WEBVTT - Bain’s Steve Pagliuca Talks Private Credit 

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Let's turn to private equity. The Consortium Bank Electronic Arts

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<v Speaker 2>is set to add more than a dozen banks to

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<v Speaker 2>its underwriting group after JP Morgan put up twenty billion

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<v Speaker 2>dollars of debt to bankroll the leverage buyout. The banks

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<v Speaker 2>are inline to share roughly five hundred million dollars in

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<v Speaker 2>fees for arranging the financinc Joining us now a man

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<v Speaker 2>who knows something about a leverage buyout, Steve Paluke of

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<v Speaker 2>Being Capital. Steve's good to see us, so it could

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<v Speaker 2>be a good morning. Let's reflect on your time. The

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<v Speaker 2>largest leverage buyo ever before this one was HCA back

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<v Speaker 2>in two thoy and sixty thousand and seven. There you

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<v Speaker 2>were right there in the middle of it. Describe that

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<v Speaker 2>moment and how it compares to what we're seeing play

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<v Speaker 2>out now.

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<v Speaker 1>Well, it's really interesting.

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<v Speaker 3>I think that buyout was five billion equity and twenty

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<v Speaker 3>seven billion dollars debt. This this buyout is much more equity,

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<v Speaker 3>you know, kind of thirty billion of equity and twenty

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<v Speaker 3>five twenty billion, may thirty five billion of equity. So

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<v Speaker 3>the markets have changed to that extent that you can't

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<v Speaker 3>leverage you much, but the ibadas a little less very

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<v Speaker 3>quality sponsors, and JP Morgan.

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<v Speaker 1>Is are very quality bank.

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<v Speaker 3>So they did the deal because of the great growth

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<v Speaker 3>in gaming and media and entertainment, and I think is

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<v Speaker 3>a very solid company.

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<v Speaker 2>You did the tremendously well out of HCA. It needs

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<v Speaker 2>to be very very clear about that. But the timing

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<v Speaker 2>of it is curious. It came right at the peak

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<v Speaker 2>of credit and this is now too. Is that anything

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<v Speaker 2>to be concerned about?

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<v Speaker 3>You know, I'm less concerned about credit right now in

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<v Speaker 3>terms of the private credit markets, because the private lenders

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<v Speaker 3>actually are very good. The banks have been very good

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<v Speaker 3>at JP Morgan, especially Bank of America, well run, well

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<v Speaker 3>capitalized banks. And private credit is different than credit from

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<v Speaker 3>banks because if it does go bad, you only write

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<v Speaker 3>off the equity from people who put the equity in.

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<v Speaker 3>It doesn't have a systemic multiplier effect. So I'm less

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<v Speaker 3>concerned about private credit. What one more concerned about is

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<v Speaker 3>the size of the national debt and how much interest

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<v Speaker 3>we're spending on the national debt.

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<v Speaker 1>It's really interesting if you go back to.

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<v Speaker 3>When I got out of business school, there was a

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<v Speaker 3>huge storm and drawing about the national debt passing one trillion.

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<v Speaker 3>That's in nineteen eighty two, so it took two hundred

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<v Speaker 3>and fifty years to have one trillion of national debt.

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<v Speaker 3>In the last forty years, we now have thirty seven trillion,

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<v Speaker 3>which is more than the gdpgbt's about thirty trillion, So

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<v Speaker 3>that concerns me more In terms of the impact of

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<v Speaker 3>the dollar interest rates, our interest from the government now

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<v Speaker 3>is one of the highest expenditures. It's right up there

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<v Speaker 3>with defense and healthcare. So that concerns me more than

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<v Speaker 3>private credits.

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<v Speaker 2>I st I could probably find you people who are

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<v Speaker 2>consent back in the eighties two and then in the

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<v Speaker 2>two thousands, and as we went through ten trillion, twenty

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<v Speaker 2>trillion and kept going high, they were concerned all the

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<v Speaker 2>way up. Yeah, unfortunately, say miment different.

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<v Speaker 3>Well, I think I don't know if it is different,

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<v Speaker 3>But in situations like this, it's always okay till it

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<v Speaker 3>isn't okay, So you get used to you pass a trillion. Ever,

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<v Speaker 3>Dirkson had a board up that was counting it up

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<v Speaker 3>at that time and it passed a trillion. There was

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<v Speaker 3>a huge outcry. Now it's ten trillion, and then twenty,

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<v Speaker 3>then thirty. Train but at some point you've got to

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<v Speaker 3>have some long term plan to pay that money back

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<v Speaker 3>and get that deficit down because it's eating up huge

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<v Speaker 3>amounts of the government budget. And as as as the

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<v Speaker 3>interest rates roll over, you know, a lot of that

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<v Speaker 3>is still financed in the old really low interest rates.

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<v Speaker 3>They're going to have to refinance it at five percent,

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<v Speaker 3>you know, four and a half percent, and then the

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<v Speaker 3>number goes up again.

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<v Speaker 4>Well, when you see what's going on Washington, I want

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<v Speaker 4>to go back to your EA deal. It's not just

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<v Speaker 4>the size and scope that got a ton of people's attention.

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<v Speaker 4>There's concern in Washington given some of the players involved.

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<v Speaker 4>Have you heard from politicians about that.

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<v Speaker 3>I don't think there's been a lot of pushback on

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<v Speaker 3>that and the deal. I think we'll be controlled by

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<v Speaker 3>silver Lake, which is an American you know, fantastic private

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<v Speaker 3>equity company.

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<v Speaker 4>But with the Saudi PIF being involved, some people think

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<v Speaker 4>Jared Kushner was brought in just to get you know,

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<v Speaker 4>check government.

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<v Speaker 2>Seal of approval.

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<v Speaker 1>You know.

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<v Speaker 3>Again, I think silver Lake's a fantastic firm and they're

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<v Speaker 3>leading the charge there, and so I think there's really

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<v Speaker 3>going to be no concern because they'll be calling the

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<v Speaker 3>shots on the deal sink.

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<v Speaker 2>If we started this conversation by comparing this dayo CI

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<v Speaker 2>I was six, I seven. Have the pose of capital

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<v Speaker 2>changed in the last twenty years.

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<v Speaker 1>Yeah? Absolutely.

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<v Speaker 3>You know, when I started out in the industry, there

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<v Speaker 3>was only three or four firms doing this I think

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<v Speaker 3>in general, and it was mostly USA. Now it's global.

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<v Speaker 3>The fund sizes are up probably twenty times from when

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<v Speaker 3>I started. And also you have sovereigns and bid in

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<v Speaker 3>constitutional players partnering with private equity, so the dry powder

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<v Speaker 3>is huge.

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<v Speaker 2>Are there enough opportunities to go around?

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<v Speaker 1>You know? You know I got asked that question in

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<v Speaker 1>nineteen eighty nine.

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<v Speaker 2>It's going to again, and.

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<v Speaker 3>I feel like a broken record. A private equity I

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<v Speaker 3>think is here to stay. The model has really evolved,

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<v Speaker 3>so it really is huge value added to to transform companies,

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<v Speaker 3>make them better, globalize them, build new products, and in

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<v Speaker 3>an environment where you don't have to worry about quart

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<v Speaker 3>of learning. So the model is a very good model,

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<v Speaker 3>and it's only expanded that it's only gotten big and

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<v Speaker 3>I think it'll meet There will be plenty of opportunities

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<v Speaker 3>for these folks to invest money.

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<v Speaker 2>Well, let's talk about the opportunities now for you and

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<v Speaker 2>how your sport franchisees are going. Starting with Atlanta, Steve

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<v Speaker 2>walked into the room with some Atlanta sneak as with

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<v Speaker 2>the sponsor New Balance song. The relationship between you and

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<v Speaker 2>New balants, Can you just describe what that's like at

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<v Speaker 2>the moment?

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<v Speaker 3>A fantastic A New Balance is a is kind of

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<v Speaker 3>a fighting brand growing, taking a lot of share. They

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<v Speaker 3>really like the Atalanta story because we have the same values.

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<v Speaker 3>You know, we're kind of a fighting brand against your

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<v Speaker 3>the wanted ac one team that you support, and so

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<v Speaker 3>it was kind of a matchmate in heaven. The New

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<v Speaker 3>Balance is very excited about it. We're excited about it.

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<v Speaker 3>We've just named our stadium New Balance Arena. I think

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<v Speaker 3>it's the first arena that New Balance is named, and

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<v Speaker 3>we're very proud to be associated with New Balance. It's

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<v Speaker 3>a family company, you know, the Package Group is a

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<v Speaker 3>family company in the Percossis in Italy, your family companies,

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<v Speaker 3>So the three families have come together and hopefully take

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<v Speaker 3>to the next level.

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<v Speaker 2>You've done a tremendous job with the same in a franchise.

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<v Speaker 2>Can you just describe the opportunities now that exist in

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<v Speaker 2>this sports world at a time where some people are

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<v Speaker 2>pushing back against valuations.

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<v Speaker 3>Well, no question valuations or record levels. Why is that

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<v Speaker 3>is because sports is now the only thing left that

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<v Speaker 3>aggregates huge audiences globally. And there's been a technology change

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<v Speaker 3>where when I lived in Holland And in the nineteen seventies,

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<v Speaker 3>you would only get sports scores three days later from

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<v Speaker 3>an international tribune and you could watch anything.

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<v Speaker 1>Now you can watch any team globally.

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<v Speaker 3>So fans are counted in the billions instead of the

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<v Speaker 3>tens of thousands where they used to be thirty years ago.

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<v Speaker 3>So I think sports still has upside because advertisers, you

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<v Speaker 3>don't want to reach the globe, and that's the way

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<v Speaker 3>to do it.

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<v Speaker 2>As you look at the sports world and it's pretty broad,

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<v Speaker 2>where do you see the best opportunity right now? Because

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<v Speaker 2>your name's been linked to a team in the WNBA,

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<v Speaker 2>I know you wanted to bring a team up to Boston.

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<v Speaker 2>Is that where you're looking stale or is it outsewear?

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<v Speaker 3>Well, we're looking at many opportunities. I think the WNBA

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<v Speaker 3>is a great opportunity women's sports and general women's soccer

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<v Speaker 3>in the USA and globally is growing. The NFL is

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<v Speaker 3>the market properties. I think they had record ratings and

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<v Speaker 3>record advertising on the NFL. So again, I think sports

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<v Speaker 3>as a category is really a growth asset. And as

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<v Speaker 3>you have this battle between old media and new media,

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<v Speaker 3>it's existential for them and they're battling over these properties

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<v Speaker 3>that get all the eyeballs in.

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<v Speaker 1>So I think that bodes well for all the leagues.

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<v Speaker 4>John mentioned the w A Connecticut team. Do you think

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<v Speaker 4>that there potentially could be a future for you and

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<v Speaker 4>that team?

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<v Speaker 1>That's something clear.

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<v Speaker 3>We've we've kind of stood down for now and uh

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<v Speaker 3>and and we're going to abide by whatever the NBA

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<v Speaker 3>wants to do with the team.

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<v Speaker 1>I think it's it's very exciting.

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<v Speaker 3>The ratings are huge for w n b A, and

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<v Speaker 3>I think it's great that all all Americans are following

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<v Speaker 3>that sport now and it's going to it's going to

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<v Speaker 3>really take off, and the NBA has done a great

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<v Speaker 3>job with that.

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<v Speaker 2>You've done a great job, Staf. It's always going to

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<v Speaker 2>catch up with you. What a career if those like

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<v Speaker 2>you have in the best of times.

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<v Speaker 3>Now, you know, I've been very fortunate, you know, coming

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<v Speaker 3>my grandfather came from Italy on a boat with one suitcase,

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<v Speaker 3>and we're in a shoe factory here in New York

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<v Speaker 3>in the Bronx for eight dollars a week. So I

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<v Speaker 3>would say America is a great place coming coming from

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<v Speaker 3>from that, and and I've loved the homecoming, coming back

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<v Speaker 3>to Italy with Atalanta. I get off the plane and

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<v Speaker 3>I love it because everyone looks like me there.

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<v Speaker 1>We talked, I haven't lost my Italian hedge.

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<v Speaker 2>We've talked extensively about this in the past together offline,

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<v Speaker 2>and I'm very proud of you. I never think you've

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<v Speaker 2>done Steve.

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<v Speaker 1>Thank you, appreciate it.

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<v Speaker 2>Thank you, Steve Patiuca of Been Capital