The Real Problem Facing Sports Is Weakened Sponsorship

and of course consumers. Let's bring in somebody who's been thinking a lot about this now. He used to be former where he is, former president of CBS Sports. He is now founder and president of Pilson Communications. I'm talking about Neil Pilson. Neil, thanks so much for joining. Good morning. So we have You know, the NFL season supposed to be starting off, and yet there really is no NFL

plan yet. For example, even though training camps are set to fully begin at the end of this month, What's what are leagues supposed to do at a time like this, Neil leaks or all the leagues are doing what what they need to do. They're assessing the data there trying to create strategies. We see different plans in effect for uh,

the NBA, the NHL, UH, the NFL. UH. So the leaks are they're they're caught between the uh, you know, the interest of the American public to watch sports and the risks that they have to understand if they're going to put the sports on the air. But all of the professional leagues, including Major League Soccer, do have a plan, they have a strategy and we'll see how it works out. So, Neil, we know that sports is just a huge, huge, multi

billion dollar business. There's rights fees all over the place, and it's it's a key programming component for a lot of broadcast and cable networks here. But let's start with ESPN. It is a sports network after all. You know, how how at risk are they here of just you know, a prolonged shutdown of sports. Well, the answer is in your question, Yes they are at risk. They are doing the best they can with I was watching the Eagles concert last night on the ESPN. I've been watching their boxing,

I've been watching some of their other programming. UH. What they've done is they've looked to reduce their costs, keep in mind that while the networks, including ESPN, had serious revenue shortfalls due to the lack of sports, they are also I won't use the word enjoying, but they are

experiencing some significant cost savings. Uh. They are not paying the rights fees that they would otherwise pay since they're not getting the games, and they're not incurring the production costs which they would otherwise have to uh spend to cover the games. So UH, while the impact is negative in the sense that it's not a h they make profits and that's what they're for going right now. UH,

it is they can weather the storm. They're Obviously ESPN is well financed with a very large company as it's as his owner, Disney. UH. The other networks Comcast owns NBC, UH CBS is with Viacom, which is not as big a company as Comcast. Fox is a little thinner in terms of their financial strength, that given the changes in their corporate structure in the past couple of years. But none of the networks really are are in danger in just in terms of the financials on sports. The real

problem is what's going to happen next? UH. And let me give you quick example. Let's say the NFL comes back and they're playing their games, and the networks are now responsible to pay rights fees. However, the sponsor market may not be as strong as it normally would be because sponsors are very concerned that the American public is just not in a buying mood. I mean, how are you going to buy a car this fall? With the

COVID experience threatening almost every state in the country. Uh So, it could be that the networks get caught in a situation where the games are being played and they're providing television coverage, but the advertising and sponsor market is not as strong as you would hope, even though the ratings are good. We all expect the ratings are going to

be good for sports when they come back. But what we don't know at this point is whether the sponsor an advertising market will be as strong as it normally is for fall sports. So what will happen to pricing then, Neil, Will there be a big discount for those sponsors that are willing to keep spending and for those advertisers that are willing to keep spending or will you know, networks somebody say, look there are more eyeballs on these we need to up the price. Well, that's the trick of

television advertising. There is no is a rate card, but that doesn't mean anything. If the networks can't sell at the number that they're asking, then they'll drop their number. Uh. Network commercials are like seats on an airplane. Once the plane takes off, you can't sell that seat. Well, once the game takes place, you can't sell that commercial. So what you have is a fluid marketplace with supply and demand being the determinator in terms of pricing. Uh. It's

it's relatively simple. It's very complex in operation. But the networks, if they can't sell their their time, will drop their price to UH to the market. If they can sell their time, then the marketplace will bid for the units and the price will go up. NOL. Just real quickly here, do you think consumer behavior maybe changing? Here? We're streaming more content at home because we're stuck at home. Do you think streaming is going to come to big time

sports packages like the NFL? Will you see Amazon or Facebook bid for major major sports package? Uh? Not as quickly as some people think, because the basic advantage of the networks is they guarantee the pricing when they buy a long term deal with the NFL, the NBA. They're

guaranteeing billions of ours. UH. It remains to be seen whether Amazon or Google or Netflix is prepared to guarantee the kind of money that the networks have traditionally provided the leagues, And until that happens, I think you're going to see streaming as a supplementary UH delivery system and quite effective, but not the primary distribution platform. Kind of

everybody's waiting for that day. I know the league's are as well to get another well healed and wealth financed bidder set of bidders in their in addition to the broadcasting cable networks. Neil Pilson, founder and president of Pilson Communications, former president of CBS Sports, getting his thoughts on kind of the lay of the land of the sports UH landscape as this economy tries to reopen, and what it means for the media companies that depends so heavily on

sports programming for viewership and advertising. The state of banks earnings this mornings o JP Morgan's total revenues of seventy year over year, but we also had credit loss provisions higher and Jamie diamond saying expect double digit unemployment through the first half of one city, also talking about higher loan losses going forward, but also trying to put a brave face forward. And then Wells Fargo, of course, is a whole another subject. Let's bring in someone who knows

all about it. Kenley, Owner is Litable, Director of Industry and Equity Research at ce f R. A can what are the headlines from this morning's three reports. It's really tell us two stories. Banks obviously are impacted by the COVID nineteen and the recession, and it's affecting loan volumes. It's also impacting the rate or rate. Interest rates are much lower, but off setting that was the app and

that's the consumer. But on the corporate side, the strength that we saw was on paralleled in terms of investment, banking and trading, especially in fixed income, but also in equity underwriting. So that kind of buffered a significant decline in terms of performance of lending um And unfortunately, this being the first quarter, full quarter of the impact of COVID nineteen, we're likely to still see weakness in the

third quarters. So the road to recovery is looking to be ar shaped into all right, ken, let's focus a little bit on Wells Fargo, because the number that really jumped out of me was the nine point five billion dollar provision for credit losses. That's more than the consensus of four point nine billions. So obviously, when you think about Wells Fargo Fargo, you think about the consumer, you think about small and mid sized businesses. So that's really

an ominous tone, isn't it. It is? But I think Wells Fargo kind of undershot the mark on building credit reserves in the first quarter. It was a half or even less than its appears of Bank of America or JP Morgan's. So I think part of this answer the

question is patched up, but it is significant. And whilst far Ago highly relies on it's a community bank and consumer loans, Ken City Group, you know, setting aside seven point nine billion dollars more for so our loans, and David Morgan obviously setting aside more than anticipated as well. Why are loans beginning to go bad at such a rate when the FED stepped in to try and stop some of this. It's actually building reserves, So these are

provisions or charges um to the bank. The actual delinquencies or loan losses are likely over the next few quarters. Think about this, this is the first full quarter yet the banks really don't have total visibility to the health of the consumers small business who have benefited into for bearans or subsidies from the federal government. So the banks are being very conservative. They have significant capital and as

I think we might have lost Ken their Vanni. But I think he's saying, you know, I was interesting his comments about some of these banks, you know, don't have great visibility. So but they're still you know, taking these big low mass reserves. I think in anticipation that this is going to be an economy that is lower for longer. Yeah, I mean, I think that's very very telling because right now it seems like things are being managed pretty well.

Right the consumer is still spending to a certain extent, and you know, even as we're seeing mass unemployment rules of seeing mass job creation again, you know, month over month, at the same time, if we don't have continued fiscal stimulus from the government, who knows what the situation will be like. And obviously the banks don't know any more than we do as to what's going to come out

of Washington, d C. Over the next literally two weeks. Ball, I mean that funding for the six hundred dollars per week extra for each consumer who's out of work that goes away in two weeks unless Congress does something about it. Yeah, so we have Ken back. Ken Leone joins us once again, Global director of Research at cf are A. So Ken going to that point, what are the banks saying about

the consumer here? Um? You know, are they Jamie Diamond's commentary seemed to be quite conservative on the margin, that's right, and the issue really relates to UM employment, particularly if we have adverse scenarios where unemployment, let's say for the U S economy is still in the mid teens UM, that will be kind of a dire outlook for the rest of this year. So that's the worst case. You gotta remember, banks hope for the best, but they prepare for the worst, and that's the build up of these

credit reserves. Keep in mind, though, that what the banks are following is in line with the Settle reserve UM stress tests and the new scenarios on COVID back in late June, where when you look at those thirty three banks that participated in these stress tests, uh, the historical framework was a worst case of a four hundred thirty three billion with COVID. With the unemployment levels that you've

mentioned before, um possibly mid teens, eight hundred billion. So what the banks have to do is before the reality, they have to build reserves. The flip side if we have this conversation later this year, is if the economic scenario is better, then you get a reserve reverse of these credit reserves, which would boost profitability absolutely. So we'll keep an eye on those. We've got still more banks

to go uh tomorrow and Thursday as well. Ken le Own, Global Director of Industry and Equity Research at c f r A Research. We appreciate his commentary on the banks and again kind of a mixed bag coming out here about the consistent theme across the three banks that we saw today is very high single digit in terms of a billion dollar low loss reserves as they prepare for a weaker economy for some time to come. We'll see

what we get from the big investment banks tomorrow. Well, when you have Max Niss and there's so many ways you can go when discussing this coronavirus on a global scale, Maxinis, it's a biotech farm at healthcare calumnist for Bloomberg Opinion Uh, but Max, today, I want to start with containment or lack thereof. It's it's it's something that's come back to the forefront of discussion of this virus containment and such key states as California, Texas, Florida. Where are we in

some of those hotspots states? Are they bending the curve at all? Uh? Too early to say definitively, but probably not. And the reason is that, um, you know, with the exception of of California, as of you know this week, uh, no of them have really taken especially aggressive steps, you know, really big steps back in terms of, um, you know, the sorts of businesses that are open when you have

community spread at a certain level. UM, you know, anything other than that either isn't going to contain the virus at all or is going to take a really long time over which um, you'll have a lot of infections and death to do so. So UM, I'll be curious to see if if California's move, which I will note comes on the back of data that that on kind of a statewide for capital level, is actually not as

concerning as what you see out of Florida Arizona. If that will um, you know, pressure some other states to take some more aggressive action given to the sort of rates of new infection that they're seeing. Max, what's the latest thinking on herd immunity? Um? The latest I mean, I can give you my opinion on her immunity, but

they're they're sort of two factors. One is whether you know it's even possible to achieve via natural infection, This being the form of the argument you here sometimes that you know it's going to take so long to get a vaccine and be so economically damaging to mitigate the virus, that we should just sort of let it run comparatively free in order thin. But the thing that we don't know and and still don't know is the degree to which UM natural immunity is conferred by infection or whether

it lasts. And there's mixed evidence on this. UM. You know, some data that antibody levels fall over time. This doesn't confirm that that people probably can get reinfected UM, but it does suggest that that there isn't sort of rock solid evidence that that there is definitely gonna be durable immunity for everybody, So UM, you know that that's one reason to doubt that strategy. The second is just the

numbers required to get there. Even if you do have you know, durable and consistent immunity, which we're not true about our enormous you know, it's it's fift and to get there. Um, if you just through the really simple math, even an you know, a relatively low implied fatality rate under one percent, UM, you know that that's a lot of deaths. And on top of that, UM, we also don't know the percentage of people that have lasting significant

punseqluences from infection. So UM, it's a wildly irresponsible and dangerous strategy, all right. So if herd immunity is not a valid strategy, then obviously the focus turns back uh MAX to treatments and then ultimately to uh A or multiple vaccines. Anything new on that front that we should

be paying attention to. UM, you know, the we're overall, I'd say the situation is is pretty close to what it's been in recent weeks, where we're we're sort of still waiting for the beginning of of these sort of big infirmatory trials. The news today that UM we're during an age to start its trial on July, So that would be the first really big trial in the US and a significant step on the path to seeing whether

that the vaccine works. But how the thing I always like to highlight is, you know, it's impossible to say how long that that trial will take. You know, it's a big endeavor people. And on top of that, it's really difficult to handicap the possibility of success. Um, both because you know, the metrics of possible success we're using right now are there was antibody levels, um. You know, the comparison for people that have made it through the virus.

That that's a metric that we don't necessarily know is valid. So again, just highlights that it's going to be a weight and they're they're significant and certain, especially given how rapidly these programs have progressed a relative to the norm for vaccine development. A lot of talk about children with you know, back to school sort of insights and and not in sits in other places. What about children? What do we know about how much they transmit this disease

these days? Um? You know, again still something where where the evidence is evolving and and not conclusive. Um. I think it's it's broadly correct to say that the children are at substantially lower risk of of severe consequences of infection. UM. That's been a pretty consistent finding. Whether it's no risk

UM is still is probably not the case. And then the broader question about beyond you know, the level of risk UM is the fact that you know, in starting up school you're encouraging a lot more travel, you have to think about teachers UM. So overall, even if children are are relatively less vulnerable, UM, if you don't have the virus contained, it's still going to be in one way or another, UM, pretty seriously unsafe to open schools broadly. Max,

it's always a pleasure to have you on. I really don't know how you find the time to read everything and keep up with everything. It's just constant and a

very difficult job these days. Well, Max Mason is biotech, pharmac and healthcare columnist for Bloomberg Opinion, and he's up with all the latest news surrounding the coronavirus and you know, every single drug trial that's underway, and and really you have the whole world on the case of this, Paul, and it's you know, it's I don't know when we last saw a global effort as you know, uh hefty as the one we're seeing right now. It's just a matter of when we'll get something that will break through.

When you think about the industries that have been hardest hit by the coronavirus, the airline industry is certainly front and center among them. And we had some earnings out this morning from Delta Airlines. It just confirmed how difficult things are. Delta shares are off two point five percent today and off fifty year to date. To dig into that and all things aerospace and airlines, we welcome George Ferguson,

senior Aerospace, defense and airlines analysts for Bloomberg Intelligence. So George, let's start off with Delta Boy, what's the takeaway here? Yeah, Paul, thanks, I think the big takeaway from Delta was, uh, they're burning about twenty seven million dollars a day as they closed the quarter. They still they want to push that to break even by year end um, but that's going to require more demand. They explicitly said, you know, the components going into sort of driving at the zero is

more demand, and demand is petering out. They confirmed. For US, we've kind of been watching schedules and load factors and it looks like the US airlines have had a lot of capacity in the last sort of a couple of weeks. Uh, you know, as we started to see this nascent recovery and uh and travel. But look, with the cropping up of outbreaks in the south and the west and quarantine still in effect overseas, you know, we're concerned that it's going to start to peter out. And Delta kind of

confirmed that. And so it's going to be a long road. Delta even said that, right, it's a long road. They talked in eighteen months to get to sort of you know, think reasonable travel levels. Are not talking talking reasonable travel levels. And we haven't seen business come back, business flying demand come back, and that's really important. Delta they said, revenues is business. You know, we kind of thought something around there. So I think those are the big takeaways from today.

It's still a lot more a lot more distance to travel for recovery for this industry. George Delta saying seventeen thousand workers have now signed up to leave the airline at it's parked more than seven hundred aircraft. How much smaller will the future Delta be? I think again, again, that's a really hard question. Right, It's a function of the bounce back in demand. UM. And and right now, you know, we still have sort of an industry that's that's flying the passengers that they flew last year at

this time. UM, I do think people will get more comfortable flying here in time, even if we don't have a vaccine or an effective treatment. The question is how much I know, you may have to strip some of these airlines, um for a couple of years here while you you know, fifty or while you wait for uh

demand come back. So they've come a long way, but there's more distance to travel, and we think book four queues when you're really going to start to see adjustments to the workforce, because that's when the cares act money

that's basically subsidizing all their labor goes away. All right, George, I guess it's time to go to the balance sheet discussion here is if this demand is going to uh perhaps come back slower than expected, we have to start looking at which airlines can can really weather the storm. So kind of how are you looking at that right now? Yeah? I look, they've all put on a lot of cash

over the last bunch of months. UM. I've actually been pretty impressed with how receptive credit markets have been for these airlines. Many of them, you know, are in the tens between ten and twenty billion worth of liquidity, and so Delta said today they at eighteen for the liquidity. UM. Obviously, I think it probably puts them in in pretty good order. Will looks very closely as we go through earning season

for cash burn and how long they can last. Delta entered the downturn with the better balance sheet and therefore more ability to get um, you know, to bring more cash out of their balance sheet. As pretty oppressed. They talked about adjusting even their credit lines so that some of those covenants don't trip them up. UM. I think again, being an investigated company going into the downturn helps you

a lot. Leisure is going to perform better than business too, and so I think that a bunch of the leisure carriers that are that are have good balance sheets, companies like South Pest and such a circle prepared well to get through the downturn for a longer pair. At to time, George Davidson Kemner that US Hedge Fund injected about two hundred million dollars or so into Virgin Atlantic to try and rescue the company along with Richard Branson themselves. What's

the value proposition for Davidson there? Uh you know, I think you know, the value proposition at Britain Atlantic is really heat throw slots. And so look today it doesn't matter as much for it because nobody's um sort of jumping all over themselves to get more. He throw slots

International is dead. But when the when the world recovers and and demand comes back again, and you know, look at me, not come back fully, but it comes back in the large proportions that he throwed another, uh, have another another choke point in sort of the worldout network. Heathrow has always been that way. There's a lot of demand again and the Heathrow and I think that's what

Emerge Atlantic really really brings. It also brings it to Delta, by the way, because Delta was an investor in there, and I imagine they'll still have a decent relationship even though the equity investment might get is going to get adjusted. Here. It's so interesting following industries as they have to adapt to the environment. George, thank you so much for all

of your expertise. George Ferguson, a senior Aerospace, Defense and airline analyst, and for all of the you know, consultants and so on that have gone into companies over the last several years and you know, restrategized and changed the strategy. I mean, something like a global pandemic comes along and that just all goes out the window and you have to start from scratch again. It's really, you know, interesting thing to watch, particularly when there's really no industry that's

not affected by this. Thanks for listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever a podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.