it you know, it's almost as gold as.
Mickey Mouse, the betting bars, the betting roller coaster, the betting go you can bet on the cruise ships.
Like look at the SUC getting Space Mountain within an hour, witting in this line exactly.
Chris Paul Mary, Thank you so much. Bloomberg News Entertainment editor Chris Paul Mary joining us out there from the West coast.
We should note that Dave Portnoy reacquired the barstool brand that he founded for just one dollar. Pen Entertainment said it could take a loss of up to eight hundred and fifty million dollars on the transaction.
I think it was in crypto check dollar. What do you think it was.
I mean, the first time, he says, the first time in ten years that he's fully owned it.
It's a really fascinating deal this past week, all right, the ESPN and PEN Entertainment News, though, as we said just about twenty four hours before Disney actually reported earnings that came on Wednesday, and a bit of Disney news. On that earnings call, the company announced it's raising prices for some streaming subscriptions by as much as twenty seven percent. We got reaction and reasoning from Bloomberg Intelligence Technology and media analyst Kita Ranganantha.
They have pricing power, and they know it, and they're going to exercise it. And this is what it's really coming down to now in the streaming wars, right, So the subscriber hyper focus is over and done with. Now it's all about our pool, growing rep new per user. And that's exactly what Disney is doing. This should pad not only the top line, but also the bottom line.
Okay, I'm not going to defend Disney, Kita, I'm not going to defend any of the companies that are raising prices left and right here, But I am going to point out that in the previous life, when there were no streaming services, when we were just paying one single cable provider every year for everything, they raise their prices every year and no news was ever made.
Yeah, but they did it gently and they're not a Rabbit. I don't think they did a twenty seven percent increase. They did it like three to four percent every year, So.
This one does. Do you expect this to lead to churn?
So it might lead to some churn, I think on the margin, But I think this is really where all of the streaming players are headed, right, So it's going to come down to a shakeout, and Disney and Netflix are actually going to force that shakeout because at the end of the day, you're only going to be able to spend X amount of dollars per month on streaming, and they're basically telling you choose, you know, make your pick and see which are the services that you want
the most, that you need the most. And they're hoping that Disney and you know, Netflix is hoping that its service will will prominently feature there.
You know, it's really interesting, right because we also you know, you know, and I want to take the bigger picture of Disney their post earnings the things jumping at at you because they did report right their loss from streaming narrow by half to five hundred and twelve million in that fiscal third quarter, but it was still far less than what management had forecast about three months ago give us all the picture that is Disney and how you see it.
Yeah, I think, you know, this quarter was really more about you know, of course, we knew that the numbers were not going to be the greatest. Having said that, though, of course, the profit numbers did come up slightly better than expected. As you just pointed out. The streaming subscribers, however,
was a miss. But I don't necessarily think that's a bad thing because the subscribers that they lost were really twelve and a half million subscribers lost on their hot Star product, which is, you know, their Indian service, that is a very low revenue generating product, not a high value subscriber that they're losing. And so I think that's okay. The Street is kind of okay with that, but.
Sorry to cut you off their gita. But shouldn't the street have expected that because they came in substantially below estimates, the Street's estimate. Shouldn't that have been baked into the estimates.
They did bake in about three and a half four million losses. This came and of course substantially higher so cricket. You know, I think they kind of underestimated the power of cricket in the Indian sub God.
Okay, what else is important? We see Disney though lower in the aftermarket. What else do we need to know? And unfortunately got about forty five seconds.
Yes, I think the other key thing that we really need to look at is parks and what are the trends at parks. Parks actually brings in seventy percent or seventy five percent of Disney's operating profit this year, so it's really key to understand what the trends are looking like,
I think. And the domestic parks we are seeing some softness that was kind of offset by international strength because this was the first time that we had all of the international parks open after all of those COVID closures. But it's going to be interesting to see what exactly they're saying about attendance and occupancy rates.
The transformation at Disney, a new Disney.
It's underway, I definitely hope, so, Carol, So you know it's going to be all about the strategic vision. We're already seeing some of those. Yeah, those pieces in motion with the ESPN deal. We'll have to see and what they do next.
You're incredible. Keita ring Anathan of our Bloomberg Intelligence Team. Thank you.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business App, or watch us live on YouTube.
All right, everybody, this story definitely cut our attention when we were reading in this morning. It is a most read on the Bloomberg It's also because it's the Bloomberg Big Take, which means our top editors here at Bloomberg News deemed this a story that we really all must check out and read. It is a Bloomberg exclusive, and it gets into tim how the US drives gun exports and fuels violence around the world.
We do want to point out that every Time for Gun Safety, which advocates safety measures, is backed by Michael Bloomberg, founder and majority owner of Bloomberg News parent Bloomberg LP. For more on this story, we welcome Bloomberg News Investigations Team Manager Managing editor Flynn and McRoberts joining us from our Chicago bureau. Flynn just an incredible deep dive one.
You know.
I got to tell you when you read a story like this and You're like, I've never considered how American made weapons can be exported for terror around the world, which is something I had never considered. You know that it's just an incredible narrative. Give us an idea of how the story came together.
Thanks Tim So our reporting team Mike Riley, David Kashnevski, and Eric fan We're looking at what obviously has been much concerned with good reason of domestic with violence and mass shootings in the United States. But we wondered what is happening with the almost the near saturation point of gun ownership in the US.
We're up to four hundred million.
Weapons owned by civilians in the United States, more than the popular and we wondered what our gun companies doing facing those kind of figures. And what we found is that they're looking, they're turning overseas to expand sales in other countries, and in doing so, they've got.
Not just the not just.
The the realization, but the active engagement of the US of the federal government to encourage those sales.
So, Flynn, let's get into it, because you know, we often talk about here at Bloomberg the US influence around the world on business and culture and trends and politics, if you will so much. Many often would argue it's positive. Certainly not when it comes to guns. So how is it that a big player in the US market two decades ago so central to this story and so central to what's happening overseas?
So sixth Hour you're talking about it, that was a It was for many for generations. Actually the six Hour was making right during the Seven Years War, to give you a sense of how old the company was. But in two thousand it was sold to new owners and they were looking to looking to expand sales, and they realized that the gun restrictions, gun export restrictions in Europe, particularly Germany, were increasingly increasingly tight, and they wanted to find alternatives.
So in two thousand and four they.
Hired a man Ron Cohen, who as chief Offerating Officer and Officer, and shortly after that as CEO and Cohen aggressively pushed the export of weapons and realized, if we're going to do that, we need to move our manufacturing to the United States, which they did. They're now headquartered in New Hampshire and.
They've been from there.
They've been able to aggressively aggressively pursue international deals in places like Thailand, which we write about in Columbia, and they've gone from being a bit player to the largest US exporter of firearms.
It's really remarkable. What about when it comes to regulations in other countries when it comes to importing these weapons of war Because we oftentimes hear in the narrative here in the US, you know, you don't see mass shootings happen in other or you don't see gun violence in other countries like you see here in the US. But reading your story, there were so many examples of this type of the story from the team, I should say the one that you oversaw is managing editor of the
investigations team. There are so many examples of mass shootings and gun violence outside of the US where laws are different.
Yes, we looked at Thailand specifically because that is where that's the six hours biggest international sales success, and sadly, it's also the place that one of the sites of one of the worst massacres in Thai history and even globally,
and that was October of last year. A recently retired police officer armed with a sugarcane machete and a six hour P. Three sixty five, stormed into a nursery school and killed killed twenty three children and two teachers, and went on to kill a total of thirty six people.
And the gun that he used that six hour P. Three sixty five he obtained through something what Thailand calls the Welfare Gun program, which is a way which is a program in a country that has very strict gun regulations except this major loophole, and that Welfare Gun program allows former police officers a military to buy at a very steep discount these pistols.
The problem was Thailand.
Gunshops in Thailand, in total, all gun shops in Thailand can only sell roughly fifteen thousand pistols a year. That six hour contract, just the first of two, flooded the country with one hundred and fifty thousand, ten times that amount, and that there was it basically became a new asset class.
Unfortunately they were able to police were many of those those weapons wound up being diverted to criminals, to organized crime syndicates because they were just it was the incentive to resell those guns.
And which are very difficult to trace.
It allowed them to allow much to basically flood, the flood Thailand with all these what turned into criminal guns.
Right because they got them at below market prices, right, they got a deal on them and then they could throw around. And you know what's interesting is there was a story at the very beginning, I mean a line excuse me, where it said the federal government US federal government has helped push international sales of rapid fire guns to record levels. I want to kind of make the connection of how we can kind of blame the US
for getting more guns out there. I think many people would argue part of the problem is, like you said, there's four hundred million consumer guns or guns in the hands of consumers here in the United States. That number is staggering that when you have more guns around, there's going to be more problems. How is it that the US federal government, Democrats and Republicans alike, had a role
in this change? And I kind of want to get from the shift of oversight going from the State Department, which seems probably like the rules were a little bit more stringent to commerce, which is like basically, let's sell stuff.
That's right and this and to be fair, this started under Barack Obama's during a second term, and they were trying to rationalize the rules where the State Department would handle They thought, well, let's the State Timerichine handle heavy military hardware like fighter jets and artillery and so forth, but we should let the Commerce Department handle handle civilian weapons,
small arms. But even even at that time, particularly Democrats and Congress raised the concern that this with that that that moving oversight to the business friendly Commerce Department would inevitably lead to far more sales and looser, looser regulations.
And in fact, that's exactly what happened. So when when once the rules took effect in twenty twenty, the they those sales of some automatic weapons went up, depending on the year, went up as much as sometimes fifty percent times and sometimes even double and and members of Congress are saying, this is exactly what we expected when you shifted oversight to the to the Commerce department.
And so the the you know.
The Commerce department again, it's its role is to help, you know, help Boeing sell more planes, help you know, Micron sell more chips. But when you when you apply that to you to gun manufacturers, it obviously has deadly consequences.
And we document that.
Yeah, It's interesting. It actually makes me think of what happened with cigarettes as well here in the US. Right when we saw regulations change in the US with cigarettes and fewer people here smoke, What did the American tobacco companies do. What did the global tobacco companies do. They went around the world, They went to developing countries, they went to emerging economies. Flinn, how much of a boon has this been for American manufacturers of guns?
So we tracked it from two thousand and five, which is a year after the assault weapons ban was ended in the United States, and since that time, there's been a cumulative three point seven million semi automatic pistols and rifles that have been that have been sold by US gun manufacturers.
Okay, I gotta tell you, though I hear that number, that's tiny compared to the number of guns that Americans own, four hundred million more guns than people in this country.
That's right. But those are three point seven million going to countries.
In places like Guatemala, for instance, where where the where the where the institutions are there? You know, the State Department has condemned and Guanamal, for instance, the the public corruption and the inability of the government to to track these guns when they're when they're coming in. So a relative which seems like a small number of weapons to Americans has an outsize impact in a country country like Guatemala or Thailand or even we're seeing in Canada.
So what about the German owners? Are they okay with all of this?
So they the new owners that were initially initially reluctant to the sort of americanization of the company, they were interested in. They you know, again, this is a company with a history of hunting rifles and and you know, high end you know, high end pistols and so forth. They initially, uh were concerned about it. But but they once Cohen uh reoriented the company, you know, and moved
manufacturing to the United States and boosted sales. They have not you know, they've approved his plans and have not objected. We reached out to them to talk to him about this, and they did not respond.
Yeah, there's a point in the story, and I want you to talk to me a little bit about Ron Cohen. But basically it talks about him hiring X Special Forces soldiers and others who understood military culture. He told employees he was giving the company a new mission armed the good guys. This is a guy who I guess employees called the Commander. It's an interesting as you guys you know, reported on this specific company. It sounds like there were some things going on that weren't so.
Okay, that's right. That so the first big, big, yes, I hear it.
The first the first big international deal that.
They that Six Hour inc.
Made was in two thousand and nine with the Columbia National Police and they committed to they committed to selling tens of thousands of pistols UH to Columbia. The problem was that the American the American arm the Six Hour Incorporated, didn't have the capacity to make that many, to.
Manufacture that many pistols.
So what they did was they they built built them in in Germany and attested to the fact that they would be sold into the United States. But once they got to the United States, and this is in court documents and we found they re labeled them and sent
them to Columbia. This was news to their colleagues in Germany who knew they couldn't be selling weapons to Columbia because German law prohibited guns going to conflict zone, which that time Columbia was so this became the German authorities investigated and in the end the U, SIG and Cohen h reached a settlement which they in which they acknowledged wrongdoing and Cohen himself was given a suspended eighteen prison sentence and SIG paid the highest export fine in German history,
something like twelve million euros. So that that's not the only that's not the only case that they've There have been other investigations by SIG as well, so that but it has not it clearly has not hurt their sales, and frankly, it has not hurt their dealings with the US government where they have now they have in the wake of those investigations, they have still been awarded the two major Pentagon contracts, one one for UH to supply MS side arms to the whole to the entire US military,
and also to provide the what essentially replaced the M sixteen as a.
Flynn.
We only have about a minute left, a little less, but what's the next thread of the story here? What's been the response that that you've gotten to the big take after it was published late yesterday, And what's the next part of the story here?
So we're looking to see what happens in Congress.
There there, Elizabeth Warren, Norma Torre's there are various Democrats in Congress who have raised concerns about this in the past, and we're very curious to see if our revelations do anything to.
Push reform in Washington.
All right, well, we certainly will be watching, and I know you guys will be monitoring and updating us on it. Flynn, thank you so much. We really wanted to share this story with our viewers and listeners, so appreciate you joining us. Flynn McRoberts, Managing editor of the Bloomberg News Investigations team from our Chicago bureau.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business app, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
The remarks in the current issue of Bloomberg BusinessWeek center on the head of the US Securities and Exchange Commission, Gary Gensler. We know he has been front and center in the push to weed out fraud in the crypto space, So what about the potential for financial wrongdoing when it comes to artificial intelligence?
But don't worry, Gensler has a framework for dealing with AI too. Bloomberg News Deputy team leader for US Equities Jess Metten and I sat down with our securities enforcement reporter Austin Weinstein and business we get under Joel Weber to learn more.
If there's a financial regulation issue that's been a major thing in the US for the last thirty years, there's a really high chance. Gary Gensler has a deep and rich history with it. One of the most crazy footnotes to his career is that he was one of the main drafters of the Sarbanes Oxley Law in two thousand and one, and that barely comes up in his biography.
But yes, with AI, we sat down with him and learned that his history goes back good amount of time, back to when he left the CFTC in twenty fourteen, and there was a new administration that came in shortly after and he needed to find a job, and he went to MIT to teach. They're pretty early on on. He zeroed in on two subjects that he really cared about. One was crypto, which he's talked a lot about and we've all talked a lot about, and the other was
artificial intelligence. He sat down with Alexander Madri, one of the really most respected minds in machine learning, and just asked him how do I learn this? And Madra gave him an eight hundred page book called deep Learning. I tried to read it. I can't and Gerry Gensler apparently can and returned months.
How much of that book did he read, Austin, I was wondering the same thing, or how much did he say he read?
Well?
So he said he read what he could understand. Then he also mentioned that he can code and Fortran and can do some of the differential equations. Gerty Gensler probably can just knowing its record, but there's probably some stuff there that you know, everyone what's came out?
Can you can you code and Fortrane?
I would be lost upon entry.
I had to look up what that was?
Tim Tim two. That's why yeah, I did too. Actually, I'm like four Tran four chan. I don't know what's going on here.
Not the four chance right, So so awesome? Stick with stick with this because what we've seen this year is obviously captivated everyone with what open AI is accomplished and sort of what chat GPT could be capable of.
If you're a regulator, that seems maybe like your nightmare. So how is he preparing?
Well, there's a few ways to prepare if you're a regulator, And in fact, two thou start twenty twenty, Derek Giinlill wrote a book on how wrote a paper on how regulators should prepare to deal with AI's implication on a financial system. And for Garrick Denzler, how regulators should prepare essentially goes into what powers and what structures do regulators have to deal with AI now? And what don't they have?
And what risks do I have that they'll pose that hit that intersection point where their powers fall short And a few of those things fall into the concerns like liability. And so we had a really intering discussion about, say, when you're designing a bot to beat someone in chess, are you designing that bot to beat someone or you programming them to know the exact pathways that'll make them
the most percentage more chance of winning each time? And is that intention and the question of intention matters a lot for a securities regulator because that's the basis of most frauds, and most of the crimes that the sec charges are frauds. And so there's really interesting questions of explainability. If you can't answer why an algorithm made a certain decision or created a certain image or published a certain thing,
can you say that it acted with intent? And so Guinser's been thinking a lot about this problem of explainability, and he published one of the first rules in the broad federal bureocracy on this last month when he said that most asset managers and brokers will have to do an assessment when they use AI as to will this
lead to any conflicts of interest for the firm? So agnostic of what this tool does, will you look at that tool and when you look at that tool, does it benefit you at the expense of the client or does it benefit the client and perhaps the firm as well. So it's really thorny, really philosophical questions.
Hand here, you also talk about how he argues that a lot of this so called decentralized finance isn't really decentralized. What's your take on that?
So it's the sort of theme that Gary Gensler's carried with it in both crypto and artificial intelligence, that a lot of the words and technologies here obfuscate responsibility, obscate what's truly happening.
You know.
Cryptocurrency has the root crypto, you know, which is a way to hide, to disguise, But at the end of the day, most every crypto transaction is traceable from one wallet to one wallet without much difficulty. It took some time to learn it.
And then you go into decentralized finance. He brought up the question of okay, is a decentralized finance platform decentralized in the way it pays its lawyers because at the end of the day, some client, some service provider is providing that to the system, and so there's an entity making a one to one transaction there. And take that
into artificial intelligence as well. Is it artificial if it's programmed to do a specific thing and uses machine learning and other tools to get to that specific thing, So that these those words and these technologies can only obfuscate what's what's really happening here in the eyes of someone like your Agaenzel.
So that seems like a you know, rain Cloud sort of take on AI when there's been so much enthusiasm in the markets at least for it. So what does he think's going to happen, Like, you know, like is it is this going to end badly? And you know, you look at Crypto and sort of his response to it, and it feels like, you know, he's finally bringing down a hammer, like what about what about AI?
With Genzler, that's sort of a twofold thing. He is proposing rules now to make sure that you can set some guidelines for AI. But he did say in our interview it'll be the crisis of twenty thirty two or twenty twenty eight or whatever, and the after action report will really be about an issue involving machine learning and AI, simply because that.
Makes me think that that report, it makes me think that report may not be written by AI.
At the end of the day, when writing is after action reports after a crisis. He brought up the idea of model dependency, which is the idea and I'm going to explain this terribly. I do not have a PhD in computer science, but that at the end of the day, all these financial firms will use at about two to three base or foundation models, the underlying logic systems that
make machine learning and AI work. And these models might disguise how they all get to the same result, and it may determine that they were all training on one small piece of data about the mortgage market, or about leverage loans, or about treasuries, and without communicating it, they had a whole bunch of risk based in these models, and that risk blew up when say that one statistic was programmed by someone who wasn't putting in the data right so or had some malign intent, and that can
blow up the economy with these huge systems trained on AI.
So it raises the question, Austin, about what Kensler thinks the solution is in terms of guardrails, in terms of regulations. I mean, how does he prevent a melt down in twenty twenty eight or twenty thirty two that's brought on by AI.
The great question and one that he's definitely trying to grapple with and understand. Now, it is important to say a lot of the powers here and the regulation of AI are beyond the SEC and he really can only oversee the capital markets in space if he regulates things like responsibility of use and legal liability of questions for Congress,
the FTC, the jay Treasury, all these other institutions. But he is a member of the Financial Stability Oversight Council, and he has asked a lot of his staff to start looking at issues of concentration stability in ways that he can set the economy and set the financial system up to be more resilient in the case of AI catastrophe.
That was Bloomberg News Securities Enforcement reporter Austin Weinstein and BusinessWeek editor Joe Weber with Jess Metton and me.
All right, you're listening to Bloomberg Business Up next, we've got more on AI as we examine the impact this technology is likely to have on the American worker, maybe global workers.
To be fair, the bottom line is about thirty percent of the activities that US workers do today could be automated away by the end of twenty thirty.
So over the next seven years.
We break down a new McKinsey study on where displaced workers will turn and how AI will reshape the labor landscape. This is Bloomberg.
You're listening to the Bloomberg Business Week podcast. Catch us Live Weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app, or watch us live on YouTube.
You guys talked about Zoom.
Yeah, I mean, if you think about perhaps the company that most epitomizes working from home, yeah, it's Zoom. I mean it was not just a you know, a COVID stock, but it was also what we were all learning how to use in the early days of the pandemic. Right, we talked about it yesterday because even their telling employees to get back to the office farrel Yeah, I know, Zoom. If you live near Zoom office, you got to come
in a couple days a week. So we've seen Amazon, Chipotle, black Rock companies as varied as those telling hey, workers, workers, Hey, you got to come back to the office.
Yeah, it's interesting, right, we're seeing that post COVID several years out and how that is kind of Yep, they're coming back to the office. The other thing at play, right, we see when it comes to how we are working going forward, is just the explosion of what the think about AI around artificial intelligence generative AI and what does it mean eventually for work.
Well, Fortunately, McKinzie is out with a new report that says twelve million workers are going to move into new lines of work by twenty thirty. I guess I'm not saying fortunately that's fortunately there's a report. You know, we'll see if it's fortunately or unfortunately that AI is forcing people to move to new lines of work. Very pleased to have with us this afternoon. Qualyon Ellen Grude, partner at McKinsey Global Institute, joins us via zoom from Minneapolis,
a director and senior partner at the McKenzie Global Institute. Quillan, how are you great?
Great to be with you today, Well.
It's great to have you join us on. So, you know, when did you guys start thinking about the impact of AI on workers, because I think for a lot of people this is relatively new phenomenon with the explosion of chat GBT last fall.
Absolutely, we've been thinking about the future of work now for about a decade and modeling what does automation do to jobs which are biggest staining jobs losing occupational categories and then to your point, just about six months ago start a delayer on to automation and COVID nineteen impact the impact of Genai. So now we've put all of those three things together to say, what do the future of jobs look like in the United States?
All right, so play it out for us. What do they look like? I am my robot, absolutely, yeah, I am a robots Indeed.
I think the bottom line is about thirty percent of the activities that US workers do today could be automated away by the end of twenty thirty, so over the next seven years. And that again is through automation COVID nineteen impact, mostly affecting interpersonal interactions.
And then Genai Jenai alone.
If you just isolate that piece, increase that percentage by about nine or s eight or nine percent, So up until about thirty percent of overall activities. There are a lot of jobs that will be fewer in the future, and there will be quite a few more overall. I think it's good news to your point earlier. We will have more jobs in the future, I think is the great news. And those jobs will be higher paying jobs. They will be also higher skilled jobs that on average
require higher average education. The tough news, or the tough transition to get there, is we don't necessarily have the workforce today that is best suited for those jobs of the future. So first, where are we gaining Where are we losing? We are gaining jobs in healthcare, in STEM categories, and in transportation delivery, all of those other areas we are losing jobs in primarily four big occupations, and those four occupations make up about eighty percent of the job
losses between now and twenty thirty. Is customer service, okay, food service and sales production or manufacturing and office services or assistants. And you've all seen kind of food chiosks that fast food restaurants, right, We've seen all of these different elements.
But when you add them together.
Those four occupations make up eighty percent of the occupational switches, which is about twelve million of them between now and twenty thirty.
So before we get into that, it's a lot. But I've also seen it. I've done it, right. I'm at an airport, I order on an iPad and then stuff just gets delivered. I've gone to a retailer here.
Sorry, but you and I've done this before, and sometimes it works. It's sometimes it's also just terrible, not all the time. Maybe I'm just thinking of Newark Airport. I don't know, no offense.
Oh come on, I know, pick on the New Jersey.
We've had some fun times there we have.
But kind of works.
God, I don't know.
It doesn't always work.
It's like, no, it doesn't always work.
But I'm amazed at that. I think how many times I check out at a super market, I just and I go there a target, a retailer. You good, Azara, you drop it in a bin.
That's amazing.
It shows up. That blows my mind. It shows up on like h and.
M Uniclode does that too. It's amazing.
Yeah, and you check out and you take off the safety you know, uh whatever they what do they call them that? You know what I mean? Yeah, the anti theft things, the anti theft things, like I do it all and like somebody's watching you. But it's like whoa, So I don't know.
Is the experience better though? That's the thing, Like, you know, if speaking of airports, we've done this, you know, we've gone airports together where there's nobody to actually check us in, right, and we're like, you know, we know it's because of cost cuts.
And we're flying business. Thank you, Blueberk.
We do everything, but what's the balance here Quaylon that of actually having like an experience, it's better because who cares. If not, who cares. But it's like it's one thing to replace people, it's another thing to replace them with, you know, an inferior product.
And I thought all the companies are about customer service customers first.
Not apparently, and there is absolutely a balance, and there's also a bit of a transition pain point to get there. But I think the alternative is not always great customer service in person. It could be they're understaff, they don't actually have the people, and so the alternative is do you want to wait for ten to fifteen minutes to flag somebody down to get your order, or do you want to enter it into the iPad? Or do you want to pay two dollars more for that sandwich or not?
And so I think those are the trade offs that we're really wrestling.
Well, when does the cost come to us? Because I've go to the supermarket and man, I'm doing all the work, and or I go to the airport and they're like you want an extra bag? Yeah, you know, So when does that cost come back to the customer?
I think we've already started to see it right on so many different products. Some of that has been passed along, some of the costs have been kind of captured and improved better efficiency and effectiveness, part which has not then been passed on in higher prices, even though supply chains have been challenged and prices across many categories have gone up, most notably in service and gas areas. I think some of that will flow through over the next few years.
We'll see where it all settles out. But I do think there are automation improvements that are being made, and then consumers do stand to benefit from some of that.
Hey, really quickly thirty seconds, because we've got a story coming up about the lack of workers in the healthcare area. You said we are seeing gains in health healthcare thirty seconds what specifically.
Yeah, frankly across the board, given consumers bending aging in the United States and frankly in many developed countries around the world, so nursing tech in healthcare as well. Overall, I think we'll need quite a few more jobs in those areas well.
That certainly fits into the story that we're going to talk about. Quailan, thank you so much. Quailn and Ellen Gruge. She is director and senior partner at mckensey Global Institute on zoom from Minneapolis. Their latest report, Generative AI in the Future of Work in America. It wasn't so bad in Nework.
Please please enter your symptoms on this iPad.
Exactly what do I complain to? That's the thing that bothers me. There's no one ever to complain.
Please to meet Carol, all right, I will.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business app, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Play ahead in our second hour of the weekend edition of Bloomberg Business Week, including the continuing saga and struggles of a once adored startup, Why there is now serious concern coworking office space giant we Work could go out of business altogether.
Plus female founders are still having a hard time obtaining critical funding for their startups. We'll talk to someone who's hell bent on changing the narrative and whether she thinks Facebook would have gotten funding if it was Maria Zuckerberg behind the company and not Mark.
First up this hour, Investors continue to take a bite out of Beyond Meat. After reporting earnings of past week, the company cuted sales guidance and backed off its cash flow target. On Tuesday. Following that news, it shares took their biggest one day plunge since November twenty twenty on an inter day basis. Quite simply, tim it is not easy being beyond meat.
It's not easy being beyond meat here in the US, but it's also pretty difficult being beyond meat when you're trying to expand into China. We've got a great story in the current issue of Bloomberg BusinessWeek. It's all about Beyond Meat's challenges in China, by Dina Shanker, Bloomberg News Consumer Reporter. It's again again in the current issue oft Bloomberg Business Week. Read it now on newsstands, online at Bloomberg dot com, slash BusinessWeek, and of course on the
Bloomberg terminal. Dina in our Bloomberg Interactive Brokers studio right now, So Dina, you'll back a few years. Starbucks huge in China, made available Beyond Meat and all of its stores more than three thousand. You had Beyond Meat doing this big marketing campaign on the huge mobile platforms that are there, we Chat and Cibo. We excuse me, the other one, the social one.
Do you have a Beyond Meat burger Mouth? What's going on?
Fast forward a few years, it's nowhere to be found. What's going on?
Yeah?
You know, after their IPO in twenty nineteen, which was just huge and everyone was really excited, Ethan Brown came in and did an editorial board and when we asked him about China, he said they were going to be as aggressive as they could, and they were. They went in and they, like you said, they went into Starbucks. Three menu items, thirty three hundred locations, they got on
JD dot com. All kinds of partnerships in China, but now going to find one is not so easy, and Starbucks doesn't have them online at the menus on menus anymore JD dot com they show up, but you can't order them.
They're not available.
There's just a whole long list of examples of partnerships that have sort of disintegrated over there. And you know, there are a lot of reasons why. But I think when you strip all of the noise out. It really just comes down to the fact that, just like in the US, in China people tried them and then said, I don't really like it.
It doesn't taste so good. And that's that.
You know.
What's interesting too, is I mean you and I and Tim were talking, you know, a little bit earlier. It just feels like these companies are trying to find strategies, and I get it. Going after China, I feel like every company that's out there still, even with the tensions, think about the potential in the Chinese market. What did they get wrong? Or is it just a case that China's difficult or is it something about these plant based food companies?
Well, I think it's a whole lot of things.
The first is that beef is really big here in the US and the beyond. Burger was this big blockbuster new product, but in China, people really don't eat beef the way they eat, for example, pork or chicken. Even so starting with a burger was just sort of, you know, tone deaf. I think starting with pork would have made a lot more sense.
Why didn't they? Has The company addressed that.
They declined to comment for our story, So I could not tell you. They do have pork product, and they eventually launched pork products there.
They eventually launched dumplings and other things.
But what it came down to for a lot of people was the same thing as here is that it's expensive, it doesn't taste that good, it's not particularly healthy, and there, of course, they also had the pandemic lockdowns that really hurt their opportunities in food service. And of course in China they have plenty of plant based meal options that fit right in that are just an ancient part of their cuisine. So if they don't want to eat meat for a meal, they can eat tofu instead.
Feel like, beyond me, we've been here, We've been here, I got this.
That's exactly right. They had Really it really just didn't fit in.
So does any of the do any of the other products stand a chance? If beef didn't work, and if they have developed other products, could those work?
I mean they haven't worked. Poor has it worked the pork.
They're not on the websites we looked at, and they've tried some different products there, but it's just really difficult to find a beyond meat product in China right now?
Why China, Like, why would they choose for international expansion China?
I mean the.
Like success in the road to success in China, for if you're a US company, Like there are a lot of very successful ones, but there are many more that have tried and failed.
Well.
I think the first is the first piece of it is just the sheer number of people, so you have so many consumers. They also do consume a lot of meat in China, so it seems like a good place to try to sell your meat replacement. But that's kind of part of the problem in China, just like it Just like in a lot of other places, meat is a status symbol, and as you rise into the middle class, you want to eat more meat because that means you're
more successful. And so trying to convince someone who maybe just sort of broke into the meat bracket, Hey, actually.
I have something.
It's more expensive, it doesn't taste as good, and you're not really into burgers, but try it.
No, it's not a good What do.
We know about its health too?
Right?
Right?
Health wise, it's an ultra processed food, which is the exact kind of food that keep hearing is what we're supposed to avoid and that's really tough for Beyond Meat or its competitors, like impossible. An ultra processed food means it's made from like derivatives of other foods. And that's what pea protein is, right, It's not made from peas, it's made from pea protein.
What's interesting too, And I like this story, this line in your story. The stumbles by international brands have not deterred local companies from trying to find a lane for plant based businesses. So there are some Chinese companies trying to still tap this market. Correct.
Yes, and actually Decos is a restaurant chain in China that started with Beyond Meat and now is actually doing a big campaign with a Chinese plant based meat company called Starfield. So you know, it's hard to say what's going to happen, but you have to imagine that a Chinese plant based meat company is going to cater better to Chinese consumers.
I feel like Business because did some great coverage. I don't feel like it. They have does some great coverage of this plant based protein food world. And it is interesting that it's now what ten years in counting, like how long these companies have been around. And I feel like they're still trying to find their late.
It's very true.
I mean, Beyond was founded in two thousand and nine and went public in twenty nineteen and.
A lot of fanfare.
Yeah really, and it was a hugely successful IPO. And I think a lot of people really had huge expectations for this kind of product, and I think they suffered from a mix of their own bad choices, bad execution, and also just you know, the public awareness around our diet and nutrition has really evolved so much. We all know or not we all, but a lot of people, a lot more people know to look at the nutrition facts.
We all turn the boxes, right, that's right.
And we didn't used to do that, and we you know, look for things like recognizable ingredients and for a little while we thought, hey, well it's it's got to be better than meat, but then those it's not necessarily the case any A lot of people raise questions about that, so it's it's a tough sell right now.
There's also the environmental question. And you know, it's funny, like I we went through as a family like a whole Okay, we're going to eat the Beyond and impossible stuff. And I think it was like summer of twenty twenty during the pandemic, when everybody else did it too, and I was like, oh, this is so much better than meat, and then we got totally sick of it and don't eat it anymore. But the one kind of saving grace is that environmentally is it better than beef, because we know.
This isn't that the new lane that they're pursuing the environment.
It is absolutely no question about it better than meat for the environment. There's just that's like beef is so bad for the environment that anything is better. Can and pork are better too, but beyond meat is better than all of those, no question.
But so are lentils. And I'll just put a shout out for caviar lentils, which are really.
Good and it sounds fancy.
You would think that they are kind of fancy in the lentil world, but they're still a lot cheaper than right on meat.
Putting it on my shopping lists.
Buy them on Amazon.
They're right there.
They're great, and like people are, there's so much more in the world of non meat center a plate and meal options than just alternative meats, which really, you know, it's ten years, isn't or ten plus users. Years is in some way a long time for a company to find its footing. But in the history of our diets, ten years is it's still a pretty new product. And we've eaten meatless before them, and we'll eat meatless without them.
Well, you know, I think about all the reporting you guys are doing a business week on the plant based protein world, and I do wonder is it a case that they just haven't figured it out, because you say, ten years is still kind of short, right in terms of the food world. It's a company that you note in the story hasn't recorded profit since early twenty twenty. What do food industry folks say, What does the analyst community, investor community say? Well, after there's a time for them
to pull the cord. Well, one of.
The questions during earnings this week was maybe they needed to recalibrate their expectations and maybe they're more of a three hundred million dollar business and Ethan Brown, Yeah, Ethan said absolutely not. And he pointed to like what's going on on college campuses where young people want to eat less meat, And that's true, young people do want to eat less meat. But what comes to mind constantly is the reference to these products as like a gateway drug
to eating less meat. A lot of people try them. Okay, well not my favorite or maybe I like it. Now I'm open to more meatless options, and that's that's actually great for the planet, but for beyond me, that's not so good.
Just for some context to that common Dina. So, back in twenty nineteen, the market cap was more than fourteen billion dollars and now it's under a billion dollars. So that's a big move, that is it. That's a huge move.
Yeah, I want to go back.
To your story that's in the current issue of Bloomberg BusinessWeek talking about the success or rather failure of Beyond Meat in China. Are there any examples of sort of these new wave of foods, like you know, I don't know plant based milks or plant based eggs that actually have found success in China that you found.
So actually, Oatly has done relatively well in China. They're in a lot of a lot of restaurant partnerships, coffee shops, et cetera.
They have a pretty wide reach.
But even Oatly has said that the sales have just not recovered as quickly post pandemic as they expected.
Eat just the plant based egg maker.
They were doing pretty well on a small scale in China pre pandemic, but they're no longer sold there because of what they say are basically issues with custom and trying to just get their product into the country without it spoiling so and impossible.
Of course, really wanted to go to China and.
Hasn't entered yet because they have a genetically modified ingredient that hasn't gotten approval.
Is that heme?
Is that what it is?
That's the soiling hemoglobin oh okay, which is known as HEME.
Yeah, so it's okay to be sold in the US, but has not been approved for China.
Yes, And it also hasn't been approved in the EU, So yeah, they can't sell there.
Does it make sense for them to come back and focus on the US market and see if they can figure it out?
They've been trying to reduce their expenses and how much they're spending, and so I think that's a really good question.
Why are you.
Still spending so much money in China where you're just not gaining traction. Why don't you bring those resources home? And I wish they had commented for the story because I think that they should address.
That they know how to reach you.
I bet they did me took they do.
Just to wrap up, how do you think about like what you know? Because you guys have done so much reporting it with cover like on this whole world, Like what's the next thing that's kind of on your radar? How you think about it?
Well, I think we're seeing consolidation in this industry right now, and one of the questions is whether all of this consolidation will eventually mean better product on the shelf for consumers.
And what I wonder.
I am actually pretty confident that this industry is going to make better products. I just wonder if by the time those products hit shelves whether anybody's even going to be interested in buying them that they like. I wonder if they had their big shot and they're ever going to I wonder if they're going to get it again.
All right, Really cool stuff and so relevant because we all keep talking about it and trying to figure out like kind of what is the way forward? If you will for it? Dina, thank you so much.
Thank you.
The story in the current issue double issue of Bloomberg Business. Withekdina Shanker. She's a Bloomberg News consumer reporter joining us in studio.
Yeah, I love her. Anything. Do you cover anything outside of because every time we talk to you, it's always it's always beyond me. It's impossible.
I would cover all the package food companies, but it's just these companies just keep every I'm always I got to get out of this beak.
No, don't get out of it.
Oh I want to try.
Oh this is too much. Else do you read it?
But I can't do I eat it. I don't.
Okay, Okay.
I actually I hate when I go to a barbecue and they know I don't eat me and then so they think and they give me like a beyond taking notes.
All right, thank you, thank you.
You're listening to the Bloomberg Business Week Podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business App, or watch us live on YouTube.
We've been talking about a lot of different companies, Disney, Amazon, We got to talk a little bit about Rework because man shares of the company falling off a cliff, down more than thirty eight percent today's session. It is a twelve cent. Wow, a share stock.
That's called that's a penny stock sheets, I mean, Carol. This is a company whose stock has plunged ninety eight percent since it went public in October twenty twenty one, wiped out nearly nine billion dollars in market value. It's because the company's bleeding cash. Customers of its office rentals are canceling their memberships and droves and oh yeah, we worked seity yesterday that there's quote substantial doubt about its
ability to continue operating. This is a stunning fall. I just think back to, you know, a few years ago. This was the company that bought the you know, Lord and Taylor building. Right we were talking about this as like, okay, there's nothing more emblematic right now than physical retail being overtaken by a coworking space. Remember, it was a company that was once valued at forty seven billion dollars, making it one of the most prize startups in America. Let's
get into it with Ellen Hewittt. She's a Bloomberg New Startup reporter who writes about we work Today and one of the most read stories on the Bloomberg terminal. Ellen, good to have you with us. You've been all over this story. When did things get really bad for WE Work? Because when it went public via that spack there was hope that hey, it could actually turn itself.
Around, right, I mean, it's been a tough journey for we Work. They had this huge implosion in twenty nineteen when Adam Newman tried to take it public that obviously didn't work. He resigned. There was a lot of tumult and this new.
CEO we learned about community adjusted ebitda.
Yes, okay, and all the good stuff from the perspectives if you remember the Wee family, the trademark of the trademark family of we and all other things like that.
It's crazy.
We work, we live, we grow, we spend.
Yes.
Yes, it was the cover of Bloomberg Business Week in twenty nineteen. Remember anyway, go ahead, Yeah.
Remember elevating the world's consciousness all that stuff. That was a good time, especially as a reporter covering that company was so exciting. There was news every day. And then in twenty twenty they had a new CEO come in, Sandy Pathroni. He came in in February twenty twenty, which is a tough time to be taking over as co, you know, CEO of a an office startup, so he inherited a pretty tough job. And we work offices emptied out in the firsts in the first year of the pandemic,
you know, dropping to below fifty percent occupancy. It took them more than two years to return occupancy levels to the levels that they had been in late twenty nineteen. And the company, you know, it has survived, but it has not thrived. You know, it did go public in late twenty twenty one via spack, but the share price has dropped, you know today is something like ninety eight percent since since its original debut, and it just has not been able to have the turnaround that they had hoped for.
So, Ellen, is this a case of a company, you know, kind of cool idea in the beginning, oh my gosh, pandemic kind of screwed it up. Or is it just a company that just kind of didn't really make sense?
I you know, what's so interesting about we were is I think compared to some of the other vaporware ish startups that you see in Silicon Valley, we were kind of product that worked that people wanted, that they were willing to pay for. You know, they wanted to have office space. To me, it made sense, I think. You know, during the Newman era there was all this abuiliance and and sort of extravagant spending and all these reasons that the company probably grew too quickly and it spooked investors
and all that stuff. But you know, since then, one would think that it should be able to make things right. Obviously, the pandemic was quite difficult, as it would be for any office startup, but you're not seeing like Regis and other competitors, you know, having the same issue that we work as right now. So it raises a question of whether this is something specific to we work and why that might be the case.
I want to go back to something that you said. They were able to return to twenty nineteen vacancy rates within two years after the pandemic.
Yeah.
Yeah, that was an announcement in came in summer of twenty twenty two, and so yeah, I mean they had been making slow progress. They did close a lot of their office locations. That was a big push in the post Newman era, so exit some of the leases.
Okay, So so let me just make sure I get this stat right then, So that was the rate, that being the percentage of occupancy, So it wasn't on a basis of you know, total number of people who were there, because they actually had fewer.
They reduced their space, right, Yeah, they reduced their spaces. So it's something like seventy two percent occupancy. And of course they've tweaked a little bit how that metric is measured over the years, but you know, they celebrated it at the time as a reasonable marker of you know, return to power, and I think that was reasonable. It just seems like they haven't been able to hold on
to that. That number actually dropped in this quarter compared to the last quarter, and clearly they're projecting that things are not going to are probably not going to work out for them.
It is kind of interesting, right in the uberization of the world, as we talk about of like sharing cars, sharing homes, airbnb, like all this stuff, like we're kind of cool about this, We're open to it. It does feel, especially in a post pandemic world, as you said earlier, that this would be the ideal model, right of companies. I've heard it from companies like post pandemic they're like, yeah, when we need some space, we just rent it, you
know what I mean. When we need to bring employees together, we just rent it. Now, mind you, we're hearing more about people coming back to the office and so on and so forth. But I do wonder about kind of what's next for them.
Yeah, I think it's a big question because it did seem like they were putting forth a pretty plausible story, which was in a time of uncertain working from home versus office and the time of hybrid workplace that employers might not want to sign ten year leases to have their own office space, but when instead turned to flexible office providers like we Work or like any of its rivals,
and one would think that would make sense. You know, clearly, if they're making this disclosure, something is not working at We Work, and you know, it could just be that they haven't been able to stop the bleeding. They've just they've continued to lose money and that hasn't changed.
All, Right, permanent CEO? Could that help something? Could that help help out the story?
Right?
They've also been looking for a CEO since May when Sandy Pathroni, who had come over to you know, sort of oversee this turnaround, left somewhat abruptly, you know, suddenly enough that they did not have a replacement in mind. So they've had an interan CEO. Their CFO then left a week after that. They actually had a big board member turnover in this on Tuesday, which they announced, you know, three board members tacking down and four new ones replacing them.
There's tumult and I don't know what kind of person wants to become CEO of that company, but hopefully someone does and we can we can find out who that might be.
So just thirty seconds left, Ellen, What's what's the future of the company if it does end up having issues? If you know, it could file for bankruptcy. That's what that means essentially, if it has trouble as an ongoing concern, what ends up happening with people who who who are in the offices?
You know, I imagine that competitors are excited to see that maybe they might be able to benefit from this, either by trying to luwer customers over to their own space, or you know, maybe there's someone who might want to come in and take over individual locations. I think that remains to be seen, but certainly there are other people who are I'm sure waiting to see if there's something they can capitalize on if we were to ends up going under.
It's another great business school case study. Like it's really just fascinating, Ellen Hewett. We always love talking with you. Thank you, Thank you. Start us reporter at Bloomberg News. Check her out at Ellen Hewitt on Twitter or x whatever you want to call it on zoom from San Francisco. I still can't figure it out. I just can't. This is Bloomberg.
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One of the things we talk a lot about here at Bloomberg, we've done some great reporting what goes on with female founded startups. No secret that they account for only a tiny, tiny portion of the venture capital that's deployed each year. So here's some numbers for you. In twenty twenty one, for instance, female founders secured only two percent of venture capital in the US. That's according to the research firm pitchbook that follows all this tim and that was a.
Year that VC money really flowed. I mean twenty twenty one, those were the boom years. The last eighteen months have been a different story entirely. We've got with us right now Test name do hud Wala, founding partner of excel Star Ventures. The VC firm says it invests in quote clear disruptive technology. They've got a lot of medtech on there, really cool stuff and really cool companies that they've invested in. They're also passionate about funding women and minority led companies.
Very pleased to have a test name with us this afternoon. So test name, give us an idea of what you've experienced and what you've experienced working as a VC, and also what you've experienced as far as the companies that you funded. Is this a is the problem? I kind of know the answer here, but I'm still going to ask this anyway. Is the problem that only two percent of the companies are actually founded by female founders?
No?
I mean I think that there it's a systemic problem, and I think that the issue is that it's an everybody problem. It's not just you know the funds that are focused on investing in women. Everybody needs to work at this problem. So for example, I know that in VC firms, only twelve percent of VC firms have women as decision makers, and sixty five percent of the VC firms still don't even have a single female partner, and females are noted to be more likely to invest in
female led companies. So I think that itself, we just don't have enough women investors in decision making roles investing in women. So I that's one of the issues, Testy.
I want to jump in enough there for a moment, because I remember Bloomberg did a story I think it was out during the pandemic, and it was even about female venture capitalists were less inclined to even invest in female founded ventures and whether it was pressure within a firm or what have you. It's just like everyone stays away. Help me out. So go ahead, continue with your reasons why, because it's just mind blowing.
So it's I think there's a little bit, Well, you know, this person is experienced entrepreneur, they've had several exits. Well, if you keep investing in just experienced entrepreneurs that have had prior exits, and you're probably going to keep investing in males because a lot of female led companies are first time entrepreneurs, and you have to be willing to take a risk on a first time entrepreneur, and it
may appear more risky. But I also think some of it has to do with the way we ask questions. There's been a lot of research that says that all investors ask women more sort of risk mitigation type questions, and we ask men growth mindset questions. And so if you're going to change the way you ask questions to your entrepreneurs, you're going to have a different outcome in
the way you perceive the company. So, for example, at excel Start, we have a really structured way we do diligence, and so we make sure that we're asking same type of questions to all of our entrepreneurs. We have a quantitative and a qualitative way that we do it. We have matrix that we fill out and a really robust report.
But if you're sort of just flying by the cede or cuffs, then your own subconscious biases are going to determine what type of questions you're asking, and that changes the outcome of how you perceive the company and the opportunity that it may be that it may have.
What do the data show as far as returns and who's leading companies?
So I mean, if you.
Think about the data right now, I think there's only been twenty women who have ever led a company to an IPO. And I don't think that's because women don't want to lead companies to IPOs. I think that there's
a bias. One of our companies just recently was determining whether they wanted to hire a certain executive and not the CEO role, but in a very senior important role, and there was some question around whether or not that women would be able to potentially in a few years be a key management director while leading the company to an IPO, and a few not just myself, but another male board member spoke up and said, well, she we
haven't even hired her. Let's get her in the door, let's see how she does, and we'll make a decision when the time comes whether or not she'll be suited to be in the role during an IPO. So there are some assumptions that are made before women can even get into the door and make an impact in the company.
So Devil's advocate a little bit, because I do believe, especially in a capitalistic society, that money talks. And if there's a good business, I don't care if a monkey or a frog is running it, like people are going to invest in it. Is there something else that's missing that just I mean, look at the creator of spanks. She created a billion dollar business like people women create, you know, Kardashians like whatever, go everywhere you want, like
people create billion dollar Oprah, like people create. Women specifically create successful businesses. But I'm just I'm wondering if there's something else missing in the trajectory that doesn't allow women to take their ideas and really run with it or attract again the investors that ultimately create a female run Google alphabet, a female run Tesla. You know what I mean?
Well, I think that I do think that there are a female I think a lot of females. When you think about entrepreneurs, a lot of them are thinking about what is in their realm of expertise or what have they experience in life that drives them to found a
certain company. Right, So, if a female is finding founding a company based on the female experience, and she's pitching it to male venture partners, there is a possibility that isn't going to resonate, and we have to look we have to look at the reality that we're faced with. If you're if the decision are going to be men and they're the ones who are you know, owning the lion's share of investment dollars, then you have to I'm not telling you to change your idea. What I'm suggesting
is that you people need to be aware. Women need to be aware of these biases and then adjust their pitch such that it may still be a wonderful opportunity based on the male experience, but they need to make sure that they present it in a way that resonates with their male counterpart. Not everything about the female experience will resonate with males, and so you have to perhaps adjust your pitch. Think about how you know, how are you doing the market sizing, what are you talking about exits?
Do you have enough exit potentials? A lot of times, for example, if in a women's health company, whether we like this or not, in medtech, there aren't that many large medtech players that have sizeable women's health divisions, and so if you have a women's health med tech company. But you don't have perhaps a very distinct way of exiting to a sizable acquir that shows an acquisitive nature. An investor is going to push back on that, so I go ahead.
No no, no, no, no no no, you're saying really smart things. I guess that I'm just thinking again, I'm playing Devil's advocate. Like if Mark Zuckerberg had been Maria Zuckerberg and she created Facebook, would would she have gotten the money to create Facebook?
Now?
Meta?
I don't know, because I do see some of our female entrepreneurs and they are fab many of them. I mean, some of them have issues just like our male entrepreneurs do. But I just find that females also don't have as much of a network. I don't know if it's the sort of that old boys network that continues to prevail, but they just don't seem to know enough investors. And I also find them that they're not as assertive with
their investors and asking for introductions. So only my male for example, when we're sitting on the board and we're sort of well, I have this company and we're experiencing X y Z, this could be helpful. These are why my thoughts are this and I'm giving advice to a company.
Most of the time, my male CEOs will say, hey, can you introduce me to that CEO so I can learn a little bit more about you know, what you're talking about, so I can really understand, whether it be clinical design or you know, acquiring customers something another company. It's very rare that a female will proactively ask me. It happens, but a will proactively ask me to make introductions for them. I have to offer. I will go back and look at my rolodex and say who can
I introduce you to? But they will not proactively ask me as an investor to make introductions for them, which I have some but that makes a big difference.
We're going to let the guy wait. The guy in the room want to say, I just want to ask a question quick.
I just want to ask a question. Okay, just you know one phrase. The most exciting area you're investing in right now?
Ooh?
Personalizable tailored medtech companies that function very much like therapeutics, and their functionality is able to basically shift and conform to the anatomy of our human bodies and able to really create therapy in a way that only therapeutics have been able to do in the past.
I have to say, I have a niece's a doctor and she has a good friend that has a doctor to and they say, it's amazing, like the differences of things that aren't done for women in healthcare and medical devices. Well, I'll talk to you about it, but it's just the perspective and things that are covered by insurance for men versus women. And just Matt talked about it with breastfeeding for his wife specifically, and just things you know that come problems and stuff that you know there isn't research
followed for women. So you make such a valid point, and you think about the in roads. And I also think about if this money isn't going to these companies women I was starting companies like you, think about if they were allowed to run with it, what kind of businesses they would create, What that would mean for you know, public companies, market caps, economic momentum, right, job hiring. How much we are ignoring at this point.
There is actually a company that I know that would have been a fabulous company, would have changed the trajectory of a disease that we all struggle with as women and Unfortunately, because the Acquirer spun off their women's health division, the technology was shelved even after they paid a lot of money for it and never made it to market. It's really sad.
That's amazing. That's amazing. Hey, listen, incredible stuff. Come back soon. We'd love to continue this conversation with you. I really feel like this was a very productive one because I feel like it's a topic we've talked about for years, but you really got to some of the core of the problems. Tousney Dohadwala, she's founding a partner at Excelstar Ventures, joining us on zoom from Boston. Really cool conversation.
Yeah, a lot of cool companies they've invested in note but Data, Augmenis and more. This is Bloomberg.
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So you might recall our next guests, who we introduced to you just a few months ago, two small business owners with interesting backstories, Cheri and Tracy Sifax, who also happened to be husband and wife. They co founded the online dating service Just the Facts.
It's not just online dating though that they're doing. They're also expanding their real estate portfolio. Most recently, the pair entered the hospitality sector, purchasing Booker's Restaurant in West Philadelphia earlier this year. Bloomberg News Deputy team leader for US Equities Jess Menton and I asked Shari and Tracy White, now is the right time to take a chance on a restaurant the restaurant space.
But this is going great. We are selled up twenty six percent over the first quarter, and we are excited to be in this position. As you know, we kept the majority of the staff, maybe seventy five percent of the staff we kept there, so we didn't change much, but we elevated the menu, added some special drinks, and it's been a real great ride.
It's an interesting dynamic because, especially coming out of the pandemic right tim when you think about how challenging it's been for specific restaurants.
Exactly where my head was going to go, Yeah, Like, if you're going to buy a restaurant twenty twenty three, when you're coming out of a pandemic, tracy is not really the time to do it. Can't find labor, Yes, costs are going through the roof, food costs are going up, and then you have this whole pandemic thing that you got to worry about. What's the uh, you know, What's why take a risk like that?
Well, we felt we looked at the model.
The previous on Asaba had built a great model over six years, so she had built the sess. It was already pretty much there when we inherited the restaurant, and we just really felt with our profile and our social media presence that we can elevate it and market it in a whole different light. Bookers is located not too far from the colleges, the hospitals, so it's in a prime area for that type of growth. So we really felt that we could really enhance Bookers by just our presence.
I'm curious what y'all are seeing when it comes to because Tim brought up labor and obviously when you think about inflation issues with what you're seeing, what do you think this tells us about the direction of the economy.
Well, a couple of things. I think the economy is doing better than initially when we started talking about recession and everyone was concerned and worried, and even we were because we were in the middle of negotiations during that time. We felt good about our business evaluation and the ability to retain employees. The really great thing about being in West Philadelphia and Philadelphia period is very neighborhood centric. So a lot of our employees come right from the neighborhood.
They can walk to work. So it's rare that you're able to walk to work and not have to work in center city and still be able to make a really good wage. Those things helped us retain and have helped us grow.
How challenging is that from a business perspective because I feel like at Bloomberg Great Tim, we're always talking about, oh, the employment costs index, and it's really challenging for businesses as far as to keep up with that type of wage growth. From your perspective and what you hear anecdotally from your employees, what is that challenge like?
Yeah, So what we think about is every dollar that we spend, we have to figure out what that return on investment is. So we have to look at every single line item. We've done well with having a fractional CFO that really helps us look at not just the food and things like that.
We adusait explain what afractional CFO is. I mean, it sounds like it's pretty self explanatory, but so differently saying a part time CEO.
Basically a part time CFO. Our accountant has that service and they offer that. And I think sometimes when we go wrong in business, especially at entrepreneurs, is that we try to do it ourselves. We try to wing at ourselves, and having that outside help really helps us look at every single line item so we know how what percentage we want our labor to be. We know what percentage we want our expenses to be as far as food,
so we have to look at those things. Obviously, we have to look at everything and make adjustments for inflation and look at wind eggs are up, wind, butters up, you know, those types of things to adjust pricing accordingly.
It's funny because McDonald's has this sort of fry indicator as far as how many people are adding those on to where they can tell this is what an indicator means for the economy. I'm curious if you have any sort of way to gauge. As far as when it comes to spending in the consumer, well, at.
This point, we're what five four months, and so everything is still a first for us. But we're definitely looking at the market. We definitely look at our sales versus last year. We look at how many seats, not just what the revenue number is up, but actually how many
people are coming into the restaurant. So we're assessing all that data and that that helps us with our forecasting and it helps us build out knowing how much we need to make sure staff is proper we're properly staffed, and that we have enough inventory so that we have we're able to serve our customers with our menus.
Hey, Tracy, give us an idea of how you think the economy is based not just on the restaurant, but the work that you've done in real estate development, what you're seeing in your other businesses right now.
Yeah.
Well, I always believed in real estate as someone who started my first investments in early two thousand. Even when the market crash in two thousand and eight and I lost millions of dollars in the real estate crash, it was still my saving grace as I came out of that that allowed me to continue to do business and actually eventually buys Booker. So I'm always big on economy.
I really believe in us. I believe that what we can do as a husband and wife team that gives me a bright look on what the economy can bring. So I really believe that our combination has really been the proven recipe.
It's less about what's happening externally for you, yes, and more about what the two of you can sort of like what I'm hearing from you is it doesn't matter how the economy is because you guys can weather it.
Oh.
Absolutely.
I'm thirty years as being a serial entrepreneur, so I've seen the highs and the lows. I really have felt them. So really believe that even when we have a bad economy. I think good business, good customer sells in any economy.
But do we have a bad economy right now?
I don't believe, so, I don't believe so.
Yeah, And real estate has always been my anchor as well, so when we put it all together, that really gave us leverage to do a lot of other things. So real estate does always tend to be that foundation that if you have that and you're able to get in on some really good opportunities that that propels you and can't propel you to other things, and you always can leverage it.
Do you see any sort of red flags brewing at all when it comes to the real estate space? We always talk so much about when it comes to commercial real estate, But are there things beyond that type of area that you think you're a little weary about right now?
Yeah, commercial real estate. Me and my wife, we was just talking about. We visit a lot of malls and we were just visiting the mall and some of the malls that we've been visited as we've been shopping, that's been pretty much non existent when it comes to customers inside stores like they used to be. So it's something that we definitely noticed in the commercial space.
Is that something that would give you pause and you wouldn't want to go into that.
I wouldn't want to open up a restaurant on the mall, Right, That's.
Where I'm headed with that, And I don't know, we wouldn't have probably purchased the restaurant without being able to purchase the real estate. So we purchased the commercial space six apartments and things like that because it gives us so many more opportunities in the event that anything happens with the restaurant.
What are you seeing the on the landlord tenants side? What are you seeing with the tenants right now?
Yeah, so far, attendants have been great. We've been really, really fortunate. We believe that we offer a good product and that they acquiesce and they do their part of it too. So we're pretty accessible, We're pretty available, and we just haven't had any tenant landlord issues.
No, but we like to talk to landlords too because they start saying, okay, well, late rents are a normal, normal part of being a landlord, especially if you have a lot of tenants. Absolutely, are we seeing more late rents now? Are we seeing people?
You know? Pretty fortunate through the pandemic. We had two people that kind of took advantage of not paying and that's of what twenty sumidd tenants that was less than ten percent. Like, we were pretty fortunate. I think, you know, the beauty of Tracy being a developer. We keep our properties really well and things like that, so you have a good thing kind of why you know, mess it up when you think of certain urban communities and landlarns that are not as invested in your quality of life.
So to Tracey's point about service and customer service, we just live the model up, provide a good product, and we'll get a good result.
Do you guys do the day to day with that too, meaning do day to day work on that? Or do you have a management company?
We have someone that helps us manage the overall. Yeah, but Tracy's able to assess whatever needs to be done and is able to, you know, get a team out there and take care of things.
We only have about a minute left, but I have to ask about also your dating coaching business. You both met during the height of the pandemic virtually, so tell us a little bit quickly about your dating business.
Yeah.
So, I don't have as much time for it as I used to because of the restaurant, however, and it's shifted a little bit because it used to be like how I attracted my husband and all the positive things about that, and now is like how are me and my husband really doing business and day to day? But ultimately the messages, you know, fall in love with yourself,
make sure you understand and know what you want. I love that the out of the relationship, do you Yeah, and then the thing that you want will will come and find you. Basically, do you have begtten the results you're looking for? You may want to adjust that, yes, because that's okay too.
I love that.
A great little lotto there. Well, Seri and Tracy Sifax. Great to have you both joining Tim Stenovic and myself here in the Bloomberg Interactive Brokers studio, who are the founders of just the facts, but then also they have all of these different small business entrepreneur type areas like we were just talking about with Booker's restaurant and bar.
Oh, don't forget Sure's book too.
Oh yes, and of course we have to talk about what's happening with her book as well with that, so people should check it out as far as second act, living boldly and abundantly at every age.
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