Speaker 1: This is Bloomberg business Week Inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: gloom oall business finance and tech news. The Bloomberg Business
Speaker 1: Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: Hi, everyone, Welcome to the Bloomberg Business Week Weekend Podcast.
Speaker 2: A nothing like a mellow week during the dog days
Speaker 2: of summer. Not so much hunted.
Speaker 3: I mean, I thought everyone was on vacation.
Speaker 2: Apparently not.
Speaker 3: They might be, but FED officials are not.
Speaker 4: No, not at all.
Speaker 2: We had FED speak more news about banks, inflation, also
Speaker 2: AI's potential impact on the financial system and the job market.
Speaker 2: We're going to get into all of that later on
Speaker 2: this hour, along with a very important story about how
Speaker 2: the US is driving gun exports and fueling violence around
Speaker 2: the world. It's a rather sobering story.
Speaker 3: Yeah, it really is. We be in though, Carol with Disney,
Speaker 3: the world's largest entertainment company, announcing a third quarter earnings beat,
Speaker 3: also saying capital spending and outlays for movies and TV
Speaker 3: sho are coming in lower than projected. About three billion
Speaker 3: dollars worth of those savings are due to production cuts
Speaker 3: tied to the writer and actor strikes that are happening
Speaker 3: in Hollywood.
Speaker 2: Meantime, we learned just ahead of that earnings are part,
Speaker 2: about twenty four hours before it, that Disney is getting
Speaker 2: into the sports betting business with casino operator Penn Entertainment.
Speaker 2: We asked Bloomberg News Entertainment editor Chris Paul Mary about
Speaker 2: the implications.
Speaker 5: Well, big deal for ESPN. You know, this is something
Speaker 5: Disney historically didn't like to get into gambling. They wouldn't
Speaker 5: license their characters the slot machines or put them on
Speaker 5: their cruise lines. But a couple of years ago, then
Speaker 5: CEO Bob Japik said, Oh, I think that's changed. We
Speaker 5: really need to get some money out of the ESPN
Speaker 5: sports betting situation, and that was talked. They talked with
Speaker 5: a lot of people in the business. But now they
Speaker 5: found their partner. Very interesting choice. Pen is a regional
Speaker 5: casino operator that bet big on online sports. Their biggest
Speaker 5: you know that was a Canadian sports betting brand called
Speaker 5: The Score. But they also had bought Barstool for about
Speaker 5: five hundred million, and Barstool, of course very controversial figure
Speaker 5: in Dave Portnoy, caused them trouble with regulators in some states,
Speaker 5: and so the CEO J. Snowden decided to do this
Speaker 5: deal with ESPN and get rid of Barstool.
Speaker 2: What I feel like this?
Speaker 3: I mean from hold on, Sorry, I'm sorry. Yeah, there's
Speaker 3: like no polar opposite, bigger polar opposite to Barstool and
Speaker 3: Dave Portney than Mickey Mouse and Disney.
Speaker 2: Except except wait, go back, right, Chris, Because wasn't it
Speaker 2: a few years ago, two three years ago ESPN didn't
Speaker 2: they create a studio in Vegas and was all about
Speaker 2: sports betting?
Speaker 5: Right? Yeah, they've slowly inched in. They've taken a lot
Speaker 5: of advertising dollars from sports betting companies everybody has, so,
Speaker 5: you know, but to actually use the ESPN brand in
Speaker 5: an online sports app, which is what this is going
Speaker 5: to be, ESPN Bet. This is this is a whole
Speaker 5: new level.
Speaker 3: So is this a Chpeck move or an aigremove.
Speaker 6: Sort of?
Speaker 5: The embracing of sports betting began with Chaypeck, but he
Speaker 5: didn't close a deal, so you got a credit. I
Speaker 5: agree for this. Back then, the rumor was that they
Speaker 5: were going to partner with DraftKings, but that didn't happen.
Speaker 5: So you know, a lot of money for ESPN at
Speaker 5: a time it could use it. Frankly, one point five
Speaker 5: billion dollars to be paid over ten years. They got
Speaker 5: additional stock warrants in Penn, and Penn has the right
Speaker 5: to exclude, you know, sorry, to continue the deal for
Speaker 5: another ten years. So a lot of long term relationship,
Speaker 5: lucrative potentially to both sides.
Speaker 2: All right, so help me out here. We've got a company, Disney,
Speaker 2: well known for so many different businesses. It's one hundred
Speaker 2: and sixty one billion dollar market cap. It does report
Speaker 2: earnings tomorrow, and I'm thinking about the financial side of
Speaker 2: this deal. We're looking at for twenty twenty three, almost
Speaker 2: ninety billion dollars in revenue forecast. If I look at
Speaker 2: the FA function on the Bloomberg, how does a deal
Speaker 2: like this move the revenue needle? Are the earnings needle?
Speaker 2: The financial picture for Disney, it's a.
Speaker 5: Pretty pretty nice bump there, you know, one hundred and
Speaker 5: fifty million dollars a year, and you know, presumably there'll
Speaker 5: be some other gains, you know, on the stock that
Speaker 5: they're they're getting from Pen. So you know that's that's
Speaker 5: not nothing, and it hasn't clear yet they're going to
Speaker 5: do a presentation Ofmorrow how it's going to work in
Speaker 5: terms of advertising. So right now Penn is paying for
Speaker 5: the name. But what about additional advertisements you may put
Speaker 5: on the ESPN networks? You know, ESPN isn't saying if
Speaker 5: this is the exclusive betting partner, but that doesn't mean
Speaker 5: they can't still take ads from FanDuel or Draft Kings
Speaker 5: or some other player.
Speaker 3: That's a good quo.
Speaker 5: Yeah, so potentially still a lot of money here for
Speaker 5: for Disney and ESPN.
Speaker 3: Or if your DraftKings are fandueled, do you really want
Speaker 3: to advertise on on ESPN? You know, it's like you
Speaker 3: saw the card makers pull back from advertising on Twitter
Speaker 3: after Elon Musk bought it because you're not going to
Speaker 3: want to, you know, give the guy who runs your
Speaker 3: biggest EV competitor money. Okay, so lots of questions here, Chris.
Speaker 3: I wanted to start with like a cultural question or
Speaker 3: like a sort of brand tarnishing question. Maybe I'm in
Speaker 3: the minority, but I associate Penn with Barstool and with
Speaker 3: Dave Portnoy, and I'm wondering if there's any brand or
Speaker 3: reputation risk to Disney associating itself with a company that
Speaker 3: literally until you know what ten minutes ago, thirty minutes ago,
Speaker 3: had embraced, had embraced Dave Portney and all the controversy
Speaker 3: that he that he brings with him.
Speaker 5: Right, you know, the worst of the stuff about Portnoy,
Speaker 5: you know, allegations that he really mistreated women came out
Speaker 5: after the acquisition. J. Snowden, the CEO PEN, did defend
Speaker 5: Portnoy kind of publicly after those things. So there is
Speaker 5: that issue. But the very fact that they're sort of
Speaker 5: cutting them loose entirely suggests that you know, they you know,
Speaker 5: they didn't keep them around in some fashion. You know,
Speaker 5: they're saying goodbye. That might have been a condition by
Speaker 5: Disney to your point, But I don't think this necessarily
Speaker 5: hangs on Pen so much, you know, because they are
Speaker 5: cutting them. And the question also is how much poor
Speaker 5: Noise is paying for the business. As I said, they've
Speaker 5: Penn paid about five hundred and fifty million for Barstool
Speaker 5: over a couple of years. I suspect that por Noy's
Speaker 5: buying it back for a whole lot less.
Speaker 2: Well, okay, so as you think about Disney, right, the
Speaker 2: reporting earnings tomorrow, and I'm curious, you know, I'm sure
Speaker 2: there's going to be a few questions about this on
Speaker 2: the call. How are you thinking about the Disney story
Speaker 2: right now and the evolution and now that Bob I
Speaker 2: Go is back and we know he's going to be
Speaker 2: there for a few more years. We got that news
Speaker 2: we last month, So how are you thinking about it
Speaker 2: and what the Disney story, the Disney company story is
Speaker 2: going forward?
Speaker 5: You know, some very interesting language in the press release
Speaker 5: about this deal. He specifically said ESPN was getting the
Speaker 5: one point five billion, ESPN was getting the warrants. You know,
Speaker 5: under Disney only owned eighty percent of ESPN and Hearst
Speaker 5: Corporales the other twenty percent. So that just may all
Speaker 5: there is to it, but it also could be establishing
Speaker 5: that ESPN is this sort of separate business that will
Speaker 5: soon start reporting entirely separate financials, you know, from from Disney.
Speaker 5: Historically it's all been lumped together, so you can read
Speaker 5: what you're made into that.
Speaker 3: I mean, I'm you know, am I reading like a
Speaker 3: private equity coming in and buying.
Speaker 2: It like IPO? You know.
Speaker 5: The last I has had sort of mixed comments about this.
Speaker 5: His most recent statements were that he believed that ESPN
Speaker 5: was a business worth keeping and they needed to be
Speaker 5: in the sports business, so he may elaborate there. They're
Speaker 5: now looking for another strategic partner. This is that's a
Speaker 5: separate issue from this this this is the sports betting partner.
Speaker 5: They're still looking for an investor. It's presumed to be
Speaker 5: a large tech company or possibly one of the sports
Speaker 5: leagues that would sort of offer something more than money
Speaker 5: to them as they make this grand transition into the
Speaker 5: online world.
Speaker 3: I should note that shares of Pen in the after
Speaker 3: hours right now up twenty four percent, so bouncing around,
Speaker 3: but investors are certainly happy in the after after hours.
Speaker 3: Does is this how bad of news is this for?
Speaker 3: And then this is back to you know, less on
Speaker 3: Disney as an entire company. More on this part new partnership, Chris.
Speaker 3: What about for the other companies like the Draft Kings
Speaker 3: and the fan Duels, the points bets. What does it
Speaker 3: mean for them?
Speaker 5: Well, it's it's interesting because the business the battle is
Speaker 5: already in a way. Well then, one, I mean Vanduel
Speaker 5: has something like forty five percent market share sports betting
Speaker 5: in the US. I think DraftKings is twenty two percent.
Speaker 5: Coming up close is MGM, BET MGM, and then Caesar's.
Speaker 5: You put them all together, you're way past eighty percent,
Speaker 5: you know, controlled by just four companies. So so Penn
Speaker 5: in a way was already and also ran. It's you know,
Speaker 5: it's interesting. You know, they're the ones paying one and
Speaker 5: a half billion dollars in cash and their stock jumps
Speaker 5: and Disneys didn't really move much. It seems like Disney's
Speaker 5: getting a pretty good deal out of this. Yeah, that's
Speaker 5: a good point, and you know, it's still a big
Speaker 5: risk for Penn. I mean, yes, they're getting the premier
Speaker 5: name in sports media, no question about that, and all
Speaker 5: the reach that all the ESPN channels have, but they've
Speaker 5: still got to earn it back in the marketplace, which
Speaker 5: is ferociously competitive.
Speaker 3: I will say Carol shares of DraftKings in the after
Speaker 3: hours down more than nine percent on this news.
Speaker 2: Wow, so we're seeing certainly some reaction. So what does
Speaker 2: portnoy end up with? Am I missing something?
Speaker 3: He's tweeted a couple of times, but you know I
Speaker 3: can't read his tweets because I'm not logged into Twitter,
Speaker 3: And you know, Elon Musk changed it, but he tweeted
Speaker 3: the barstools back and that, uh, you know, breaking news
Speaker 3: he bought it. What do you what do you think,
Speaker 3: Chris Well?
Speaker 5: I think he was probably chatting under the corporate you know, ownership,
Speaker 5: the idea that you know, he had to answer to
Speaker 5: casino regularators all around the country. You know that probably
Speaker 5: didn't go well with him. And so now he can
Speaker 5: go back to private ownership of his his business and
Speaker 5: and continue to say whatever he wants without the same
Speaker 5: level of pressure.
Speaker 3: I think in his Twitter bio or x bio he
Speaker 3: says he owns a ton of penstock. Do we know
Speaker 3: anything about how you know that ownership changes? Does he
Speaker 3: still have penstock? Has he divested?
Speaker 5: I haven't heard about that. In fact, we were never
Speaker 5: ever really to crack how much he had of barstool
Speaker 5: to begin with. So but you know, it's it's a
Speaker 5: sizeable amount of money. And I haven't heard anything of
Speaker 5: any divestrogers by him.
Speaker 2: Anything interesting about the timing of this news to.
Speaker 5: You, Chris Well, to your earlier question about Bob Iiger
Speaker 5: and what he's doing. You know, he's had a rough
Speaker 5: time since he came back in November. Really nothing has
Speaker 5: worked a lot of trouble, continued deterioration at TV, continue
Speaker 5: losses in Disney, plus you know, the movie business and
Speaker 5: not doing great. So he's got his work cut out
Speaker 5: for him and he can at least point to this
Speaker 5: as you know, getting one deal done that's a significant one.
Speaker 7: Yeah.
Speaker 2: I do wonder too, Like I mean, you know, obviously
Speaker 2: kind of setting the tone by this deal that is gonna,
Speaker 2: you know, take up a lot of the oxygen on
Speaker 2: the analyst call.
Speaker 3: But Carol, that big of a deal when it comes
Speaker 3: to Disney's business. This is a great question for Chris too.
Speaker 3: I mean, when it comes to Disney's business. Yes, we're
Speaker 3: talking about this and we've been talking about it for
Speaker 3: ten minutes because it's breaking news and it's really interesting.
Speaker 3: But at the end of the day, to what extent
Speaker 3: is this going to affect Disney's bottom line? Like you said, Chris,
Speaker 3: it's not moving Disney shares.
Speaker 5: No, But if you think about a standalone ESPN, it
Speaker 5: becomes more significant. You know, it's not going to solve everything,
Speaker 5: but and it gets them out in the online world
Speaker 5: and you know, they obviously were big players, but you know,
Speaker 5: it establishes that relationship with the betters who are sports fans,
Speaker 5: and so this, you know, this is definitely a positive
Speaker 5: for ESPN.
Speaker 2: So hey, listen, I am wondering, Chris, when it comes
Speaker 2: to the call tomorrow, what is it that you think
Speaker 2: investors or analysts should be asking about this deal when
Speaker 2: it comes to Disney.
Speaker 5: Well, some of the questions there what are the ancillary
Speaker 5: benefits and revenue opportunities for ESPN here? How does it
Speaker 5: impact other you know, stream sports betting companies, Like you said,
Speaker 5: you know, it's what does this say about sort of
Speaker 5: ESPN's future as a standalone company. Does it, you know,
Speaker 5: impact anything with some of the other partners it's seeking
Speaker 5: we talked about these tech companies or leagues. So yeah,
Speaker 5: like you said, this is gonna be a big subject
Speaker 5: on the call tomorrow for Bob Biger.
Speaker 2: You know what's what's interesting I always think about I
Speaker 2: can't even now you'll know better than I will, how
Speaker 2: many years ago was where everybody was like writing off
Speaker 2: ESPN even though it was such a juggernaut for the company.
Speaker 2: But right when those was it, the subscriber numbers started
Speaker 2: to come down, And it's just like interesting, I mean,
Speaker 2: I'm looking at our preview for earnings. Right, we're looking
Speaker 2: at what twenty five point eight million ESPN plus subscribers.
Speaker 2: Chris is like a decent number.
Speaker 3: Chris, just in the last minute that we have with you,
Speaker 3: I'm kind of obsessed with this cultural question and cultural
Speaker 3: fit and whether or not we can still sort of
Speaker 3: like think about Disney as a company the same way
Speaker 3: we thought about it when you're really.
Speaker 2: Worried about meeting Mickey.
Speaker 8: I'm not.
Speaker 5: Here's what Bob. Here's how Bob's take answered that question before.
Speaker 5: Because the issue was could Disney even be in batting
Speaker 5: at all?
Speaker 3: Yeah?
Speaker 5: No, and the they historically fought casinos in Florida forever.
Speaker 5: And so the Chapairs answer was the customers of Disney
Speaker 5: and ESPN were just thinking that the ESPN fans really
Speaker 5: wanted more sports betting. Uh, they didn't see an issue
Speaker 5: with it, and that's why he began this pursuit of
Speaker 5: the sports betting deal.
Speaker 3: Well, just think about it from a content perspective too.
Speaker 3: I mean, you you you know, you see the f
Speaker 3: FX and fx X on Hulu, which is you know,
Speaker 3: you know, Disney owns a big port. Disney owns FX
Speaker 3: from its Fox acquisition. Uh, and you know, the content
Speaker 3: there is like not Disney content by any means, Chris,
Speaker 3: just you know, ten seconds.
Speaker 5: Yeah, there's there's no question that the sports betting has
Speaker 5: just become palatable in a lot of I mean it's
Speaker 5: taken off like wildfire across the country. Uh and it
Speaker 5: you know, it's almost as gold as.
Speaker 2: Mickey Mouse, the betting bars, the betting roller coaster, the
Speaker 2: betting go you can bet on the cruise ships.
Speaker 3: Like look at the SUC getting Space Mountain within an hour,
Speaker 3: witting in this line exactly.
Speaker 2: Chris Paul Mary, Thank you so much. Bloomberg News Entertainment
Speaker 2: editor Chris Paul Mary joining us out there from the
Speaker 2: West coast.
Speaker 3: We should note that Dave Portnoy reacquired the barstool brand
Speaker 3: that he founded for just one dollar. Pen Entertainment said
Speaker 3: it could take a loss of up to eight hundred
Speaker 3: and fifty million dollars on the transaction.
Speaker 2: I think it was in crypto check dollar. What do
Speaker 2: you think it was.
Speaker 3: I mean, the first time, he says, the first time
Speaker 3: in ten years that he's fully owned it.
Speaker 2: It's a really fascinating deal this past week, all right,
Speaker 2: the ESPN and PEN Entertainment News, though, as we said
Speaker 2: just about twenty four hours before Disney actually reported earnings
Speaker 2: that came on Wednesday, and a bit of Disney news.
Speaker 2: On that earnings call, the company announced it's raising prices
Speaker 2: for some streaming subscriptions by as much as twenty seven percent.
Speaker 2: We got reaction and reasoning from Bloomberg Intelligence Technology and
Speaker 2: media analyst Kita Ranganantha.
Speaker 9: They have pricing power, and they know it, and they're
Speaker 9: going to exercise it. And this is what it's really
Speaker 9: coming down to now in the streaming wars, right, So
Speaker 9: the subscriber hyper focus is over and done with. Now
Speaker 9: it's all about our pool, growing rep new per user.
Speaker 9: And that's exactly what Disney is doing. This should pad
Speaker 9: not only the top line, but also the bottom line.
Speaker 3: Okay, I'm not going to defend Disney, Kita, I'm not
Speaker 3: going to defend any of the companies that are raising
Speaker 3: prices left and right here, But I am going to
Speaker 3: point out that in the previous life, when there were
Speaker 3: no streaming services, when we were just paying one single
Speaker 3: cable provider every year for everything, they raise their prices
Speaker 3: every year and no news was ever made.
Speaker 9: Yeah, but they did it gently and they're not a Rabbit.
Speaker 9: I don't think they did a twenty seven percent increase.
Speaker 9: They did it like three to four percent every year, So.
Speaker 3: This one does. Do you expect this to lead to churn?
Speaker 9: So it might lead to some churn, I think on
Speaker 9: the margin, But I think this is really where all
Speaker 9: of the streaming players are headed, right, So it's going
Speaker 9: to come down to a shakeout, and Disney and Netflix
Speaker 9: are actually going to force that shakeout because at the
Speaker 9: end of the day, you're only going to be able
Speaker 9: to spend X amount of dollars per month on streaming,
Speaker 9: and they're basically telling you choose, you know, make your
Speaker 9: pick and see which are the services that you want
Speaker 9: the most, that you need the most. And they're hoping
Speaker 9: that Disney and you know, Netflix is hoping that its
Speaker 9: service will will prominently feature there.
Speaker 2: You know, it's really interesting, right because we also you know,
Speaker 2: you know, and I want to take the bigger picture
Speaker 2: of Disney their post earnings the things jumping at at
Speaker 2: you because they did report right their loss from streaming
Speaker 2: narrow by half to five hundred and twelve million in
Speaker 2: that fiscal third quarter, but it was still far less
Speaker 2: than what management had forecast about three months ago give
Speaker 2: us all the picture that is Disney and how you
Speaker 2: see it.
Speaker 9: Yeah, I think, you know, this quarter was really more
Speaker 9: about you know, of course, we knew that the numbers
Speaker 9: were not going to be the greatest. Having said that, though,
Speaker 9: of course, the profit numbers did come up slightly better
Speaker 9: than expected. As you just pointed out. The streaming subscribers, however,
Speaker 9: was a miss. But I don't necessarily think that's a
Speaker 9: bad thing because the subscribers that they lost were really
Speaker 9: twelve and a half million subscribers lost on their hot
Speaker 9: Star product, which is, you know, their Indian service, that
Speaker 9: is a very low revenue generating product, not a high
Speaker 9: value subscriber that they're losing. And so I think that's okay.
Speaker 9: The Street is kind of okay with that, but.
Speaker 3: Sorry to cut you off their gita. But shouldn't the
Speaker 3: street have expected that because they came in substantially below estimates,
Speaker 3: the Street's estimate. Shouldn't that have been baked into the estimates.
Speaker 9: They did bake in about three and a half four
Speaker 9: million losses. This came and of course substantially higher so cricket.
Speaker 9: You know, I think they kind of underestimated the power
Speaker 9: of cricket in the Indian sub God.
Speaker 2: Okay, what else is important? We see Disney though lower
Speaker 2: in the aftermarket. What else do we need to know?
Speaker 2: And unfortunately got about forty five seconds.
Speaker 9: Yes, I think the other key thing that we really
Speaker 9: need to look at is parks and what are the
Speaker 9: trends at parks. Parks actually brings in seventy percent or
Speaker 9: seventy five percent of Disney's operating profit this year, so
Speaker 9: it's really key to understand what the trends are looking like,
Speaker 9: I think. And the domestic parks we are seeing some
Speaker 9: softness that was kind of offset by international strength because
Speaker 9: this was the first time that we had all of
Speaker 9: the international parks open after all of those COVID closures.
Speaker 9: But it's going to be interesting to see what exactly
Speaker 9: they're saying about attendance and occupancy rates.
Speaker 2: The transformation at Disney, a new Disney.
Speaker 9: It's underway, I definitely hope, so, Carol, So you know
Speaker 9: it's going to be all about the strategic vision. We're
Speaker 9: already seeing some of those. Yeah, those pieces in motion
Speaker 9: with the ESPN deal. We'll have to see and what
Speaker 9: they do next.
Speaker 2: You're incredible. Keita ring Anathan of our Bloomberg Intelligence Team.
Speaker 2: Thank you.
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Speaker 2: All right, everybody, this story definitely cut our attention when
Speaker 2: we were reading in this morning. It is a most
Speaker 2: read on the Bloomberg It's also because it's the Bloomberg
Speaker 2: Big Take, which means our top editors here at Bloomberg
Speaker 2: News deemed this a story that we really all must
Speaker 2: check out and read. It is a Bloomberg exclusive, and
Speaker 2: it gets into tim how the US drives gun exports
Speaker 2: and fuels violence around the world.
Speaker 3: We do want to point out that every Time for
Speaker 3: Gun Safety, which advocates safety measures, is backed by Michael Bloomberg,
Speaker 3: founder and majority owner of Bloomberg News parent Bloomberg LP.
Speaker 3: For more on this story, we welcome Bloomberg News Investigations
Speaker 3: Team Manager Managing editor Flynn and McRoberts joining us from
Speaker 3: our Chicago bureau. Flynn just an incredible deep dive one.
Speaker 6: You know.
Speaker 3: I got to tell you when you read a story
Speaker 3: like this and You're like, I've never considered how American
Speaker 3: made weapons can be exported for terror around the world,
Speaker 3: which is something I had never considered. You know that
Speaker 3: it's just an incredible narrative. Give us an idea of
Speaker 3: how the story came together.
Speaker 10: Thanks Tim So our reporting team Mike Riley, David Kashnevski,
Speaker 10: and Eric fan We're looking at what obviously has been
Speaker 10: much concerned with good reason of domestic with violence and
Speaker 10: mass shootings in the United States. But we wondered what
Speaker 10: is happening with the almost the near saturation point of
Speaker 10: gun ownership in the US.
Speaker 4: We're up to four hundred million.
Speaker 10: Weapons owned by civilians in the United States, more than
Speaker 10: the popular and we wondered what our gun companies doing
Speaker 10: facing those kind of figures. And what we found is
Speaker 10: that they're looking, they're turning overseas to expand sales in
Speaker 10: other countries, and in doing so, they've got.
Speaker 4: Not just the not just.
Speaker 10: The the realization, but the active engagement of the US
Speaker 10: of the federal government to encourage those sales.
Speaker 2: So, Flynn, let's get into it, because you know, we
Speaker 2: often talk about here at Bloomberg the US influence around
Speaker 2: the world on business and culture and trends and politics,
Speaker 2: if you will so much. Many often would argue it's positive.
Speaker 2: Certainly not when it comes to guns. So how is
Speaker 2: it that a big player in the US market two
Speaker 2: decades ago so central to this story and so central
Speaker 2: to what's happening overseas?
Speaker 10: So sixth Hour you're talking about it, that was a
Speaker 10: It was for many for generations. Actually the six Hour
Speaker 10: was making right during the Seven Years War, to give
Speaker 10: you a sense of how old the company was. But
Speaker 10: in two thousand it was sold to new owners and
Speaker 10: they were looking to looking to expand sales, and they
Speaker 10: realized that the gun restrictions, gun export restrictions in Europe,
Speaker 10: particularly Germany, were increasingly increasingly tight, and they wanted to
Speaker 10: find alternatives.
Speaker 4: So in two thousand and four they.
Speaker 10: Hired a man Ron Cohen, who as chief Offerating Officer
Speaker 10: and Officer, and shortly after that as CEO and Cohen
Speaker 10: aggressively pushed the export of weapons and realized, if we're
Speaker 10: going to do that, we need to move our manufacturing
Speaker 10: to the United States, which they did. They're now headquartered
Speaker 10: in New Hampshire and.
Speaker 4: They've been from there.
Speaker 10: They've been able to aggressively aggressively pursue international deals in
Speaker 10: places like Thailand, which we write about in Columbia, and
Speaker 10: they've gone from being a bit player to the largest
Speaker 10: US exporter of firearms.
Speaker 3: It's really remarkable. What about when it comes to regulations
Speaker 3: in other countries when it comes to importing these weapons
Speaker 3: of war Because we oftentimes hear in the narrative here
Speaker 3: in the US, you know, you don't see mass shootings
Speaker 3: happen in other or you don't see gun violence in
Speaker 3: other countries like you see here in the US. But
Speaker 3: reading your story, there were so many examples of this
Speaker 3: type of the story from the team, I should say
Speaker 3: the one that you oversaw is managing editor of the
Speaker 3: investigations team. There are so many examples of mass shootings
Speaker 3: and gun violence outside of the US where laws are different.
Speaker 10: Yes, we looked at Thailand specifically because that is where
Speaker 10: that's the six hours biggest international sales success, and sadly,
Speaker 10: it's also the place that one of the sites of
Speaker 10: one of the worst massacres in Thai history and even globally,
Speaker 10: and that was October of last year. A recently retired
Speaker 10: police officer armed with a sugarcane machete and a six
Speaker 10: hour P. Three sixty five, stormed into a nursery school
Speaker 10: and killed killed twenty three children and two teachers, and
Speaker 10: went on to kill a total of thirty six people.
Speaker 10: And the gun that he used that six hour P.
Speaker 10: Three sixty five he obtained through something what Thailand calls
Speaker 10: the Welfare Gun program, which is a way which is
Speaker 10: a program in a country that has very strict gun
Speaker 10: regulations except this major loophole, and that Welfare Gun program
Speaker 10: allows former police officers a military to buy at a
Speaker 10: very steep discount these pistols.
Speaker 4: The problem was Thailand.
Speaker 10: Gunshops in Thailand, in total, all gun shops in Thailand
Speaker 10: can only sell roughly fifteen thousand pistols a year. That
Speaker 10: six hour contract, just the first of two, flooded the
Speaker 10: country with one hundred and fifty thousand, ten times that amount,
Speaker 10: and that there was it basically became a new asset class.
Speaker 10: Unfortunately they were able to police were many of those
Speaker 10: those weapons wound up being diverted to criminals, to organized
Speaker 10: crime syndicates because they were just it was the incentive
Speaker 10: to resell those guns.
Speaker 4: And which are very difficult to trace.
Speaker 10: It allowed them to allow much to basically flood, the
Speaker 10: flood Thailand with all these what turned into criminal guns.
Speaker 2: Right because they got them at below market prices, right,
Speaker 2: they got a deal on them and then they could
Speaker 2: throw around. And you know what's interesting is there was
Speaker 2: a story at the very beginning, I mean a line
Speaker 2: excuse me, where it said the federal government US federal
Speaker 2: government has helped push international sales of rapid fire guns
Speaker 2: to record levels. I want to kind of make the
Speaker 2: connection of how we can kind of blame the US
Speaker 2: for getting more guns out there. I think many people
Speaker 2: would argue part of the problem is, like you said,
Speaker 2: there's four hundred million consumer guns or guns in the
Speaker 2: hands of consumers here in the United States. That number
Speaker 2: is staggering that when you have more guns around, there's
Speaker 2: going to be more problems. How is it that the
Speaker 2: US federal government, Democrats and Republicans alike, had a role
Speaker 2: in this change? And I kind of want to get
Speaker 2: from the shift of oversight going from the State Department,
Speaker 2: which seems probably like the rules were a little bit
Speaker 2: more stringent to commerce, which is like basically, let's sell stuff.
Speaker 10: That's right and this and to be fair, this started
Speaker 10: under Barack Obama's during a second term, and they were
Speaker 10: trying to rationalize the rules where the State Department would
Speaker 10: handle They thought, well, let's the State Timerichine handle heavy
Speaker 10: military hardware like fighter jets and artillery and so forth,
Speaker 10: but we should let the Commerce Department handle handle civilian weapons,
Speaker 10: small arms. But even even at that time, particularly Democrats
Speaker 10: and Congress raised the concern that this with that that
Speaker 10: that moving oversight to the business friendly Commerce Department would
Speaker 10: inevitably lead to far more sales and looser, looser regulations.
Speaker 10: And in fact, that's exactly what happened. So when when
Speaker 10: once the rules took effect in twenty twenty, the they
Speaker 10: those sales of some automatic weapons went up, depending on
Speaker 10: the year, went up as much as sometimes fifty percent
Speaker 10: times and sometimes even double and and members of Congress
Speaker 10: are saying, this is exactly what we expected when you
Speaker 10: shifted oversight to the to the Commerce department.
Speaker 4: And so the the you know.
Speaker 10: The Commerce department again, it's its role is to help,
Speaker 10: you know, help Boeing sell more planes, help you know,
Speaker 10: Micron sell more chips. But when you when you apply
Speaker 10: that to you to gun manufacturers, it obviously has deadly consequences.
Speaker 4: And we document that.
Speaker 3: Yeah, It's interesting. It actually makes me think of what
Speaker 3: happened with cigarettes as well here in the US. Right
Speaker 3: when we saw regulations change in the US with cigarettes
Speaker 3: and fewer people here smoke, What did the American tobacco
Speaker 3: companies do. What did the global tobacco companies do. They
Speaker 3: went around the world, They went to developing countries, they
Speaker 3: went to emerging economies. Flinn, how much of a boon
Speaker 3: has this been for American manufacturers of guns?
Speaker 10: So we tracked it from two thousand and five, which
Speaker 10: is a year after the assault weapons ban was ended
Speaker 10: in the United States, and since that time, there's been
Speaker 10: a cumulative three point seven million semi automatic pistols and
Speaker 10: rifles that have been that have been sold by US
Speaker 10: gun manufacturers.
Speaker 3: Okay, I gotta tell you, though I hear that number,
Speaker 3: that's tiny compared to the number of guns that Americans own,
Speaker 3: four hundred million more guns than people in this country.
Speaker 4: That's right. But those are three point seven million going
Speaker 4: to countries.
Speaker 10: In places like Guatemala, for instance, where where the where
Speaker 10: the where the institutions are there? You know, the State
Speaker 10: Department has condemned and Guanamal, for instance, the the public
Speaker 10: corruption and the inability of the government to to track
Speaker 10: these guns when they're when they're coming in. So a
Speaker 10: relative which seems like a small number of weapons to
Speaker 10: Americans has an outsize impact in a country country like
Speaker 10: Guatemala or Thailand or even we're seeing in Canada.
Speaker 2: So what about the German owners? Are they okay with
Speaker 2: all of this?
Speaker 10: So they the new owners that were initially initially reluctant
Speaker 10: to the sort of americanization of the company, they were
Speaker 10: interested in. They you know, again, this is a company
Speaker 10: with a history of hunting rifles and and you know,
Speaker 10: high end you know, high end pistols and so forth.
Speaker 10: They initially, uh were concerned about it. But but they
Speaker 10: once Cohen uh reoriented the company, you know, and moved
Speaker 10: manufacturing to the United States and boosted sales. They have
Speaker 10: not you know, they've approved his plans and have not objected.
Speaker 10: We reached out to them to talk to him about this,
Speaker 10: and they did not respond.
Speaker 2: Yeah, there's a point in the story, and I want
Speaker 2: you to talk to me a little bit about Ron Cohen.
Speaker 2: But basically it talks about him hiring X Special Forces
Speaker 2: soldiers and others who understood military culture. He told employees
Speaker 2: he was giving the company a new mission armed the
Speaker 2: good guys. This is a guy who I guess employees
Speaker 2: called the Commander. It's an interesting as you guys you know,
Speaker 2: reported on this specific company. It sounds like there were
Speaker 2: some things going on that weren't so.
Speaker 4: Okay, that's right. That so the first big, big, yes,
Speaker 4: I hear it.
Speaker 10: The first the first big international deal that.
Speaker 4: They that Six Hour inc.
Speaker 10: Made was in two thousand and nine with the Columbia
Speaker 10: National Police and they committed to they committed to selling
Speaker 10: tens of thousands of pistols UH to Columbia. The problem
Speaker 10: was that the American the American arm the Six Hour Incorporated,
Speaker 10: didn't have the capacity to make that many, to.
Speaker 4: Manufacture that many pistols.
Speaker 10: So what they did was they they built built them
Speaker 10: in in Germany and attested to the fact that they
Speaker 10: would be sold into the United States. But once they
Speaker 10: got to the United States, and this is in court
Speaker 10: documents and we found they re labeled them and sent
Speaker 10: them to Columbia. This was news to their colleagues in
Speaker 10: Germany who knew they couldn't be selling weapons to Columbia
Speaker 10: because German law prohibited guns going to conflict zone, which
Speaker 10: that time Columbia was so this became the German authorities
Speaker 10: investigated and in the end the U, SIG and Cohen
Speaker 10: h reached a settlement which they in which they acknowledged
Speaker 10: wrongdoing and Cohen himself was given a suspended eighteen prison
Speaker 10: sentence and SIG paid the highest export fine in German history,
Speaker 10: something like twelve million euros. So that that's not the
Speaker 10: only that's not the only case that they've There have
Speaker 10: been other investigations by SIG as well, so that but
Speaker 10: it has not it clearly has not hurt their sales,
Speaker 10: and frankly, it has not hurt their dealings with the
Speaker 10: US government where they have now they have in the
Speaker 10: wake of those investigations, they have still been awarded the
Speaker 10: two major Pentagon contracts, one one for UH to supply
Speaker 10: MS side arms to the whole to the entire US military,
Speaker 10: and also to provide the what essentially replaced the M
Speaker 10: sixteen as a.
Speaker 4: Flynn.
Speaker 3: We only have about a minute left, a little less,
Speaker 3: but what's the next thread of the story here? What's
Speaker 3: been the response that that you've gotten to the big
Speaker 3: take after it was published late yesterday, And what's the
Speaker 3: next part of the story here?
Speaker 4: So we're looking to see what happens in Congress.
Speaker 10: There there, Elizabeth Warren, Norma Torre's there are various Democrats
Speaker 10: in Congress who have raised concerns about this in the past,
Speaker 10: and we're very curious to see if our revelations do
Speaker 10: anything to.
Speaker 4: Push reform in Washington.
Speaker 2: All right, well, we certainly will be watching, and I
Speaker 2: know you guys will be monitoring and updating us on it. Flynn,
Speaker 2: thank you so much. We really wanted to share this
Speaker 2: story with our viewers and listeners, so appreciate you joining us.
Speaker 2: Flynn McRoberts, Managing editor of the Bloomberg News Investigations team
Speaker 2: from our Chicago bureau.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Easter on Bloomberg Radio,
Speaker 1: the Bloomberg Business app, and YouTube. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station,
Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 2: The remarks in the current issue of Bloomberg BusinessWeek center
Speaker 2: on the head of the US Securities and Exchange Commission,
Speaker 2: Gary Gensler. We know he has been front and center
Speaker 2: in the push to weed out fraud in the crypto space,
Speaker 2: So what about the potential for financial wrongdoing when it
Speaker 2: comes to artificial intelligence?
Speaker 3: But don't worry, Gensler has a framework for dealing with
Speaker 3: AI too. Bloomberg News Deputy team leader for US Equities
Speaker 3: Jess Metten and I sat down with our securities enforcement
Speaker 3: reporter Austin Weinstein and business we get under Joel Weber
Speaker 3: to learn more.
Speaker 6: If there's a financial regulation issue that's been a major
Speaker 6: thing in the US for the last thirty years, there's
Speaker 6: a really high chance. Gary Gensler has a deep and
Speaker 6: rich history with it. One of the most crazy footnotes
Speaker 6: to his career is that he was one of the
Speaker 6: main drafters of the Sarbanes Oxley Law in two thousand
Speaker 6: and one, and that barely comes up in his biography.
Speaker 6: But yes, with AI, we sat down with him and
Speaker 6: learned that his history goes back good amount of time,
Speaker 6: back to when he left the CFTC in twenty fourteen,
Speaker 6: and there was a new administration that came in shortly
Speaker 6: after and he needed to find a job, and he
Speaker 6: went to MIT to teach. They're pretty early on on.
Speaker 6: He zeroed in on two subjects that he really cared about.
Speaker 6: One was crypto, which he's talked a lot about and
Speaker 6: we've all talked a lot about, and the other was
Speaker 6: artificial intelligence. He sat down with Alexander Madri, one of
Speaker 6: the really most respected minds in machine learning, and just
Speaker 6: asked him how do I learn this? And Madra gave
Speaker 6: him an eight hundred page book called deep Learning. I
Speaker 6: tried to read it. I can't and Gerry Gensler apparently
Speaker 6: can and returned months.
Speaker 3: How much of that book did he read, Austin, I
Speaker 3: was wondering the same thing, or how much did he
Speaker 3: say he read?
Speaker 4: Well?
Speaker 6: So he said he read what he could understand. Then
Speaker 6: he also mentioned that he can code and Fortran and
Speaker 6: can do some of the differential equations. Gerty Gensler probably
Speaker 6: can just knowing its record, but there's probably some stuff
Speaker 6: there that you know, everyone what's came out?
Speaker 3: Can you can you code and Fortrane?
Speaker 11: I would be lost upon entry.
Speaker 6: I had to look up what that was?
Speaker 3: Tim Tim two. That's why yeah, I did too. Actually,
Speaker 3: I'm like four Tran four chan. I don't know what's
Speaker 3: going on here.
Speaker 12: Not the four chance right, So so awesome? Stick with
Speaker 12: stick with this because what we've seen this year is
Speaker 12: obviously captivated everyone with what open AI is accomplished and
Speaker 12: sort of what chat GPT could be capable of.
Speaker 11: If you're a regulator, that seems maybe like your nightmare.
Speaker 11: So how is he preparing?
Speaker 6: Well, there's a few ways to prepare if you're a regulator,
Speaker 6: And in fact, two thou start twenty twenty, Derek Giinlill
Speaker 6: wrote a book on how wrote a paper on how
Speaker 6: regulators should prepare to deal with AI's implication on a
Speaker 6: financial system. And for Garrick Denzler, how regulators should prepare
Speaker 6: essentially goes into what powers and what structures do regulators
Speaker 6: have to deal with AI now? And what don't they have?
Speaker 6: And what risks do I have that they'll pose that
Speaker 6: hit that intersection point where their powers fall short And
Speaker 6: a few of those things fall into the concerns like liability.
Speaker 6: And so we had a really intering discussion about, say,
Speaker 6: when you're designing a bot to beat someone in chess,
Speaker 6: are you designing that bot to beat someone or you
Speaker 6: programming them to know the exact pathways that'll make them
Speaker 6: the most percentage more chance of winning each time? And
Speaker 6: is that intention and the question of intention matters a
Speaker 6: lot for a securities regulator because that's the basis of
Speaker 6: most frauds, and most of the crimes that the sec
Speaker 6: charges are frauds. And so there's really interesting questions of explainability.
Speaker 6: If you can't answer why an algorithm made a certain
Speaker 6: decision or created a certain image or published a certain thing,
Speaker 6: can you say that it acted with intent? And so
Speaker 6: Guinser's been thinking a lot about this problem of explainability,
Speaker 6: and he published one of the first rules in the
Speaker 6: broad federal bureocracy on this last month when he said
Speaker 6: that most asset managers and brokers will have to do
Speaker 6: an assessment when they use AI as to will this
Speaker 6: lead to any conflicts of interest for the firm? So
Speaker 6: agnostic of what this tool does, will you look at
Speaker 6: that tool and when you look at that tool, does
Speaker 6: it benefit you at the expense of the client or
Speaker 6: does it benefit the client and perhaps the firm as well.
Speaker 6: So it's really thorny, really philosophical questions.
Speaker 13: Hand here, you also talk about how he argues that
Speaker 13: a lot of this so called decentralized finance isn't really decentralized.
Speaker 13: What's your take on that?
Speaker 6: So it's the sort of theme that Gary Gensler's carried
Speaker 6: with it in both crypto and artificial intelligence, that a
Speaker 6: lot of the words and technologies here obfuscate responsibility, obscate
Speaker 6: what's truly happening.
Speaker 14: You know.
Speaker 6: Cryptocurrency has the root crypto, you know, which is a
Speaker 6: way to hide, to disguise, But at the end of
Speaker 6: the day, most every crypto transaction is traceable from one
Speaker 6: wallet to one wallet without much difficulty. It took some
Speaker 6: time to learn it.
Speaker 15: And then you go into decentralized finance. He brought up
Speaker 15: the question of okay, is a decentralized finance platform decentralized
Speaker 15: in the way it pays its lawyers because at the
Speaker 15: end of the day, some client, some service provider is
Speaker 15: providing that to the system, and so there's an entity
Speaker 15: making a one to one transaction there. And take that
Speaker 15: into artificial intelligence as well. Is it artificial if it's
Speaker 15: programmed to do a specific thing and uses machine learning
Speaker 15: and other tools to get to that specific thing, So
Speaker 15: that these those words and these technologies can only obfuscate
Speaker 15: what's what's really happening here in the eyes of someone
Speaker 15: like your Agaenzel.
Speaker 11: So that seems like a you know, rain Cloud sort
Speaker 11: of take on AI when there's been so much enthusiasm
Speaker 11: in the markets at least for it. So what does
Speaker 11: he think's going to happen, Like, you know, like is
Speaker 11: it is this going to end badly? And you know,
Speaker 11: you look at Crypto and sort of his response to it,
Speaker 11: and it feels like, you know, he's finally bringing down
Speaker 11: a hammer, like what about what about AI?
Speaker 6: With Genzler, that's sort of a twofold thing. He is
Speaker 6: proposing rules now to make sure that you can set
Speaker 6: some guidelines for AI. But he did say in our
Speaker 6: interview it'll be the crisis of twenty thirty two or
Speaker 6: twenty twenty eight or whatever, and the after action report
Speaker 6: will really be about an issue involving machine learning and AI,
Speaker 6: simply because that.
Speaker 11: Makes me think that that report, it makes me think
Speaker 11: that report may not be written by AI.
Speaker 6: At the end of the day, when writing is after
Speaker 6: action reports after a crisis. He brought up the idea
Speaker 6: of model dependency, which is the idea and I'm going
Speaker 6: to explain this terribly. I do not have a PhD
Speaker 6: in computer science, but that at the end of the day,
Speaker 6: all these financial firms will use at about two to
Speaker 6: three base or foundation models, the underlying logic systems that
Speaker 6: make machine learning and AI work. And these models might
Speaker 6: disguise how they all get to the same result, and
Speaker 6: it may determine that they were all training on one
Speaker 6: small piece of data about the mortgage market, or about
Speaker 6: leverage loans, or about treasuries, and without communicating it, they
Speaker 6: had a whole bunch of risk based in these models,
Speaker 6: and that risk blew up when say that one statistic
Speaker 6: was programmed by someone who wasn't putting in the data
Speaker 6: right so or had some malign intent, and that can
Speaker 6: blow up the economy with these huge systems trained on AI.
Speaker 3: So it raises the question, Austin, about what Kensler thinks
Speaker 3: the solution is in terms of guardrails, in terms of regulations.
Speaker 3: I mean, how does he prevent a melt down in
Speaker 3: twenty twenty eight or twenty thirty two that's brought on
Speaker 3: by AI.
Speaker 6: The great question and one that he's definitely trying to
Speaker 6: grapple with and understand. Now, it is important to say
Speaker 6: a lot of the powers here and the regulation of
Speaker 6: AI are beyond the SEC and he really can only
Speaker 6: oversee the capital markets in space if he regulates things
Speaker 6: like responsibility of use and legal liability of questions for Congress,
Speaker 6: the FTC, the jay Treasury, all these other institutions. But
Speaker 6: he is a member of the Financial Stability Oversight Council,
Speaker 6: and he has asked a lot of his staff to
Speaker 6: start looking at issues of concentration stability in ways that
Speaker 6: he can set the economy and set the financial system
Speaker 6: up to be more resilient in the case of AI catastrophe.
Speaker 3: That was Bloomberg News Securities Enforcement reporter Austin Weinstein and
Speaker 3: BusinessWeek editor Joe Weber with Jess Metton and me.
Speaker 2: All right, you're listening to Bloomberg Business Up next, we've
Speaker 2: got more on AI as we examine the impact this
Speaker 2: technology is likely to have on the American worker, maybe
Speaker 2: global workers.
Speaker 16: To be fair, the bottom line is about thirty percent
Speaker 16: of the activities that US workers do today could be
Speaker 16: automated away by the end of twenty thirty.
Speaker 14: So over the next seven years.
Speaker 2: We break down a new McKinsey study on where displaced
Speaker 2: workers will turn and how AI will reshape the labor landscape.
Speaker 2: This is Bloomberg.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: Live Weekday afternoons from three to six Eastern Listen on
Speaker 1: Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app,
Speaker 1: or watch us live on YouTube.
Speaker 2: You guys talked about Zoom.
Speaker 3: Yeah, I mean, if you think about perhaps the company
Speaker 3: that most epitomizes working from home, yeah, it's Zoom. I
Speaker 3: mean it was not just a you know, a COVID stock,
Speaker 3: but it was also what we were all learning how
Speaker 3: to use in the early days of the pandemic. Right,
Speaker 3: we talked about it yesterday because even their telling employees
Speaker 3: to get back to the office farrel Yeah, I know, Zoom.
Speaker 3: If you live near Zoom office, you got to come
Speaker 3: in a couple days a week. So we've seen Amazon, Chipotle,
Speaker 3: black Rock companies as varied as those telling hey, workers, workers, Hey,
Speaker 3: you got to come back to the office.
Speaker 2: Yeah, it's interesting, right, we're seeing that post COVID several
Speaker 2: years out and how that is kind of Yep, they're
Speaker 2: coming back to the office. The other thing at play, right,
Speaker 2: we see when it comes to how we are working
Speaker 2: going forward, is just the explosion of what the think
Speaker 2: about AI around artificial intelligence generative AI and what does
Speaker 2: it mean eventually for work.
Speaker 3: Well, Fortunately, McKinzie is out with a new report that
Speaker 3: says twelve million workers are going to move into new
Speaker 3: lines of work by twenty thirty. I guess I'm not
Speaker 3: saying fortunately that's fortunately there's a report. You know, we'll
Speaker 3: see if it's fortunately or unfortunately that AI is forcing
Speaker 3: people to move to new lines of work. Very pleased
Speaker 3: to have with us this afternoon. Qualyon Ellen Grude, partner
Speaker 3: at McKinsey Global Institute, joins us via zoom from Minneapolis,
Speaker 3: a director and senior partner at the McKenzie Global Institute. Quillan,
Speaker 3: how are you great?
Speaker 14: Great to be with you today, Well.
Speaker 3: It's great to have you join us on. So, you know,
Speaker 3: when did you guys start thinking about the impact of
Speaker 3: AI on workers, because I think for a lot of
Speaker 3: people this is relatively new phenomenon with the explosion of
Speaker 3: chat GBT last fall.
Speaker 16: Absolutely, we've been thinking about the future of work now
Speaker 16: for about a decade and modeling what does automation do
Speaker 16: to jobs which are biggest staining jobs losing occupational categories
Speaker 16: and then to your point, just about six months ago
Speaker 16: start a delayer on to automation and COVID nineteen impact
Speaker 16: the impact of Genai. So now we've put all of
Speaker 16: those three things together to say, what do the future
Speaker 16: of jobs look like in the United States?
Speaker 2: All right, so play it out for us. What do
Speaker 2: they look like? I am my robot, absolutely, yeah, I
Speaker 2: am a robots Indeed.
Speaker 16: I think the bottom line is about thirty percent of
Speaker 16: the activities that US workers do today could be automated
Speaker 16: away by the end of twenty thirty, so over the
Speaker 16: next seven years. And that again is through automation COVID
Speaker 16: nineteen impact, mostly affecting interpersonal interactions.
Speaker 14: And then Genai Jenai alone.
Speaker 16: If you just isolate that piece, increase that percentage by
Speaker 16: about nine or s eight or nine percent, So up
Speaker 16: until about thirty percent of overall activities. There are a
Speaker 16: lot of jobs that will be fewer in the future,
Speaker 16: and there will be quite a few more overall. I
Speaker 16: think it's good news to your point earlier. We will
Speaker 16: have more jobs in the future, I think is the
Speaker 16: great news. And those jobs will be higher paying jobs.
Speaker 16: They will be also higher skilled jobs that on average
Speaker 16: require higher average education. The tough news, or the tough
Speaker 16: transition to get there, is we don't necessarily have the
Speaker 16: workforce today that is best suited for those jobs of
Speaker 16: the future. So first, where are we gaining Where are
Speaker 16: we losing? We are gaining jobs in healthcare, in STEM categories,
Speaker 16: and in transportation delivery, all of those other areas we
Speaker 16: are losing jobs in primarily four big occupations, and those
Speaker 16: four occupations make up about eighty percent of the job
Speaker 16: losses between now and twenty thirty. Is customer service, okay,
Speaker 16: food service and sales production or manufacturing and office services
Speaker 16: or assistants. And you've all seen kind of food chiosks
Speaker 16: that fast food restaurants, right, We've seen all of these
Speaker 16: different elements.
Speaker 14: But when you add them together.
Speaker 16: Those four occupations make up eighty percent of the occupational switches,
Speaker 16: which is about twelve million of them between now and
Speaker 16: twenty thirty.
Speaker 2: So before we get into that, it's a lot. But
Speaker 2: I've also seen it. I've done it, right. I'm at
Speaker 2: an airport, I order on an iPad and then stuff
Speaker 2: just gets delivered. I've gone to a retailer here.
Speaker 3: Sorry, but you and I've done this before, and sometimes
Speaker 3: it works. It's sometimes it's also just terrible, not all
Speaker 3: the time. Maybe I'm just thinking of Newark Airport. I
Speaker 3: don't know, no offense.
Speaker 2: Oh come on, I know, pick on the New Jersey.
Speaker 3: We've had some fun times there we have.
Speaker 2: But kind of works.
Speaker 4: God, I don't know.
Speaker 2: It doesn't always work.
Speaker 3: It's like, no, it doesn't always work.
Speaker 2: But I'm amazed at that. I think how many times
Speaker 2: I check out at a super market, I just and
Speaker 2: I go there a target, a retailer. You good, Azara,
Speaker 2: you drop it in a bin.
Speaker 3: That's amazing.
Speaker 2: It shows up. That blows my mind. It shows up
Speaker 2: on like h and.
Speaker 3: M Uniclode does that too. It's amazing.
Speaker 2: Yeah, and you check out and you take off the
Speaker 2: safety you know, uh whatever they what do they call
Speaker 2: them that? You know what I mean? Yeah, the anti
Speaker 2: theft things, the anti theft things, like I do it
Speaker 2: all and like somebody's watching you. But it's like whoa,
Speaker 2: So I don't know.
Speaker 3: Is the experience better though? That's the thing, Like, you know,
Speaker 3: if speaking of airports, we've done this, you know, we've
Speaker 3: gone airports together where there's nobody to actually check us in, right,
Speaker 3: and we're like, you know, we know it's because of
Speaker 3: cost cuts.
Speaker 2: And we're flying business. Thank you, Blueberk.
Speaker 3: We do everything, but what's the balance here Quaylon that
Speaker 3: of actually having like an experience, it's better because who cares.
Speaker 3: If not, who cares. But it's like it's one thing
Speaker 3: to replace people, it's another thing to replace them with,
Speaker 3: you know, an inferior product.
Speaker 2: And I thought all the companies are about customer service
Speaker 2: customers first.
Speaker 16: Not apparently, and there is absolutely a balance, and there's
Speaker 16: also a bit of a transition pain point to get there.
Speaker 16: But I think the alternative is not always great customer
Speaker 16: service in person. It could be they're understaff, they don't
Speaker 16: actually have the people, and so the alternative is do
Speaker 16: you want to wait for ten to fifteen minutes to
Speaker 16: flag somebody down to get your order, or do you
Speaker 16: want to enter it into the iPad? Or do you
Speaker 16: want to pay two dollars more for that sandwich or not?
Speaker 16: And so I think those are the trade offs that
Speaker 16: we're really wrestling.
Speaker 2: Well, when does the cost come to us? Because I've
Speaker 2: go to the supermarket and man, I'm doing all the work,
Speaker 2: and or I go to the airport and they're like
Speaker 2: you want an extra bag? Yeah, you know, So when
Speaker 2: does that cost come back to the customer?
Speaker 16: I think we've already started to see it right on
Speaker 16: so many different products. Some of that has been passed along,
Speaker 16: some of the costs have been kind of captured and
Speaker 16: improved better efficiency and effectiveness, part which has not then
Speaker 16: been passed on in higher prices, even though supply chains
Speaker 16: have been challenged and prices across many categories have gone up,
Speaker 16: most notably in service and gas areas. I think some
Speaker 16: of that will flow through over the next few years.
Speaker 16: We'll see where it all settles out. But I do
Speaker 16: think there are automation improvements that are being made, and
Speaker 16: then consumers do stand to benefit from some of that.
Speaker 2: Hey, really quickly thirty seconds, because we've got a story
Speaker 2: coming up about the lack of workers in the healthcare area.
Speaker 2: You said we are seeing gains in health healthcare thirty
Speaker 2: seconds what specifically.
Speaker 16: Yeah, frankly across the board, given consumers bending aging in
Speaker 16: the United States and frankly in many developed countries around
Speaker 16: the world, so nursing tech in healthcare as well. Overall,
Speaker 16: I think we'll need quite a few more jobs in
Speaker 16: those areas well.
Speaker 2: That certainly fits into the story that we're going to
Speaker 2: talk about. Quailan, thank you so much. Quailn and Ellen Gruge.
Speaker 2: She is director and senior partner at mckensey Global Institute
Speaker 2: on zoom from Minneapolis. Their latest report, Generative AI in
Speaker 2: the Future of Work in America. It wasn't so bad
Speaker 2: in Nework.
Speaker 3: Please please enter your symptoms on this iPad.
Speaker 2: Exactly what do I complain to? That's the thing that
Speaker 2: bothers me. There's no one ever to complain.
Speaker 3: Please to meet Carol, all right, I will.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Easter on Bloomberg Radio,
Speaker 1: the Bloomberg Business app, and YouTube. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station,
Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 2: Play ahead in our second hour of the weekend edition
Speaker 2: of Bloomberg Business Week, including the continuing saga and struggles
Speaker 2: of a once adored startup, Why there is now serious
Speaker 2: concern coworking office space giant we Work could go out
Speaker 2: of business altogether.
Speaker 3: Plus female founders are still having a hard time obtaining
Speaker 3: critical funding for their startups. We'll talk to someone who's
Speaker 3: hell bent on changing the narrative and whether she thinks
Speaker 3: Facebook would have gotten funding if it was Maria Zuckerberg
Speaker 3: behind the company and not Mark.
Speaker 2: First up this hour, Investors continue to take a bite
Speaker 2: out of Beyond Meat. After reporting earnings of past week,
Speaker 2: the company cuted sales guidance and backed off its cash
Speaker 2: flow target. On Tuesday. Following that news, it shares took
Speaker 2: their biggest one day plunge since November twenty twenty on
Speaker 2: an inter day basis. Quite simply, tim it is not
Speaker 2: easy being beyond meat.
Speaker 3: It's not easy being beyond meat here in the US,
Speaker 3: but it's also pretty difficult being beyond meat when you're
Speaker 3: trying to expand into China. We've got a great story
Speaker 3: in the current issue of Bloomberg BusinessWeek. It's all about
Speaker 3: Beyond Meat's challenges in China, by Dina Shanker, Bloomberg News
Speaker 3: Consumer Reporter. It's again again in the current issue oft
Speaker 3: Bloomberg Business Week. Read it now on newsstands, online at
Speaker 3: Bloomberg dot com, slash BusinessWeek, and of course on the
Speaker 3: Bloomberg terminal. Dina in our Bloomberg Interactive Brokers studio right now,
Speaker 3: So Dina, you'll back a few years. Starbucks huge in China,
Speaker 3: made available Beyond Meat and all of its stores more
Speaker 3: than three thousand. You had Beyond Meat doing this big
Speaker 3: marketing campaign on the huge mobile platforms that are there,
Speaker 3: we Chat and Cibo. We excuse me, the other one,
Speaker 3: the social one.
Speaker 2: Do you have a Beyond Meat burger Mouth? What's going on?
Speaker 3: Fast forward a few years, it's nowhere to be found.
Speaker 3: What's going on?
Speaker 12: Yeah?
Speaker 17: You know, after their IPO in twenty nineteen, which was
Speaker 17: just huge and everyone was really excited, Ethan Brown came
Speaker 17: in and did an editorial board and when we asked
Speaker 17: him about China, he said they were going to be
Speaker 17: as aggressive as they could, and they were. They went
Speaker 17: in and they, like you said, they went into Starbucks.
Speaker 17: Three menu items, thirty three hundred locations, they got on
Speaker 17: JD dot com. All kinds of partnerships in China, but
Speaker 17: now going to find one is not so easy, and
Speaker 17: Starbucks doesn't have them online at the menus on menus
Speaker 17: anymore JD dot com they show up, but you can't
Speaker 17: order them.
Speaker 18: They're not available.
Speaker 17: There's just a whole long list of examples of partnerships
Speaker 17: that have sort of disintegrated over there. And you know,
Speaker 17: there are a lot of reasons why. But I think
Speaker 17: when you strip all of the noise out. It really
Speaker 17: just comes down to the fact that, just like in
Speaker 17: the US, in China people tried them and then said,
Speaker 17: I don't really like it.
Speaker 18: It doesn't taste so good. And that's that.
Speaker 13: You know.
Speaker 2: What's interesting too, is I mean you and I and
Speaker 2: Tim were talking, you know, a little bit earlier. It
Speaker 2: just feels like these companies are trying to find strategies,
Speaker 2: and I get it. Going after China, I feel like
Speaker 2: every company that's out there still, even with the tensions,
Speaker 2: think about the potential in the Chinese market. What did
Speaker 2: they get wrong? Or is it just a case that
Speaker 2: China's difficult or is it something about these plant based
Speaker 2: food companies?
Speaker 18: Well, I think it's a whole lot of things.
Speaker 17: The first is that beef is really big here in
Speaker 17: the US and the beyond. Burger was this big blockbuster
Speaker 17: new product, but in China, people really don't eat beef
Speaker 17: the way they eat, for example, pork or chicken. Even
Speaker 17: so starting with a burger was just sort of, you know,
Speaker 17: tone deaf. I think starting with pork would have made
Speaker 17: a lot more sense.
Speaker 2: Why didn't they? Has The company addressed that.
Speaker 17: They declined to comment for our story, So I could
Speaker 17: not tell you. They do have pork product, and they
Speaker 17: eventually launched pork products there.
Speaker 18: They eventually launched dumplings and other things.
Speaker 17: But what it came down to for a lot of
Speaker 17: people was the same thing as here is that it's expensive,
Speaker 17: it doesn't taste that good, it's not particularly healthy, and there,
Speaker 17: of course, they also had the pandemic lockdowns that really
Speaker 17: hurt their opportunities in food service. And of course in
Speaker 17: China they have plenty of plant based meal options that
Speaker 17: fit right in that are just an ancient part of
Speaker 17: their cuisine. So if they don't want to eat meat
Speaker 17: for a meal, they can eat tofu instead.
Speaker 2: Feel like, beyond me, we've been here, We've been here,
Speaker 2: I got this.
Speaker 18: That's exactly right. They had Really it really just didn't
Speaker 18: fit in.
Speaker 3: So does any of the do any of the other
Speaker 3: products stand a chance? If beef didn't work, and if
Speaker 3: they have developed other products, could those work?
Speaker 18: I mean they haven't worked. Poor has it worked the pork.
Speaker 17: They're not on the websites we looked at, and they've
Speaker 17: tried some different products there, but it's just really difficult
Speaker 17: to find a beyond meat product in China right now?
Speaker 3: Why China, Like, why would they choose for international expansion China?
Speaker 4: I mean the.
Speaker 3: Like success in the road to success in China, for
Speaker 3: if you're a US company, Like there are a lot
Speaker 3: of very successful ones, but there are many more that
Speaker 3: have tried and failed.
Speaker 1: Well.
Speaker 17: I think the first is the first piece of it
Speaker 17: is just the sheer number of people, so you have
Speaker 17: so many consumers. They also do consume a lot of
Speaker 17: meat in China, so it seems like a good place
Speaker 17: to try to sell your meat replacement. But that's kind
Speaker 17: of part of the problem in China, just like it
Speaker 17: Just like in a lot of other places, meat is
Speaker 17: a status symbol, and as you rise into the middle class,
Speaker 17: you want to eat more meat because that means you're
Speaker 17: more successful. And so trying to convince someone who maybe
Speaker 17: just sort of broke into the meat bracket, Hey, actually.
Speaker 2: I have something.
Speaker 17: It's more expensive, it doesn't taste as good, and you're
Speaker 17: not really into burgers, but try it.
Speaker 2: No, it's not a good What do.
Speaker 3: We know about its health too?
Speaker 6: Right?
Speaker 18: Right?
Speaker 17: Health wise, it's an ultra processed food, which is the
Speaker 17: exact kind of food that keep hearing is what we're
Speaker 17: supposed to avoid and that's really tough for Beyond Meat
Speaker 17: or its competitors, like impossible. An ultra processed food means
Speaker 17: it's made from like derivatives of other foods. And that's
Speaker 17: what pea protein is, right, It's not made from peas,
Speaker 17: it's made from pea protein.
Speaker 2: What's interesting too, And I like this story, this line
Speaker 2: in your story. The stumbles by international brands have not
Speaker 2: deterred local companies from trying to find a lane for
Speaker 2: plant based businesses. So there are some Chinese companies trying
Speaker 2: to still tap this market. Correct.
Speaker 17: Yes, and actually Decos is a restaurant chain in China
Speaker 17: that started with Beyond Meat and now is actually doing
Speaker 17: a big campaign with a Chinese plant based meat company
Speaker 17: called Starfield. So you know, it's hard to say what's
Speaker 17: going to happen, but you have to imagine that a
Speaker 17: Chinese plant based meat company is going to cater better
Speaker 17: to Chinese consumers.
Speaker 2: I feel like Business because did some great coverage. I
Speaker 2: don't feel like it. They have does some great coverage
Speaker 2: of this plant based protein food world. And it is
Speaker 2: interesting that it's now what ten years in counting, like
Speaker 2: how long these companies have been around. And I feel
Speaker 2: like they're still trying to find their late.
Speaker 18: It's very true.
Speaker 17: I mean, Beyond was founded in two thousand and nine
Speaker 17: and went public in twenty nineteen and.
Speaker 2: A lot of fanfare.
Speaker 17: Yeah really, and it was a hugely successful IPO. And
Speaker 17: I think a lot of people really had huge expectations
Speaker 17: for this kind of product, and I think they suffered
Speaker 17: from a mix of their own bad choices, bad execution,
Speaker 17: and also just you know, the public awareness around our
Speaker 17: diet and nutrition has really evolved so much. We all
Speaker 17: know or not we all, but a lot of people,
Speaker 17: a lot more people know to look at the nutrition facts.
Speaker 2: We all turn the boxes, right, that's right.
Speaker 17: And we didn't used to do that, and we you know,
Speaker 17: look for things like recognizable ingredients and for a little
Speaker 17: while we thought, hey, well it's it's got to be
Speaker 17: better than meat, but then those it's not necessarily the
Speaker 17: case any A lot of people raise questions about that,
Speaker 17: so it's it's a tough sell right now.
Speaker 3: There's also the environmental question. And you know, it's funny,
Speaker 3: like I we went through as a family like a
Speaker 3: whole Okay, we're going to eat the Beyond and impossible stuff.
Speaker 3: And I think it was like summer of twenty twenty
Speaker 3: during the pandemic, when everybody else did it too, and
Speaker 3: I was like, oh, this is so much better than meat,
Speaker 3: and then we got totally sick of it and don't
Speaker 3: eat it anymore. But the one kind of saving grace
Speaker 3: is that environmentally is it better than beef, because we know.
Speaker 2: This isn't that the new lane that they're pursuing the environment.
Speaker 17: It is absolutely no question about it better than meat
Speaker 17: for the environment. There's just that's like beef is so
Speaker 17: bad for the environment that anything is better. Can and
Speaker 17: pork are better too, but beyond meat is better than
Speaker 17: all of those, no question.
Speaker 18: But so are lentils. And I'll just put a shout
Speaker 18: out for caviar lentils, which are really.
Speaker 3: Good and it sounds fancy.
Speaker 17: You would think that they are kind of fancy in
Speaker 17: the lentil world, but they're still a lot cheaper than
Speaker 17: right on meat.
Speaker 3: Putting it on my shopping lists.
Speaker 17: Buy them on Amazon.
Speaker 4: They're right there.
Speaker 17: They're great, and like people are, there's so much more
Speaker 17: in the world of non meat center a plate and
Speaker 17: meal options than just alternative meats, which really, you know,
Speaker 17: it's ten years, isn't or ten plus users. Years is
Speaker 17: in some way a long time for a company to
Speaker 17: find its footing. But in the history of our diets,
Speaker 17: ten years is it's still a pretty new product. And
Speaker 17: we've eaten meatless before them, and we'll eat meatless without them.
Speaker 2: Well, you know, I think about all the reporting you
Speaker 2: guys are doing a business week on the plant based
Speaker 2: protein world, and I do wonder is it a case
Speaker 2: that they just haven't figured it out, because you say,
Speaker 2: ten years is still kind of short, right in terms
Speaker 2: of the food world. It's a company that you note
Speaker 2: in the story hasn't recorded profit since early twenty twenty.
Speaker 2: What do food industry folks say, What does the analyst community,
Speaker 2: investor community say? Well, after there's a time for them
Speaker 2: to pull the cord. Well, one of.
Speaker 17: The questions during earnings this week was maybe they needed
Speaker 17: to recalibrate their expectations and maybe they're more of a
Speaker 17: three hundred million dollar business and Ethan Brown, Yeah, Ethan
Speaker 17: said absolutely not. And he pointed to like what's going
Speaker 17: on on college campuses where young people want to eat
Speaker 17: less meat, And that's true, young people do want to
Speaker 17: eat less meat. But what comes to mind constantly is
Speaker 17: the reference to these products as like a gateway drug
Speaker 17: to eating less meat. A lot of people try them. Okay,
Speaker 17: well not my favorite or maybe I like it. Now
Speaker 17: I'm open to more meatless options, and that's that's actually
Speaker 17: great for the planet, but for beyond me, that's not
Speaker 17: so good.
Speaker 3: Just for some context to that common Dina. So, back
Speaker 3: in twenty nineteen, the market cap was more than fourteen
Speaker 3: billion dollars and now it's under a billion dollars. So
Speaker 3: that's a big move, that is it. That's a huge move.
Speaker 18: Yeah, I want to go back.
Speaker 3: To your story that's in the current issue of Bloomberg
Speaker 3: BusinessWeek talking about the success or rather failure of Beyond
Speaker 3: Meat in China. Are there any examples of sort of
Speaker 3: these new wave of foods, like you know, I don't
Speaker 3: know plant based milks or plant based eggs that actually
Speaker 3: have found success in China that you found.
Speaker 17: So actually, Oatly has done relatively well in China. They're
Speaker 17: in a lot of a lot of restaurant partnerships, coffee shops,
Speaker 17: et cetera.
Speaker 18: They have a pretty wide reach.
Speaker 17: But even Oatly has said that the sales have just
Speaker 17: not recovered as quickly post pandemic as they expected.
Speaker 18: Eat just the plant based egg maker.
Speaker 17: They were doing pretty well on a small scale in
Speaker 17: China pre pandemic, but they're no longer sold there because
Speaker 17: of what they say are basically issues with custom and
Speaker 17: trying to just get their product into the country without
Speaker 17: it spoiling so and impossible.
Speaker 18: Of course, really wanted to go to China and.
Speaker 17: Hasn't entered yet because they have a genetically modified ingredient
Speaker 17: that hasn't gotten approval.
Speaker 3: Is that heme?
Speaker 4: Is that what it is?
Speaker 17: That's the soiling hemoglobin oh okay, which is known as HEME.
Speaker 3: Yeah, so it's okay to be sold in the US,
Speaker 3: but has not been approved for China.
Speaker 17: Yes, And it also hasn't been approved in the EU,
Speaker 17: So yeah, they can't sell there.
Speaker 2: Does it make sense for them to come back and
Speaker 2: focus on the US market and see if they can
Speaker 2: figure it out?
Speaker 17: They've been trying to reduce their expenses and how much
Speaker 17: they're spending, and so I think that's a really good question.
Speaker 18: Why are you.
Speaker 17: Still spending so much money in China where you're just
Speaker 17: not gaining traction. Why don't you bring those resources home?
Speaker 17: And I wish they had commented for the story because
Speaker 17: I think that they should address.
Speaker 3: That they know how to reach you.
Speaker 18: I bet they did me took they do.
Speaker 2: Just to wrap up, how do you think about like
Speaker 2: what you know? Because you guys have done so much
Speaker 2: reporting it with cover like on this whole world, Like
Speaker 2: what's the next thing that's kind of on your radar?
Speaker 2: How you think about it?
Speaker 17: Well, I think we're seeing consolidation in this industry right now,
Speaker 17: and one of the questions is whether all of this
Speaker 17: consolidation will eventually mean better product on the shelf for consumers.
Speaker 18: And what I wonder.
Speaker 17: I am actually pretty confident that this industry is going
Speaker 17: to make better products. I just wonder if by the
Speaker 17: time those products hit shelves whether anybody's even going to
Speaker 17: be interested in buying them that they like. I wonder
Speaker 17: if they had their big shot and they're ever going
Speaker 17: to I wonder if they're going to get it again.
Speaker 2: All right, Really cool stuff and so relevant because we
Speaker 2: all keep talking about it and trying to figure out
Speaker 2: like kind of what is the way forward? If you
Speaker 2: will for it? Dina, thank you so much.
Speaker 14: Thank you.
Speaker 2: The story in the current issue double issue of Bloomberg Business.
Speaker 2: Withekdina Shanker. She's a Bloomberg News consumer reporter joining us
Speaker 2: in studio.
Speaker 3: Yeah, I love her. Anything. Do you cover anything outside
Speaker 3: of because every time we talk to you, it's always
Speaker 3: it's always beyond me. It's impossible.
Speaker 17: I would cover all the package food companies, but it's
Speaker 17: just these companies just keep every I'm always I got
Speaker 17: to get out of this beak.
Speaker 2: No, don't get out of it.
Speaker 14: Oh I want to try.
Speaker 2: Oh this is too much. Else do you read it?
Speaker 18: But I can't do I eat it. I don't.
Speaker 2: Okay, Okay.
Speaker 17: I actually I hate when I go to a barbecue
Speaker 17: and they know I don't eat me and then so
Speaker 17: they think and they give me like a beyond taking notes.
Speaker 18: All right, thank you, thank you.
Speaker 1: You're listening to the Bloomberg Business Week Podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern Listen on
Speaker 1: Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business App,
Speaker 1: or watch us live on YouTube.
Speaker 2: We've been talking about a lot of different companies, Disney, Amazon,
Speaker 2: We got to talk a little bit about Rework because
Speaker 2: man shares of the company falling off a cliff, down
Speaker 2: more than thirty eight percent today's session. It is a
Speaker 2: twelve cent. Wow, a share stock.
Speaker 3: That's called that's a penny stock sheets, I mean, Carol.
Speaker 3: This is a company whose stock has plunged ninety eight
Speaker 3: percent since it went public in October twenty twenty one,
Speaker 3: wiped out nearly nine billion dollars in market value. It's
Speaker 3: because the company's bleeding cash. Customers of its office rentals
Speaker 3: are canceling their memberships and droves and oh yeah, we
Speaker 3: worked seity yesterday that there's quote substantial doubt about its
Speaker 3: ability to continue operating. This is a stunning fall. I
Speaker 3: just think back to, you know, a few years ago.
Speaker 3: This was the company that bought the you know, Lord
Speaker 3: and Taylor building. Right we were talking about this as like, okay,
Speaker 3: there's nothing more emblematic right now than physical retail being
Speaker 3: overtaken by a coworking space. Remember, it was a company
Speaker 3: that was once valued at forty seven billion dollars, making
Speaker 3: it one of the most prize startups in America. Let's
Speaker 3: get into it with Ellen Hewittt. She's a Bloomberg New
Speaker 3: Startup reporter who writes about we work Today and one
Speaker 3: of the most read stories on the Bloomberg terminal. Ellen,
Speaker 3: good to have you with us. You've been all over
Speaker 3: this story. When did things get really bad for WE Work?
Speaker 3: Because when it went public via that spack there was
Speaker 3: hope that hey, it could actually turn itself.
Speaker 8: Around, right, I mean, it's been a tough journey for
Speaker 8: we Work. They had this huge implosion in twenty nineteen
Speaker 8: when Adam Newman tried to take it public that obviously
Speaker 8: didn't work. He resigned. There was a lot of tumult
Speaker 8: and this new.
Speaker 3: CEO we learned about community adjusted ebitda.
Speaker 8: Yes, okay, and all the good stuff from the perspectives
Speaker 8: if you remember the Wee family, the trademark of the
Speaker 8: trademark family of we and all other things like that.
Speaker 3: It's crazy.
Speaker 2: We work, we live, we grow, we spend.
Speaker 7: Yes.
Speaker 2: Yes, it was the cover of Bloomberg Business Week in
Speaker 2: twenty nineteen. Remember anyway, go ahead, Yeah.
Speaker 8: Remember elevating the world's consciousness all that stuff. That was
Speaker 8: a good time, especially as a reporter covering that company
Speaker 8: was so exciting. There was news every day. And then
Speaker 8: in twenty twenty they had a new CEO come in,
Speaker 8: Sandy Pathroni. He came in in February twenty twenty, which
Speaker 8: is a tough time to be taking over as co,
Speaker 8: you know, CEO of a an office startup, so he
Speaker 8: inherited a pretty tough job. And we work offices emptied
Speaker 8: out in the firsts in the first year of the pandemic,
Speaker 8: you know, dropping to below fifty percent occupancy. It took
Speaker 8: them more than two years to return occupancy levels to
Speaker 8: the levels that they had been in late twenty nineteen.
Speaker 8: And the company, you know, it has survived, but it
Speaker 8: has not thrived. You know, it did go public in
Speaker 8: late twenty twenty one via spack, but the share price
Speaker 8: has dropped, you know today is something like ninety eight
Speaker 8: percent since since its original debut, and it just has
Speaker 8: not been able to have the turnaround that they had
Speaker 8: hoped for.
Speaker 2: So, Ellen, is this a case of a company, you know,
Speaker 2: kind of cool idea in the beginning, oh my gosh,
Speaker 2: pandemic kind of screwed it up. Or is it just
Speaker 2: a company that just kind of didn't really make sense?
Speaker 8: I you know, what's so interesting about we were is
Speaker 8: I think compared to some of the other vaporware ish
Speaker 8: startups that you see in Silicon Valley, we were kind
Speaker 8: of product that worked that people wanted, that they were
Speaker 8: willing to pay for. You know, they wanted to have
Speaker 8: office space. To me, it made sense, I think. You know,
Speaker 8: during the Newman era there was all this abuiliance and
Speaker 8: and sort of extravagant spending and all these reasons that
Speaker 8: the company probably grew too quickly and it spooked investors
Speaker 8: and all that stuff. But you know, since then, one
Speaker 8: would think that it should be able to make things right. Obviously,
Speaker 8: the pandemic was quite difficult, as it would be for
Speaker 8: any office startup, but you're not seeing like Regis and
Speaker 8: other competitors, you know, having the same issue that we
Speaker 8: work as right now. So it raises a question of
Speaker 8: whether this is something specific to we work and why
Speaker 8: that might be the case.
Speaker 3: I want to go back to something that you said.
Speaker 3: They were able to return to twenty nineteen vacancy rates
Speaker 3: within two years after the pandemic.
Speaker 9: Yeah.
Speaker 8: Yeah, that was an announcement in came in summer of
Speaker 8: twenty twenty two, and so yeah, I mean they had
Speaker 8: been making slow progress. They did close a lot of
Speaker 8: their office locations. That was a big push in the
Speaker 8: post Newman era, so exit some of the leases.
Speaker 3: Okay, So so let me just make sure I get
Speaker 3: this stat right then, So that was the rate, that
Speaker 3: being the percentage of occupancy, So it wasn't on a
Speaker 3: basis of you know, total number of people who were there,
Speaker 3: because they actually had fewer.
Speaker 8: They reduced their space, right, Yeah, they reduced their spaces.
Speaker 8: So it's something like seventy two percent occupancy. And of
Speaker 8: course they've tweaked a little bit how that metric is
Speaker 8: measured over the years, but you know, they celebrated it
Speaker 8: at the time as a reasonable marker of you know,
Speaker 8: return to power, and I think that was reasonable. It
Speaker 8: just seems like they haven't been able to hold on
Speaker 8: to that. That number actually dropped in this quarter compared
Speaker 8: to the last quarter, and clearly they're projecting that things
Speaker 8: are not going to are probably not going to work
Speaker 8: out for them.
Speaker 2: It is kind of interesting, right in the uberization of
Speaker 2: the world, as we talk about of like sharing cars,
Speaker 2: sharing homes, airbnb, like all this stuff, like we're kind
Speaker 2: of cool about this, We're open to it. It does feel,
Speaker 2: especially in a post pandemic world, as you said earlier,
Speaker 2: that this would be the ideal model, right of companies.
Speaker 2: I've heard it from companies like post pandemic they're like, yeah,
Speaker 2: when we need some space, we just rent it, you
Speaker 2: know what I mean. When we need to bring employees together,
Speaker 2: we just rent it. Now, mind you, we're hearing more
Speaker 2: about people coming back to the office and so on
Speaker 2: and so forth. But I do wonder about kind of
Speaker 2: what's next for them.
Speaker 8: Yeah, I think it's a big question because it did
Speaker 8: seem like they were putting forth a pretty plausible story,
Speaker 8: which was in a time of uncertain working from home
Speaker 8: versus office and the time of hybrid workplace that employers
Speaker 8: might not want to sign ten year leases to have
Speaker 8: their own office space, but when instead turned to flexible
Speaker 8: office providers like we Work or like any of its rivals,
Speaker 8: and one would think that would make sense. You know, clearly,
Speaker 8: if they're making this disclosure, something is not working at
Speaker 8: We Work, and you know, it could just be that
Speaker 8: they haven't been able to stop the bleeding. They've just
Speaker 8: they've continued to lose money and that hasn't changed.
Speaker 2: All, Right, permanent CEO? Could that help something? Could that
Speaker 2: help help out the story?
Speaker 19: Right?
Speaker 8: They've also been looking for a CEO since May when
Speaker 8: Sandy Pathroni, who had come over to you know, sort
Speaker 8: of oversee this turnaround, left somewhat abruptly, you know, suddenly
Speaker 8: enough that they did not have a replacement in mind.
Speaker 8: So they've had an interan CEO. Their CFO then left
Speaker 8: a week after that. They actually had a big board
Speaker 8: member turnover in this on Tuesday, which they announced, you know,
Speaker 8: three board members tacking down and four new ones replacing them.
Speaker 8: There's tumult and I don't know what kind of person
Speaker 8: wants to become CEO of that company, but hopefully someone
Speaker 8: does and we can we can find out who that
Speaker 8: might be.
Speaker 3: So just thirty seconds left, Ellen, What's what's the future
Speaker 3: of the company if it does end up having issues?
Speaker 3: If you know, it could file for bankruptcy. That's what
Speaker 3: that means essentially, if it has trouble as an ongoing concern,
Speaker 3: what ends up happening with people who who who are
Speaker 3: in the offices?
Speaker 8: You know, I imagine that competitors are excited to see that
Speaker 8: maybe they might be able to benefit from this, either
Speaker 8: by trying to luwer customers over to their own space,
Speaker 8: or you know, maybe there's someone who might want to
Speaker 8: come in and take over individual locations. I think that
Speaker 8: remains to be seen, but certainly there are other people
Speaker 8: who are I'm sure waiting to see if there's something
Speaker 8: they can capitalize on if we were to ends up
Speaker 8: going under.
Speaker 2: It's another great business school case study. Like it's really
Speaker 2: just fascinating, Ellen Hewett. We always love talking with you.
Speaker 2: Thank you, Thank you. Start us reporter at Bloomberg News.
Speaker 2: Check her out at Ellen Hewitt on Twitter or x
Speaker 2: whatever you want to call it on zoom from San Francisco.
Speaker 2: I still can't figure it out. I just can't. This
Speaker 2: is Bloomberg.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Easter on Bloomberg Radio,
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Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 2: One of the things we talk a lot about here
Speaker 2: at Bloomberg, we've done some great reporting what goes on
Speaker 2: with female founded startups. No secret that they account for
Speaker 2: only a tiny, tiny portion of the venture capital that's
Speaker 2: deployed each year. So here's some numbers for you. In
Speaker 2: twenty twenty one, for instance, female founders secured only two
Speaker 2: percent of venture capital in the US. That's according to
Speaker 2: the research firm pitchbook that follows all this tim and
Speaker 2: that was a.
Speaker 3: Year that VC money really flowed. I mean twenty twenty one,
Speaker 3: those were the boom years. The last eighteen months have
Speaker 3: been a different story entirely. We've got with us right
Speaker 3: now Test name do hud Wala, founding partner of excel
Speaker 3: Star Ventures. The VC firm says it invests in quote
Speaker 3: clear disruptive technology. They've got a lot of medtech on there,
Speaker 3: really cool stuff and really cool companies that they've invested in.
Speaker 3: They're also passionate about funding women and minority led companies.
Speaker 3: Very pleased to have a test name with us this afternoon.
Speaker 3: So test name, give us an idea of what you've
Speaker 3: experienced and what you've experienced working as a VC, and
Speaker 3: also what you've experienced as far as the companies that
Speaker 3: you funded. Is this a is the problem? I kind
Speaker 3: of know the answer here, but I'm still going to
Speaker 3: ask this anyway. Is the problem that only two percent
Speaker 3: of the companies are actually founded by female founders?
Speaker 2: No?
Speaker 20: I mean I think that there it's a systemic problem,
Speaker 20: and I think that the issue is that it's an
Speaker 20: everybody problem. It's not just you know the funds that
Speaker 20: are focused on investing in women. Everybody needs to work
Speaker 20: at this problem. So for example, I know that in
Speaker 20: VC firms, only twelve percent of VC firms have women
Speaker 20: as decision makers, and sixty five percent of the VC
Speaker 20: firms still don't even have a single female partner, and
Speaker 20: females are noted to be more likely to invest in
Speaker 20: female led companies. So I think that itself, we just
Speaker 20: don't have enough women investors in decision making roles investing
Speaker 20: in women. So I that's one of the issues, Testy.
Speaker 2: I want to jump in enough there for a moment,
Speaker 2: because I remember Bloomberg did a story I think it
Speaker 2: was out during the pandemic, and it was even about
Speaker 2: female venture capitalists were less inclined to even invest in
Speaker 2: female founded ventures and whether it was pressure within a
Speaker 2: firm or what have you. It's just like everyone stays away.
Speaker 2: Help me out. So go ahead, continue with your reasons why,
Speaker 2: because it's just mind blowing.
Speaker 20: So it's I think there's a little bit, Well, you know,
Speaker 20: this person is experienced entrepreneur, they've had several exits. Well,
Speaker 20: if you keep investing in just experienced entrepreneurs that have
Speaker 20: had prior exits, and you're probably going to keep investing
Speaker 20: in males because a lot of female led companies are
Speaker 20: first time entrepreneurs, and you have to be willing to
Speaker 20: take a risk on a first time entrepreneur, and it
Speaker 20: may appear more risky. But I also think some of
Speaker 20: it has to do with the way we ask questions.
Speaker 20: There's been a lot of research that says that all
Speaker 20: investors ask women more sort of risk mitigation type questions,
Speaker 20: and we ask men growth mindset questions. And so if
Speaker 20: you're going to change the way you ask questions to
Speaker 20: your entrepreneurs, you're going to have a different outcome in
Speaker 20: the way you perceive the company. So, for example, at
Speaker 20: excel Start, we have a really structured way we do diligence,
Speaker 20: and so we make sure that we're asking same type
Speaker 20: of questions to all of our entrepreneurs. We have a
Speaker 20: quantitative and a qualitative way that we do it. We
Speaker 20: have matrix that we fill out and a really robust report.
Speaker 20: But if you're sort of just flying by the cede
Speaker 20: or cuffs, then your own subconscious biases are going to
Speaker 20: determine what type of questions you're asking, and that changes
Speaker 20: the outcome of how you perceive the company and the
Speaker 20: opportunity that it may be that it may have.
Speaker 3: What do the data show as far as returns and
Speaker 3: who's leading companies?
Speaker 18: So I mean, if you.
Speaker 20: Think about the data right now, I think there's only
Speaker 20: been twenty women who have ever led a company to
Speaker 20: an IPO. And I don't think that's because women don't
Speaker 20: want to lead companies to IPOs. I think that there's
Speaker 20: a bias. One of our companies just recently was determining
Speaker 20: whether they wanted to hire a certain executive and not
Speaker 20: the CEO role, but in a very senior important role,
Speaker 20: and there was some question around whether or not that
Speaker 20: women would be able to potentially in a few years
Speaker 20: be a key management director while leading the company to
Speaker 20: an IPO, and a few not just myself, but another
Speaker 20: male board member spoke up and said, well, she we
Speaker 20: haven't even hired her. Let's get her in the door,
Speaker 20: let's see how she does, and we'll make a decision
Speaker 20: when the time comes whether or not she'll be suited
Speaker 20: to be in the role during an IPO. So there
Speaker 20: are some assumptions that are made before women can even
Speaker 20: get into the door and make an impact in the company.
Speaker 2: So Devil's advocate a little bit, because I do believe,
Speaker 2: especially in a capitalistic society, that money talks. And if
Speaker 2: there's a good business, I don't care if a monkey
Speaker 2: or a frog is running it, like people are going
Speaker 2: to invest in it. Is there something else that's missing
Speaker 2: that just I mean, look at the creator of spanks.
Speaker 2: She created a billion dollar business like people women create,
Speaker 2: you know, Kardashians like whatever, go everywhere you want, like
Speaker 2: people create billion dollar Oprah, like people create. Women specifically
Speaker 2: create successful businesses. But I'm just I'm wondering if there's
Speaker 2: something else missing in the trajectory that doesn't allow women
Speaker 2: to take their ideas and really run with it or
Speaker 2: attract again the investors that ultimately create a female run
Speaker 2: Google alphabet, a female run Tesla. You know what I mean?
Speaker 20: Well, I think that I do think that there are
Speaker 20: a female I think a lot of females. When you
Speaker 20: think about entrepreneurs, a lot of them are thinking about
Speaker 20: what is in their realm of expertise or what have
Speaker 20: they experience in life that drives them to found a
Speaker 20: certain company. Right, So, if a female is finding founding
Speaker 20: a company based on the female experience, and she's pitching
Speaker 20: it to male venture partners, there is a possibility that
Speaker 20: isn't going to resonate, and we have to look we
Speaker 20: have to look at the reality that we're faced with.
Speaker 20: If you're if the decision are going to be men
Speaker 20: and they're the ones who are you know, owning the
Speaker 20: lion's share of investment dollars, then you have to I'm
Speaker 20: not telling you to change your idea. What I'm suggesting
Speaker 20: is that you people need to be aware. Women need
Speaker 20: to be aware of these biases and then adjust their
Speaker 20: pitch such that it may still be a wonderful opportunity
Speaker 20: based on the male experience, but they need to make
Speaker 20: sure that they present it in a way that resonates
Speaker 20: with their male counterpart. Not everything about the female experience
Speaker 20: will resonate with males, and so you have to perhaps
Speaker 20: adjust your pitch. Think about how you know, how are
Speaker 20: you doing the market sizing, what are you talking about exits?
Speaker 20: Do you have enough exit potentials? A lot of times,
Speaker 20: for example, if in a women's health company, whether we
Speaker 20: like this or not, in medtech, there aren't that many
Speaker 20: large medtech players that have sizeable women's health divisions, and
Speaker 20: so if you have a women's health med tech company.
Speaker 20: But you don't have perhaps a very distinct way of
Speaker 20: exiting to a sizable acquir that shows an acquisitive nature.
Speaker 20: An investor is going to push back on that, so
Speaker 20: I go ahead.
Speaker 2: No no, no, no, no no no, you're saying really
Speaker 2: smart things. I guess that I'm just thinking again, I'm
Speaker 2: playing Devil's advocate. Like if Mark Zuckerberg had been Maria
Speaker 2: Zuckerberg and she created Facebook, would would she have gotten
Speaker 2: the money to create Facebook?
Speaker 5: Now?
Speaker 2: Meta?
Speaker 20: I don't know, because I do see some of our
Speaker 20: female entrepreneurs and they are fab many of them. I mean,
Speaker 20: some of them have issues just like our male entrepreneurs do.
Speaker 20: But I just find that females also don't have as
Speaker 20: much of a network. I don't know if it's the
Speaker 20: sort of that old boys network that continues to prevail,
Speaker 20: but they just don't seem to know enough investors. And
Speaker 20: I also find them that they're not as assertive with
Speaker 20: their investors and asking for introductions. So only my male
Speaker 20: for example, when we're sitting on the board and we're
Speaker 20: sort of well, I have this company and we're experiencing
Speaker 20: X y Z, this could be helpful. These are why
Speaker 20: my thoughts are this and I'm giving advice to a company.
Speaker 20: Most of the time, my male CEOs will say, hey,
Speaker 20: can you introduce me to that CEO so I can
Speaker 20: learn a little bit more about you know, what you're
Speaker 20: talking about, so I can really understand, whether it be
Speaker 20: clinical design or you know, acquiring customers something another company.
Speaker 20: It's very rare that a female will proactively ask me.
Speaker 20: It happens, but a will proactively ask me to make
Speaker 20: introductions for them. I have to offer. I will go
Speaker 20: back and look at my rolodex and say who can
Speaker 20: I introduce you to? But they will not proactively ask
Speaker 20: me as an investor to make introductions for them, which
Speaker 20: I have some but that makes a big difference.
Speaker 2: We're going to let the guy wait. The guy in
Speaker 2: the room want to say, I just want to ask
Speaker 2: a question quick.
Speaker 3: I just want to ask a question. Okay, just you
Speaker 3: know one phrase. The most exciting area you're investing in
Speaker 3: right now?
Speaker 2: Ooh?
Speaker 20: Personalizable tailored medtech companies that function very much like therapeutics,
Speaker 20: and their functionality is able to basically shift and conform
Speaker 20: to the anatomy of our human bodies and able to
Speaker 20: really create therapy in a way that only therapeutics have
Speaker 20: been able to do in the past.
Speaker 2: I have to say, I have a niece's a doctor
Speaker 2: and she has a good friend that has a doctor
Speaker 2: to and they say, it's amazing, like the differences of
Speaker 2: things that aren't done for women in healthcare and medical devices. Well,
Speaker 2: I'll talk to you about it, but it's just the
Speaker 2: perspective and things that are covered by insurance for men
Speaker 2: versus women. And just Matt talked about it with breastfeeding
Speaker 2: for his wife specifically, and just things you know that
Speaker 2: come problems and stuff that you know there isn't research
Speaker 2: followed for women. So you make such a valid point,
Speaker 2: and you think about the in roads. And I also
Speaker 2: think about if this money isn't going to these companies
Speaker 2: women I was starting companies like you, think about if
Speaker 2: they were allowed to run with it, what kind of
Speaker 2: businesses they would create, What that would mean for you know,
Speaker 2: public companies, market caps, economic momentum, right, job hiring. How
Speaker 2: much we are ignoring at this point.
Speaker 20: There is actually a company that I know that would
Speaker 20: have been a fabulous company, would have changed the trajectory
Speaker 20: of a disease that we all struggle with as women
Speaker 20: and Unfortunately, because the Acquirer spun off their women's health division,
Speaker 20: the technology was shelved even after they paid a lot
Speaker 20: of money for it and never made it to market.
Speaker 20: It's really sad.
Speaker 2: That's amazing. That's amazing. Hey, listen, incredible stuff. Come back soon.
Speaker 2: We'd love to continue this conversation with you. I really
Speaker 2: feel like this was a very productive one because I
Speaker 2: feel like it's a topic we've talked about for years,
Speaker 2: but you really got to some of the core of
Speaker 2: the problems. Tousney Dohadwala, she's founding a partner at Excelstar Ventures,
Speaker 2: joining us on zoom from Boston. Really cool conversation.
Speaker 3: Yeah, a lot of cool companies they've invested in note
Speaker 3: but Data, Augmenis and more. This is Bloomberg.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern Listen on
Speaker 1: Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business App,
Speaker 1: or watch us live on YouTube.
Speaker 2: So you might recall our next guests, who we introduced
Speaker 2: to you just a few months ago, two small business
Speaker 2: owners with interesting backstories, Cheri and Tracy Sifax, who also
Speaker 2: happened to be husband and wife. They co founded the
Speaker 2: online dating service Just the Facts.
Speaker 3: It's not just online dating though that they're doing. They're
Speaker 3: also expanding their real estate portfolio. Most recently, the pair
Speaker 3: entered the hospitality sector, purchasing Booker's Restaurant in West Philadelphia
Speaker 3: earlier this year. Bloomberg News Deputy team leader for US
Speaker 3: Equities Jess Menton and I asked Shari and Tracy White,
Speaker 3: now is the right time to take a chance on
Speaker 3: a restaurant the restaurant space.
Speaker 7: But this is going great. We are selled up twenty
Speaker 7: six percent over the first quarter, and we are excited
Speaker 7: to be in this position. As you know, we kept
Speaker 7: the majority of the staff, maybe seventy five percent of
Speaker 7: the staff we kept there, so we didn't change much,
Speaker 7: but we elevated the menu, added some special drinks, and
Speaker 7: it's been a real great ride.
Speaker 13: It's an interesting dynamic because, especially coming out of the
Speaker 13: pandemic right tim when you think about how challenging it's
Speaker 13: been for specific restaurants.
Speaker 3: Exactly where my head was going to go, Yeah, Like,
Speaker 3: if you're going to buy a restaurant twenty twenty three,
Speaker 3: when you're coming out of a pandemic, tracy is not
Speaker 3: really the time to do it. Can't find labor, Yes,
Speaker 3: costs are going through the roof, food costs are going up,
Speaker 3: and then you have this whole pandemic thing that you
Speaker 3: got to worry about. What's the uh, you know, What's
Speaker 3: why take a risk like that?
Speaker 2: Well, we felt we looked at the model.
Speaker 7: The previous on Asaba had built a great model over
Speaker 7: six years, so she had built the sess. It was
Speaker 7: already pretty much there when we inherited the restaurant, and
Speaker 7: we just really felt with our profile and our social
Speaker 7: media presence that we can elevate it and market it
Speaker 7: in a whole different light. Bookers is located not too
Speaker 7: far from the colleges, the hospitals, so it's in a
Speaker 7: prime area for that type of growth. So we really
Speaker 7: felt that we could really enhance Bookers by just our presence.
Speaker 13: I'm curious what y'all are seeing when it comes to
Speaker 13: because Tim brought up labor and obviously when you think
Speaker 13: about inflation issues with what you're seeing, what do you
Speaker 13: think this tells us about the direction of the economy.
Speaker 19: Well, a couple of things. I think the economy is
Speaker 19: doing better than initially when we started talking about recession
Speaker 19: and everyone was concerned and worried, and even we were
Speaker 19: because we were in the middle of negotiations during that time.
Speaker 19: We felt good about our business evaluation and the ability
Speaker 19: to retain employees. The really great thing about being in
Speaker 19: West Philadelphia and Philadelphia period is very neighborhood centric. So
Speaker 19: a lot of our employees come right from the neighborhood.
Speaker 19: They can walk to work. So it's rare that you're
Speaker 19: able to walk to work and not have to work
Speaker 19: in center city and still be able to make a
Speaker 19: really good wage. Those things helped us retain and have
Speaker 19: helped us grow.
Speaker 13: How challenging is that from a business perspective because I
Speaker 13: feel like at Bloomberg Great Tim, we're always talking about, oh,
Speaker 13: the employment costs index, and it's really challenging for businesses
Speaker 13: as far as to keep up with that type of
Speaker 13: wage growth. From your perspective and what you hear anecdotally
Speaker 13: from your employees, what is that challenge like?
Speaker 19: Yeah, So what we think about is every dollar that
Speaker 19: we spend, we have to figure out what that return
Speaker 19: on investment is. So we have to look at every
Speaker 19: single line item. We've done well with having a fractional
Speaker 19: CFO that really helps us look at not just the
Speaker 19: food and things like that.
Speaker 3: We adusait explain what afractional CFO is. I mean, it
Speaker 3: sounds like it's pretty self explanatory, but so differently saying
Speaker 3: a part time CEO.
Speaker 19: Basically a part time CFO. Our accountant has that service
Speaker 19: and they offer that. And I think sometimes when we
Speaker 19: go wrong in business, especially at entrepreneurs, is that we
Speaker 19: try to do it ourselves. We try to wing at ourselves,
Speaker 19: and having that outside help really helps us look at
Speaker 19: every single line item so we know how what percentage
Speaker 19: we want our labor to be. We know what percentage
Speaker 19: we want our expenses to be as far as food,
Speaker 19: so we have to look at those things. Obviously, we
Speaker 19: have to look at everything and make adjustments for inflation
Speaker 19: and look at wind eggs are up, wind, butters up,
Speaker 19: you know, those types of things to adjust pricing accordingly.
Speaker 13: It's funny because McDonald's has this sort of fry indicator
Speaker 13: as far as how many people are adding those on
Speaker 13: to where they can tell this is what an indicator
Speaker 13: means for the economy. I'm curious if you have any
Speaker 13: sort of way to gauge. As far as when it
Speaker 13: comes to spending in the consumer, well, at.
Speaker 19: This point, we're what five four months, and so everything
Speaker 19: is still a first for us. But we're definitely looking
Speaker 19: at the market. We definitely look at our sales versus
Speaker 19: last year. We look at how many seats, not just
Speaker 19: what the revenue number is up, but actually how many
Speaker 19: people are coming into the restaurant. So we're assessing all
Speaker 19: that data and that that helps us with our forecasting
Speaker 19: and it helps us build out knowing how much we
Speaker 19: need to make sure staff is proper we're properly staffed,
Speaker 19: and that we have enough inventory so that we have
Speaker 19: we're able to serve our customers with our menus.
Speaker 3: Hey, Tracy, give us an idea of how you think
Speaker 3: the economy is based not just on the restaurant, but
Speaker 3: the work that you've done in real estate development, what
Speaker 3: you're seeing in your other businesses right now.
Speaker 4: Yeah.
Speaker 7: Well, I always believed in real estate as someone who
Speaker 7: started my first investments in early two thousand. Even when
Speaker 7: the market crash in two thousand and eight and I
Speaker 7: lost millions of dollars in the real estate crash, it
Speaker 7: was still my saving grace as I came out of
Speaker 7: that that allowed me to continue to do business and
Speaker 7: actually eventually buys Booker. So I'm always big on economy.
Speaker 7: I really believe in us. I believe that what we
Speaker 7: can do as a husband and wife team that gives
Speaker 7: me a bright look on what the economy can bring.
Speaker 7: So I really believe that our combination has really been
Speaker 7: the proven recipe.
Speaker 3: It's less about what's happening externally for you, yes, and
Speaker 3: more about what the two of you can sort of
Speaker 3: like what I'm hearing from you is it doesn't matter
Speaker 3: how the economy is because you guys can weather it.
Speaker 5: Oh.
Speaker 2: Absolutely.
Speaker 7: I'm thirty years as being a serial entrepreneur, so I've
Speaker 7: seen the highs and the lows. I really have felt them.
Speaker 7: So really believe that even when we have a bad economy.
Speaker 7: I think good business, good customer sells in any economy.
Speaker 3: But do we have a bad economy right now?
Speaker 7: I don't believe, so, I don't believe so.
Speaker 19: Yeah, And real estate has always been my anchor as well,
Speaker 19: so when we put it all together, that really gave
Speaker 19: us leverage to do a lot of other things. So
Speaker 19: real estate does always tend to be that foundation that
Speaker 19: if you have that and you're able to get in
Speaker 19: on some really good opportunities that that propels you and
Speaker 19: can't propel you to other things, and you always can
Speaker 19: leverage it.
Speaker 13: Do you see any sort of red flags brewing at
Speaker 13: all when it comes to the real estate space? We
Speaker 13: always talk so much about when it comes to commercial
Speaker 13: real estate, But are there things beyond that type of
Speaker 13: area that you think you're a little weary about right now?
Speaker 7: Yeah, commercial real estate. Me and my wife, we was
Speaker 7: just talking about. We visit a lot of malls and
Speaker 7: we were just visiting the mall and some of the
Speaker 7: malls that we've been visited as we've been shopping, that's
Speaker 7: been pretty much non existent when it comes to customers
Speaker 7: inside stores like they used to be. So it's something
Speaker 7: that we definitely noticed in the commercial space.
Speaker 13: Is that something that would give you pause and you
Speaker 13: wouldn't want to go into that.
Speaker 7: I wouldn't want to open up a restaurant on the mall, Right, That's.
Speaker 19: Where I'm headed with that, And I don't know, we
Speaker 19: wouldn't have probably purchased the restaurant without being able to
Speaker 19: purchase the real estate. So we purchased the commercial space
Speaker 19: six apartments and things like that because it gives us
Speaker 19: so many more opportunities in the event that anything happens
Speaker 19: with the restaurant.
Speaker 3: What are you seeing the on the landlord tenants side?
Speaker 3: What are you seeing with the tenants right now?
Speaker 19: Yeah, so far, attendants have been great. We've been really,
Speaker 19: really fortunate. We believe that we offer a good product
Speaker 19: and that they acquiesce and they do their part of
Speaker 19: it too. So we're pretty accessible, We're pretty available, and
Speaker 19: we just haven't had any tenant landlord issues.
Speaker 3: No, but we like to talk to landlords too because
Speaker 3: they start saying, okay, well, late rents are a normal,
Speaker 3: normal part of being a landlord, especially if you have
Speaker 3: a lot of tenants. Absolutely, are we seeing more late
Speaker 3: rents now? Are we seeing people?
Speaker 19: You know? Pretty fortunate through the pandemic. We had two
Speaker 19: people that kind of took advantage of not paying and
Speaker 19: that's of what twenty sumidd tenants that was less than
Speaker 19: ten percent. Like, we were pretty fortunate. I think, you know,
Speaker 19: the beauty of Tracy being a developer. We keep our
Speaker 19: properties really well and things like that, so you have
Speaker 19: a good thing kind of why you know, mess it
Speaker 19: up when you think of certain urban communities and landlarns
Speaker 19: that are not as invested in your quality of life.
Speaker 19: So to Tracey's point about service and customer service, we
Speaker 19: just live the model up, provide a good product, and
Speaker 19: we'll get a good result.
Speaker 3: Do you guys do the day to day with that too,
Speaker 3: meaning do day to day work on that? Or do
Speaker 3: you have a management company?
Speaker 19: We have someone that helps us manage the overall. Yeah,
Speaker 19: but Tracy's able to assess whatever needs to be done
Speaker 19: and is able to, you know, get a team out
Speaker 19: there and take care of things.
Speaker 13: We only have about a minute left, but I have
Speaker 13: to ask about also your dating coaching business. You both
Speaker 13: met during the height of the pandemic virtually, so tell
Speaker 13: us a little bit quickly about your dating business.
Speaker 4: Yeah.
Speaker 19: So, I don't have as much time for it as
Speaker 19: I used to because of the restaurant, however, and it's
Speaker 19: shifted a little bit because it used to be like
Speaker 19: how I attracted my husband and all the positive things
Speaker 19: about that, and now is like how are me and
Speaker 19: my husband really doing business and day to day? But
Speaker 19: ultimately the messages, you know, fall in love with yourself,
Speaker 19: make sure you understand and know what you want. I
Speaker 19: love that the out of the relationship, do you Yeah,
Speaker 19: and then the thing that you want will will come
Speaker 19: and find you. Basically, do you have begtten the results
Speaker 19: you're looking for? You may want to adjust that, yes,
Speaker 19: because that's okay too.
Speaker 18: I love that.
Speaker 13: A great little lotto there. Well, Seri and Tracy Sifax.
Speaker 13: Great to have you both joining Tim Stenovic and myself
Speaker 13: here in the Bloomberg Interactive Brokers studio, who are the
Speaker 13: founders of just the facts, but then also they have
Speaker 13: all of these different small business entrepreneur type areas like
Speaker 13: we were just talking about with Booker's restaurant and bar.
Speaker 3: Oh, don't forget Sure's book too.
Speaker 13: Oh yes, and of course we have to talk about
Speaker 13: what's happening with her book as well with that, so
Speaker 13: people should check it out as far as second act,
Speaker 13: living boldly and abundantly at every age.
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