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On Today's Bloomberg Intelligence Show, we dig inside the big business stories impacting Wall Street and the global markets.
Each and every week, we provide in depth research and data on some of the two thousand companies and one hundred and thirty industries are analysts cover worldwide.
Today, we'll look at why AI is emerging as a catalyst for office space demand despite fears of job cuts.
Plus we'll discuss what you sent. Thirteen f filings revealed about Warren Buffett's last quarter as CEO of Berkshire Hathaway.
But first we begin with news from the farm machinery leader Deer.
This week, Deer boosted its annual profit outlook as the company, which is the world's biggest farm machinery maker, anticipates the agriculture economy will soon get better.
For more.
We were joined by Chris Ciolino, Bloomberg Intelligence senior US machinery analyst.
We began by asking Chris for his take on the latest at Deer.
It was a really solid beat and race quarter, and I think this kind of gives us the all clear on the cycle and that you know, twenty six will be the trough earnings year. The one Q beat was broad based, all segments, better top line, better margins than expected, really on the back of higher shipment volumes, with particular strength in the small agg business and construction. Those are markets that you know, have started to already recover now
this year. The large agg business, which is obviously their bigger growth engine, continues to be soft, but I think we're seeing that business to stabilize and really for the first time, you know, in years, we're starting to see some green shoots emerge there. Order books, you know, strengthened a little bit during the quarter as well.
How does this compare in contrast with what CNCH Industrial reported earlier this week, which took a more it feels like a cautious stance.
Yeah, you know, I think so. Both companies are calling twenty six as the bottom. I think that's pretty well understood at this point. I think the incremental piece coming out of Deer is that you're starting to see some early signs of improvement in the North American lar jag business. That's a market they're projecting in terms of unit volumes so to be down fifteen to twenty percent this year. That's going to put volumes at the lowest level in
more than four decades. But what you're starting to hear from them this quarter is that the order books strengthened, particularly just in the last month of the quarter. You're starting to see a little bit more trade flows going to China, the fleets continue to age, you have the government aid support, so this is not a big step change, but it's really the first signs of incremental improvement.
You got to have a great sense of time. Chris as I said, Deer's up forty two percent year to date, so the market's anticipating this business bottoming and then turning up. How long is this cycle for some of these companies that you follow here, they're cyclical.
Yeah, so a typical downturn in this business will last anywhere from two to four years. This will be the third year of the downturn. So in terms of the downturn, it looks very similar to what we've seen historically. Typically the upturns last a little bit longer. But you know, this is an incredibly volatile market and it's ultimately dictated by crop prices and farmer profitability. So the crop outlooks do have a significant impact here in terms of what farmers are willing and able to spend.
And it looks like Deer relies on the US for a huge part of its revenue, if not half. What is it doing in terms of growing it's business overseas? Is it just kind of a trajectory of growth there that is so learn to what it sees in the US. Or is it competing against some established players?
Yeah, so they're regional markets, But in terms of what markets matter for Deer's it's North America and then South America is becoming more important reason being those are you know, typically the bigger producers of road crops, corn, soybeans. They're larger farms, they utilize more the larger equipment that you know, is more conducive to some of the precision technologies which come in at a higher margin. Europe tends to be
a little bit more stable. They get a lot of government support, So I think of that market as less cyclical. You know, lower peaks, higher troughs. Those are really kind of the three big growth engines if you think about Deer's geographic exposure.
So what is Deer saying about the US farmer these days?
Listen, things are still challenging. Let's not understate that, you know, crop prices really haven't moved that much and still under
tremendous pressure. As we look at another year of you know, near record production, they are seeing some signs of stability, I would say, And like I mentioned earlier, I think we're starting to see some early signs of improved order activity again, albeit off a very low base, and a lot of that's predicated on you know, we're starting to see a little bit more exports going to China, you have a continued government support, and then also you know,
there's certainly a need for replacement. The age of the fleet is as old as it's been in a number of years. So as farmers get more money, you start to see some stability on the crop price front. That that should, you know, unlock some pent up demand.
Yeah, I'm just looking at the stock price trading at a record high, but it really has gone on a tear over the past three weeks or two weeks. What accounts for that? Was it anticipation of this report or was it something else.
A combination of things, you know. I think, you know, it's pretty well understood now that this year will be the trough of the cycle, so I think there's some positioning ahead of that. And you know, a lot these heavy machinery companies typically do well in early in the rate cut environment. So the anticipation of lower rates stronger growth environment not only in the ag business, but also construction. I think that sometimes gets overlooked. They're completely refreshing their
excavator product lineup. They have a pretty strong position in construction equipment, and I think the growth dynamics there moving for twenty six and twenty seven are still quite favorable.
Our Thanks to Chris Ciolino, Bloomberg Intelligence Senior US machinery analyst.
We move next to the retail giant Walmart.
This week, Walmart issued a forecast for four year earnings that missed higher expectations, flagging the unpredictable state of trade and labor market conditions.
So we brought in Emily Cone, Bloomberg's consumer team leader.
We first asked Emily for her take on Walmart's most recent results.
There's another solid quarter for Walmart in the fourth quarter. They did come out with conservative guidance, which is pretty typical for Walmart, come out with cautious guidance and then exceed it later in the year, which is sort of their playbook. And then their guidance was also paired with some warning signs or cautious outlook about the economy, which I found interesting.
Yeah, I want to pick up on that idea, because the CFO talked to Bloomberg and mentioned that tariff driven inflation has reached or is reaching its peak, which I thought was really interesting given that there's so many people expecting rate cuts later on this year. Given that inflation seems to have settled down, what more can they tell us about pricing?
I think they told us that prices rose one percent in the quarter, which I think was the same as the last quarter. But they also mentioned other things like tepid job growth, student loan delinquencies, rising consumer sentiment being uneven, things that you know, would give any CEO or CFO or company pause when they're trying to outlay what might happen in the coming year.
And I've noticed over the last a couple of years they've talked about how maybe their customer base is changing a little bit. People some middle class, maybe even upper income areas coming down to Walmart. They're seeing more and more of that. Is that still the case.
I think yes, that's definitely the case, and that's sort of their superpower right now that you know, poor this is the case shaped economy that we talk about a lot poor customers are pulling back in areas, but what they're seeing is wealthier clients clientele who might not have come to Walmart in the past shopping at Walmart, especially for things like their groceries, which they've invested in a lot in the last ten years. You can now find organic groceries and that's really paying off.
And they also have this Walmart Plus program which they're really putting a lot of emphasis on. It's actually one of the benefits if you're an American Express Platinum cardholder, which speaks to that idea that they're really reaching for the higher income consumer. How's that going and is it making any headway on stealing Marcus share from Amazon with its Prime program.
Yeah, they're seeing a huge growth in e commerce. I think that was one of the major areas that grew this quarter. That is drawing in higher income shoppers who actually pay even more than the membership for faster deliveries, speedier pickup times, and that's helping them also grow market share among wealthier shoppers who are looking for convenience over everything else.
What are they saying about Did they even talk about on comments called tariffs anymore? That's still a discussion point. And what's the company saying about tariffs?
Yeah, tariffs came up a little bit, but they said that they expect that that tariff driven inflation to peak now. I think they also benefit here again from their groceries. Groceries are a portion of their assortment that is less impacted by tariffs, and they're really benefiting from I think sixty percent of their sales come from groceries these days.
You mentioned e commerce. It sounds like Walmart will continue to invest in technology and automation. What were some of the things that they flagged that they're working on in terms of innovation and building on the technology that they have already implemented into their system.
Yeah, it was interesting. They said most of their fulfillment and stores is now coming from automated warehouses, most of their fulfillment for e commerces coming from automated warehouses. They have really made huge gains here to speed up fulfillment centers, and I think we should expect to see more of that in the coming quarters. They cited story models and automation as the main areas where they're going to be continuing to invest.
You know, one of the things that's amazed me really for ten fifteen years about Walmart is how well their digital business has been, their e commerce business. They have built that to not only I mean they can go toe to toe with Amazon dot Com just about anything. It seems like is that still a growth story for them?
Yeah? I think they said something like a third. They've seen a huge amount of shoppers are now actually interacting with their AI, their AI assistant on their app and on their website that really helping people make shopping decisions faster. They're seeing an increasing spend from customers who interact with the AI shopping assistant, they said, which which I think we can expect to see.
Just in the last five years, their ibathas roughly doubled, but their cap X is tripled.
Commerce build out, that tech build out, yep.
So I mean they're putting their money where their mount is here.
You know what Paul's dream job is, Emily does. He mentioned this to you, No.
Be a greeter at Walmart. See, I'm a nice, friendly guy.
I want themock. He wants to wear the smock. I bet you know. To that point, Walmart employees about two point one million people, which makes it a huge employer. Do we have a sense of whether they've been growing their employee base at all with this commitment to technology, to automation.
I think they've definitely made a huge investment in technology. They have a lot more people working on tech than they ever have, and I think we could expect to see more of that for sure.
That was Emily Cone, Bloomberg Consumer Team Leader.
You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on two thousand companies and one hundred and thirty industries.
You can access Bloomberg Intelligence via bi go on the terminal. I'm Scarlett Foo.
And I'm Paul Sweeney, and this is Bloomberg.
This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney on Bloomberg Radio.
Next to news from the amusement resort operator six Flags Entertainment.
This week, six Flags reported twenty twenty five earnings and revenue that were slightly ahead of analyst estimates. For more on this and the latest in the travel and leisure space, were joined by Jody Lori, Bloomberg Intelligence credit analyst.
We first asked Jody for her take on six Flags earnings.
So I think what's interesting, Paul, is that we're seeing that some of what six Flags said, oddly was similar to what we saw on APHIS's call. And both companies has had these large impairment charges to boost EBADA, but
it didn't necessarily equate to cash generation. And both companies are focused on improving their debt load and also just the core of the business, the operational side, adding in AI to boost the business and figuring out ways to turn around, and both companies are dealing with new CEOs. So it's just like a weird sort of compare contrast scenario that I've been toying with my head.
I mean, Paul was talking about how Hershey Park was his first amusement park, and then we're obviously the big one would be Disney yep or Universal. Have you been there? No, Okay, that's a pretty good one.
Yeah.
Is that the competition for six Flags or does it work on a different level than those It is and.
It isn't the competition Scarlett. I mean, I think you know, six Flags likes to compare itself more to alternatives in leisure and entertainment. There was a great slide that they provided that showcase the value proposition if you compare it to like concert tickets or in inert sporting event. The amount of time that you spend at six Flags, in theory is all day, right, So the cost to enter and the cost for the you know, the sort of concessions is much lower than what you would pay to
go to a Taylor Swift concert. Now that said, I mean, I think what's so interesting is is when the company combined, there was this image that they could create like an all pass promotion right that you can enter in all parks.
They've only finally started rolling out something that's a regional pass recently, and I'm curious to see what could happen with the company as they improve those sort of points of it, because what's funny is if you look at it from a revenue perspective, it did actually pretty well this year compared to twenty four, and twenty four was
a pretty strong year. Same thing with some of the per cap spending pieces of it, right, the per cap component, the admissions were down, but the in park spending was decent, and so you say, what's going on, like why are they having such issues? And it comes down to an operational issue. It comes down to the fact that the legacy six Flags assets. I think we're in way worse shape than Cedar Fair anticipated when they took on the company,
and they're saddled with a lot of debt. So it's really a question of if the capital markets are going to be encouraging enough to help them through. You know, they help them through in January with a new issue, but really are they able to sort of support the company through this transition.
That park past You mentioned sounds like a you know, the amusement park version of an epic past, which makes sense if you're skier and you are chasing the weather around the country. What doesn't make sense to go to, you know, the West Coast for six flocks and they come back.
I don't know it could scarlet. You don't talk to Ira Jersey enough. Apparently, at least when it comes to roller coasters. You probably talked him about interest rates. Next time when you have him on, ask him about his son's American Coasters Enthusiast card.
That he proudly carry.
If you are deep into the roller coaster dynamics and culture, people will go to the end of the Earth. And I am curious to see how the Middle East traction for six Flags, for SeaWorld and for some of the other parks that have expanded there. How that's going to play out if you do see these park coaster enthusiasts fly out to Saudi Aravia, fly out to the OAE to ride certain coasters.
Our thanks to Jody Lourie, Bloomberg Intelligence credit analyst, we move next to the real estate sector.
Bloomberg Intelligence recently put out research entitled AI Drives Office demand amid job cut fears.
And according to BI, AI is emerging as a catalyst for office demand, reinforcing leasing momentum in New York City and San Francisco.
For more on this, we were joined by Jeffrey Langbaum, Bloomberg Intelligence Senior US rit analyst.
We started our conversation by asking Jeffrey to discuss what people are saying to him with regards to AI and office space.
Right now, what people are thinking about is what the impact is going to be on office space if AI makes all of these industries that lease office space irrelevant. Okay, what does that mean for demand for space? And you know, we saw last week that you know that started with software and then it went to you know, industry after industry and ended up with the real estate brokers and eventually the office rates getting hit hard.
So so far, this is just kind of fear that's wafting across the market. Have we actually seen any evidence of this happening.
Not yet, And in fact we've seen some of the opposite. Leasing velocity has been at the highest level since before the pandemic in markets like New York and San Francisco. The reats that we follow names like sl Green Bornado Boston properties are now BXP. These guys are reporting very strong leasing volumes. We're starting to see occupancies tick up
off the bottom in their portfolios. And you know, one of the one of the dynamics at play is that AI firms are leasing space as they grow, and to the extent that companies being you know, impacted by AI start to receive a little bit, there's an offset there.
So your office reached docs last week sold off on this fear.
Yeah, and it's not a new fear. I mean it's been it's been at play for some time now.
You know, work from.
Home kind of worked its way through and everyone kind of got comfortable with where hybrid kind of settled in, and then you know what was the next thing to hit office? And it was this And it's been you know, it's been out there for probably a couple of quarters. Now, what is the impact going to be? But last week when software rolled over it, it's just compounded.
Is this something where because of the evidence that companies are still leasing quite a bit of space, that we're going to see a just as sharp recovery.
Well that's possible, but you know there's also the risk that you know, the the equity markets are turbulent and forecasting, right, and so there is the possibility that there will be negative leasing news to come. It's certainly not showing up in the numbers now. And we do think, and this is backed up by some survey work that we just did last week of office workers in both New York and San Francisco.
We actually think that.
There's still a period of time to come where firms are actually leasing more space, they're expanding their headcount to try and figure out how to take advantage of AI and to grow their business. And that could actually you know, I don't know about a sharp snapback, but it could you prolong the positive vibes for some time.
What's the sector of the remarket that you like the most right now?
Senior housing is I mean, you know, it's the one aspect where you cannot refute the demand story at all. And at the same time, where real estate guys typically love to build what to take advantage of those demand stories. There's not much senior housing coming out of the ground, so there's a huge supply demand imbalance.
Okay, but a senior housing more attractive in certain markets over other markets. How do you pick between winners and losers when it comes to senior housing.
It's really more about the local operator than it is about the specific market. I mean, obviously, if you're in a place where you know, economics aren't as strong and you don't have this affluent a potential resident base, then that's going to you know, potentially impact but local strong
local operators. When there's not a lot of supply coming out of the ground, and you know you basically just have an aging American population that is going to need housing solutions, it's really a play across the board, all right.
Thanks to Jeff Langbaum, Bloomberg Intelligence Senior US Route analyst, we.
Move now to some research at Bloomberg Intelligence recently published on American Express.
According to BI, American Express is focused on attracting new premium cardholders should help it meet its consensus EPs growth in twenty twenty six and twenty twenty seven.
So we brought in Edward D. Jerry and Bloomberg Intelligence consumer finance analyst.
We first asked ed about Amex's most recent quarter and what we've learned since a company rolled out it's increased fee for the Platinum card.
When they reported the quarter, great quarter.
Uh, everything everything kind of in line with expectations or in some areas better and gave great guidance in terms of mid teens EPs growth for twenty twenty six. And you know a lot of a lot of conversation about the refresh and how great the refresh is going and acquiring you know, lots of new customers.
Uh.
But generally there were two things that.
Sort of analysts picked on in the quarter when you're when you're trading that sort of a high multiple financial and and those two things were.
Number one, that new card the new card.
Acquisition rate kind of went down a little bit relative to last year and relative to the third quarter. And initially all the money that they're spending on rewards and services and and all of what they call variable customer engagement expenses went up a lot, a little too much in some people's opinions. So what what we kind of learned recently with sort of some supporting data around two things.
And the big thing was while the number of new cards acquired went down a little bit, the fee per new card went up from one hundred and ninety six in the third quarter to two hundred and eighty two.
So huge jump. Now why is that?
That's because a lot of the much bigger percentage of those new cards came from new Platinum customers, which is much better than just a regular customers. So even though a little less customers acquired, you're getting many more new Platinum customers, much better economics.
So that's sort of one thing.
And then talked a lot about how they're absorbing all of those extra reward costs if you will. But still that's and that's fine because it's enhancing revenue growth, and sort of the revenue growth benefit of that offsets the reward cost more than offsets that reward cost.
Okay, Edward. One thing that I've noticed from these Facebook groups is that people get a Platinum card that's you know, for the sign up bonus and everything else. But then they start branching out and they get the Gold card because there's more reward points for groceries there. They start to compile a lot of AMEX cards, so a lot of the users have multiple cards, don't they.
Yeah, no question about that.
And obviously you've got to you know, a lot of sort of families on the Platinum card, so there's sort of a primary Platinum card owner and then issuer of
multiple cards related to that. So you sort of have this this sort of network effect of the Platinum card that just keeps building and to some extent, you know, if you can, you know, when you come back to the JP Morgan Sapphire card, if you can, you know, build that reward and service infrastructure even bigger and better, you know, you create the you know, sort of the mode effect, which is what they're trying to do and seems to be working.
Hey, ed the I have the Green card I got the day I graduated college at kept it all. But Scarlet and other folks, I understand they go crazy for these really expensive cards and all the points in managing.
You need to go platinum.
Paul, No, I just can't. I can't do it. But how big of a business is that for these card companies? Is that really the value driver? The Scarlet foods of the world.
That's it.
Yeah, they care much more about Scarlett than they care about you. I have to say, yes, she's going she's about to pay eight hundred and ninety five dollars a year, up from six hundred and ninety five dollars a year.
They're going to give her a heck of a lot of rewards and services for that, but I had a big sign of bum on average.
Now I hope this is not completely true, but on average, she one of the Platinum card members, spends about ten times as much on her card as you do.
That was Edward Nigerian Bloomberg Intelligence consumer finance analyst. Coming up, we'll look at why MSG sports is considering splitting up its Nicks and Rangers businesses.
You're listening to Bloomberg Intelligence on Bloomberg Radio of riding in depth research and data on two thousand companies and one hundred and thirty industries.
You can access Bloomberg Intelligence through b I go on the terminal. I'm Scarlett Foe and I'm.
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With the Bloomberg Small Business Report. I'm John Tucker. There's a historic mansion on the northeast corner of San Francisco's Alamo Square Park where several dozen people live spending their days immersed in esthetic concentration. Welcome to HFO or Hacker Fellowship zero. The goal is to attract the best entrepreneurs.
The Living's startup Accelerator promises to strip away all of life's tedium so that founders can have the most productive twelve weeks of their life and birth their real life's work. The program comps living expenses and hands over cash in exchange for equity in each startup operating from its house. The Residency, which started in twenty twenty and just completed its seventh batch, has maintained a relatively low profile, even as it gets thousands of applications for each session's ten slots.
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This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney on Bloomberg Radio.
We move next to some news at the multi national conglomerate Berkshire Hathaway.
This week, the company released its thirteen F filing for the fourth quarter, and investor Warren Buffett's last quarter as Berkshire Hathaway CEO reflected a bearish sentiment.
Berkshire slast its holding of Amazon by more than seventy five percent in the fourth quarter, while also building a stake in The New York Times.
Berkshire also continued trimming Bank of America and Apple during the quarter while increasing its stakes and Chevron and Chubb.
For more on all of this, we were joined by Matt Palizola, Bloomberg Intelligence senior analyst.
We began by asking Matthew if this will be the last time we mentioned Warren Buffett buying or selling shares in companies.
Yes, it is so he was the CEO as of the fourth quarter. So these moves that we're looking at in the thirteen F took place in the fourth quarter of last year.
To be totally fair. He's been stepping back.
He probably wasn't behind a lot of this anyway, but this is actually the last quarter that you could even attribute these things to him. He remains chairman, so you never know he'd be looming behind the scenes. But his last quarter as CEO, he.
Famously said he was only investing in things that he understood then that typically did not include technology companies. But Apple, I guess he saw more as a consumer company than anything else.
Yeah, I think so.
And I think the you know, his thing was motes right and probably still is, but the iPhone mode and the infrastructure built in, I think those were appealing things. They have been pairing that that investment, as we know, part of that, and you know, it's it's kind of a twist because he had said this said of the annual meeting a couple of meetings ago, that it was a kind of tax reasons that they had these huge unrealized gains in there, and he thought taxes would be
going up. Now they're certainly not going to go up under the current administration kind of anytime soon. But Buffett is always long term thinking, so I think that's what he was looking at. As we've got you know, tens of billions of dollars of unrealized gains that will be taxed. And I think it does still hold true that in ten years from now, probably the corporate tax rate could
be higher. And I think that was his concern and part of the reason they were taking down those those big gains in those big positions.
And Lambert also cut its Amazon steak by seventy five percent.
They did so Amazon. They initially got into Amazon him in twenty nineteen. That was one of his investment deputies, I think brought it to him. Then again also like tech, but a retailer. Right, that position we calculated was up about one hundred and thirty to one hundred and forty percent over the time. They hold it nice but kind of in line with the S and P five hundred. So it didn't really outperform, so I think it was
kind of taking some money off the table. I sold it, I believe like one point seven billion worth of that stock, cutting most of the position, So that one I think was probably a company specific didn't really outperform. They bought four billion of Alphabet last quarter, so you know, the kind of tech aversion you know, maybe changing over time, what did he increase stakes in so two big ones Chevron and Chubb. So Chevron is they their fifth biggest holding.
I think they interestingly, I don't know if they were kind of betting on US intervention in Venezuela, which happened kind of after the quarter, so you can't say that like murderer got taken out and this stuff happened and they did it and Reaction did it before. But maybe they were reading the tea leaves there. I don't know. It's a big holding for them. I think the kind
of geopolitical energy play makes total sense. The other one is Chubb, which I don't want to get too excited thinking about insurance mega deal here, but they are now the second well they've been the second largest holder of Chubb stock.
Chubb makes total sense.
It is, in our view of BI a cream of the crop insurance company, global reach, still growing nicely, great management. It's a company that Berkshire would want to own. Now Berkshire's got their own massive insurance business. Yes, the interesting thing is you've got two massive insurance businesses. They're actually quite complimentary if one were to want to put them together. So the Berkshire business very big personal atto in Geico,
very big reinsurance, kind of global global reinsurance. Those are two businesses that Chubb is not really in. There's some overlap in the kind of US specialty businesses that they're both in, but it would be phenomenally complementary of those two businesses. I think there's probably a lot of hurdles to some sort of you know, total deal there. Chubb's market cap is one hundred and thirty billion. Berkshire has three hundred billion of cash, so they theoretically could buy
Chubb in cash if they wanted to. But I think it's probably some cultural issues and would Chubb really want to sell as the other thing? But you know, it is something it as a stock something Berkshire would want to.
Is that a strategy that Berkshire actually follows through on where it starts off with a stake and then eventually decides, you know what, we're just gonna buy the whole thing.
Scarlett, Yeah, they do do that.
So I think with Burlington Northern, which is a little bit before time when they bought it, they did things like that where they acquire the public stake and then they build.
It over time.
That's why there was a lot of speculator about occidental. Buffett then came out and threw cold water on it, saying that but it seemed like it was going along with their playbook of huge acquisitions that they made before.
So none of the warns out. Can we have a serious discussion about a dividend?
We can?
I think you know, we'll get you on the phone with Greg Abel Let's see what he says. But you know, I think our take has been in the early years. Able will probably adhere to the ethos of Berkshire. And I don't think he's going to come in and start breaking down walls like I don't think anyone would like to see that, especially Buffett's still there. I mean, they
have tremendous excess capital. Buffett is praised Able as being a great capital allocator, great capital manager, and they've also said we literally can't there's so much money, we can't put it to work in a reasonable way. So it would make sense to see something happen there. And I think, look, the other thesis is they're not going to be as good as anything anymore. Right, there's no better investor than Buffett. Give a g Jane, who is the head of the
insurance operations. He's been selling a lot of stock. Perhaps he's getting close to retirement, so you're not going to be good at any of these things anymore.
Some sort of capital which there will be a big catalyst.
Oh, thanks to Matt Palozola, Bloomberg Intelligence Senior Analyst.
We move next to some news in the business of sports.
This week, we heard that Madison Square Gardens board of directors approved a plan to explore splitting the NBA's New York Knicks from the NHL's New York Rangers.
It's a move that would make each team a separate, publicly traded company.
From more on this, we were joined by Randall Williams, Bloomberg Business of Sports reporter. We first asked Randall to break down why this deal may happen.
Yeah, you look at the enterprise value of the Knicks and Rangers and what they're traded at its seven billion dollars.
But you look at what the Lakers sold for.
A loan ten billion dollars, and I think the Knicks obviously are in a larger market than New York. The Lakers have won more titles, but New York is New York, and so both the Knicks and the Rangers, I think would carry a tremendous value, maybe twelve billion dollars combined, and that's on the low end.
So is this maybe a first step for selling one of the teams, selling a piece of one of.
Them, getting into speculative territory.
Well, James Dolan, that's always a fun place to look.
I mean, silver Lake owns a piece of MSG Sports, and so that's five percent. It's a ten percent stake, but probably five percent each. And when you think about someone wanting to buy into that, you would want to know how much each individually is worth. If not, you're buying into something and it's like you could be buying in at a supreme price or maybe something that's a
little bit lower. And I think buyers who are interested in there have been several over the years want a want a more precise price, and so do the shareholders of MSG Sports.
So what's held up the company from being split up up until now because there's been a lot of calls for the enterprise value trading at a discount to the actual value of each franchise has been there for a while.
I know the answer for voting stock is from the Dolan control.
Yeah, I think that James Dolan has long been the controlling person for all of these companies. He decides where for worse, yes, exactly, he decides, you know what he wants to do. And there is a board of directors that voted on this. But this would have never put up been up for a vote had James Dolan that said, you know what, maybe we should consider this, and then from there on, you know, things happen and then they vote on this.
Madison Square Garden, James Stone, did they own the garden itself, the building?
I believe so.
Yeah, that's always a big That's always a big part of it too. Do you own the arena they plan?
Or yes, in a different publicly traded company, exactly exactly.
And I had a Bloomberg terminal reader and the original copy that I wrote, I said Madison Square Garden was one of the most famous in the world, and someone quickly, someone quickly replied and said, no, it it is the most famous arena in the world. So Madison Square Garden
is a huge, you know, attraction. When you think about arenas in New York, there's the Barclay Center, of course, which is newer but the legacy of New York is often rooted in MSG and the events that it's held over many, many years.
Yeah, I mean, first of all, and they also put in I think close to a billion dollars and renovations several years ago, so they've really upgraded the garden. What's one of the many great things about going to the Garden is they have the photos on the wall, the concourses, all the great events, whether it's a concert, a game, whatever, and there's thousands of them.
There's no there's no venue that has a greater history, I would argue than Madison Square Garden that is still you know, open and operational, and.
That's that's part of this.
I mean, you think about the Knicks playoff end last year. You think about the Rangers and what they've.
Done, not having the.
Past two seasons, but in the seasons before that, all of these things. When they eventually win, you know, God willing, it isn't MSG. It it isn't one of the deals where you know they're in away game and then they have to come back. If it happens in MSG, that will probably be the biggest moment in that arena in the last twenty five years, and so whoever wants to buy into that potentially is going to want a good value at it.
There is also a note from light Shed that pointed out that there's a new tax law that goes into effect for the twenty twenty eight fiscal year that for public companies limits deductions two one million dollars per cover employees. For sports teams, it's easy to find a lot of employees that make at least a million dollars a year.
So once this goes through in twenty twenty eight, that's going to put the company in a negative free cash flow situation unless the Knicks, for instance, go deep into a playoff run or the Rangers go deep into a playoff run. So it also allows the company, you know, for tax reasons, to be in a better position.
Absolutely absolutely. I mean there's not a lot of publicly traded sports companies out there for this reason in particular, And.
You think about all of the big ones.
You think about the Cronky Sports and Entertainment, which houses the Rams, the Nuggets, I believe, another soccer team, and so many more. It's private, and that's that's for a reason. But this one is unique, and Madison's square Garden is Madison Square Garden. The Nicks is the Nicks and the Rangers of the.
Rangers our thanks to Randa Williams, Bloomberg Business of Sports Reporter.
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