JPMorgan walks into another football firestorm

0:00Hey guys, it's Mark checking in from my time off. I wanted to let you know about the FT Weekend Festival happening on Saturday, September 5th at Kenwood House Gardens in London or online wherever you are. Spend the day with FT journalists, leading voices, and forward thinkers across business, politics, economics, culture, and the arts. As a podcast listener, you're going to save 10 % on tickets with the code FTPodcast. Just visit ft.com slash festival to find out more. We'll have that link in the show notes. Good morning from the Financial Times. Today is Friday, July 31st, and this is your FT News Briefing.

0:38Investors are giving Amazon a thumbs up, and JPMorgan and FIFA have kicked off a firestorm. Plus, radioactive material in mines in the Democratic Republic of Congo is raising security concerns. I'm Sonia Hudson, in for Mark Filippino, and here's the news you need to start your day.

1:12Amazon stock got a boost yesterday from its earnings report. The tech giant saw accelerated growth in its cloud business, Amazon Web Services, last quarter. sales rose 37 % year-on-year. That beat analyst expectations. But growth is only half the story. We told you earlier this week that investors are looking for tech companies to strike the right balance between AI growth and overall spending. Capital expenditure across Amazon increased last quarter and the group's free cashflow actually turned negative on a trailing 12-month basis. But investors seem to be satisfied and sent Amazon shares up in after-hours trading.

2:01Pushback to FIFA's plan to establish a$20 billion commercial entity has gotten louder and louder. Yesterday, Europe's football governing body said none of its countries would play in the next World Cup if the plan goes ahead, which spells trouble for FIFA and the bank helping fundraise for it, JPMorgan Chase. Now, the U.S. Bank is very familiar with how ferocious the backlash to a football project can be. Five years ago, it was forced to apologize for financing the failed launch of a breakaway Super League. Here to tell us what we can expect this time around is Arash Masoudi. He's the FT's finance and markets editor.

2:44Hi, Arash. Hey there. Okay. So can you tell us more about this$20 billion commercial entity and why fans are so upset about it? Yeah. Fundamentally, FIFO is a not-for-profit. It will create a new entity in which it will put all of the things it commercializes, think media rights, tickets, into a single entity, and it will sell a 20 % stake in that entity to financial investors. That money raised from the financial investors, which would equate to$4.2 billion, would then be distributed in equal$20 million payments to the 211 member associations of FIFA, some of which may have been starved of investment to allow them to invest in football.

3:23And then that will allow a sort of ripple effect of better football from these parts of the world, which will in turn make the overall pie of what FIFA produces and puts on every four years more valuable. That has triggered a lot of people who say what you're actually doing is selling the soul of the game. It's a not-for-profit. The people play for the spirit of their national teams. And when you turn it into just another financial product, like most things are these days in life, it totally takes away the spirit of the game and the soul of the game is being sold. Okay, so J.P. Morgan is helping out with this.

3:55They're going out to investors to try to raise that$4.2 billion. How have the community of investors that they might be approaching been perceiving this move? Well, so JP Morgan was brought into this project and they've been secretly working on it for months. And if they are to be believed, they are very busy. The phones are ringing off the hook and many people want to get in on this deal. Now, there is a bit of a plot twist here, which is that now there are threats emerging that essentially all European countries will withdraw from the World Cup, which would significantly impair the product that is put on every four years.

4:30And if you're an investor in this deal, I assume you probably want this to be the biggest and baddest competition. And if it splinters, you're investing in a completely different product to what you just watched on your screens for the last few months. Now, I'm sure JP Morgan does not want this to be a deja vu moment with its failed Super League involvement from five years ago. How have they responded to some of this unease from investors? I mean, JP Morgan and others who are on the deal. So we had an on-the-record interview with Greg Mathay, who's the former CEO of Liberty Media on Thursday. And they have basically pointed out that from their perspective, this is not a plan to establish a breakaway league like the European Super League.

5:15And what they say is this is no different to what you've seen happen with PGA and many other sports. This concept of creating a sub-entity and selling a stake in to then put money back into the system is one that is a playbook that a bank like JP Morgan has run many times. It's just that this is now run into the most kind of hypersensitive, probably, sporting asset in the world, which is the World Cup and FIFA. And it's run into a very, very big tension. Arash Masoudi is the FT's finance and markets editor. Thanks, Arash. Thank you. Thank you.

6:16joins me now to talk about what happened. Hi, Antoine. Hi, how are you? Doing well. So tell us a little bit about this firm, Situational Awareness. Well, it's a hedge fund that was started by a guy in his mid-20s named Leopold Aschenbrenner, and he had this really interesting background. He had worked for the nonprofit foundation attached to FTX, then was one of the early engineers at OpenAI, which is obviously one of the foundational AI startups. And he began to raise money for a hedge fund based on like, let's play this trade. And in addition to just buying the stocks, he had relationships with the largest banks on Wall Street to provide him extra leverage to amplify the bets.

7:04And then heading into July, the trade wobbled. And so some of these stocks, they could have been up five times or 10 times or 15 times this year, they began to fall. And when you use leverage, significant but not like catastrophic drops in a stock can start to get very painful. Well, that brings us to this crunch deal that came together yesterday. Tell us what we know about it. Well, what we reported was, you know, over the past couple of days, situational awareness could feel, you know, a bit of financial pressure or a lot of financial pressure. And so it was looking ways to either cut its exposure or raise capital.

7:44And so what we reported was he held talks with a lot of the large hedge funds to basically sell down most of his public portfolio. And ultimately, he did that by selling to Citadel. And we should say that neither situational awareness nor Citadel have commented on this. But Antoine, what does this all tell you about the state of trading on AI right now? Well, just like the Internet back in the 1990s, the smartest investors in the world really do believe AI is this new super cycle. But when these these kinds of trends happen, sometimes people will take on too much leverage to build up as big an exposure as possible, especially at the margins in in the kind of the more high beta or the more highly volatile parts of the AI trade.

8:37Antoine Guerra is the FT's U.S. private equity and deals editor. Thanks, Antoine. Thank you.

8:48The Democratic Republic of Congo is the world's largest producer of cobalt. The metal is an essential component in the batteries that power everything from smartphones to electric vehicles. But an FT investigation found that radioactive materials are often present at some of the DRC's biggest cobalt mines. This has raised concerns about whether people could use cobalt to smuggle uranium out of the country. Here to discuss the risks is the FT's Leslie Hook. She covers natural resources and mining. Hey, Leslie. Hi, Sonia. So what exactly did you find in your investigation? How did radioactive material end up in these mines?

9:30Well, uranium is naturally occurring across the southern part of the DRC. In fact, one of the world's highest grade uranium mines is there and produced the material that was used in the atom bombs in World War II. Now, that mine is long since closed, but uranium is naturally occurring in the region and is often mingled with cobalt and copper. Cobalt occurs alongside other metals and has to be processed several times before it's used. And Leslie, I mentioned earlier that this is raising some security concerns. Can you tell me a little bit more about that? Well, there's new scientific research that shows that the amount of uranium contained in the DRC's cobalt exports inadvertently at low grades actually amounts to a lot of uranium.

10:23This new research paper calculates that at least 2 ,000 tons of uranium left the country. Now, that's enough to run a large nuclear reactor for about a decade if it was enriched. So it's a pretty significant amount. Now, some officials and experts are worried this could be a means of smuggling nuclear material or at a minimum, a blind spot in the supply chain for uranium. Where is most of the cobalt going? Most of this cobalt is exported in the form of cobalt hydroxide. And the biggest processor of cobalt is China, which is also the world's biggest battery maker. And China is, of course, a nuclear power.

11:08They have a very large fleet of nuclear reactors as well as nuclear weapons. And we don't really know what happens to the uranium once it gets to China. It could be processed out of the cobalt, removed from the cobalt and end up in the waste heaps, or it could be extracted and used as a metal. So we don't know the answer, but a lot of people are certainly asking that question. Yeah. How are the DRC and other authorities approaching this issue? Well, DRC officials have been working for decades to control the naturally occurring radioactive material in the country. But the cobalt issue is kind of new.

11:48Cobalt production has really surged in the past decade with the rise of electric vehicles. So this is kind of a new channel to be worried about. One thing officials are thinking about doing is erecting radiation detection monitors that that each truck leaving the country along the main highway into Zambia would have to pass through. And they're also in discussions with international donors, including the U.S. government, around potential funding for better monitoring systems. Leslie Hook is the FT's Natural Resources Editor. Thanks, Leslie. Thanks, Sonia. You can read more on all these stories for free when you click the links in our show notes.

12:29This has been your daily FT News Briefing. check back next week for the latest business news. The FT News Briefing is produced by Safia Efmed, Fiona Simon, Victoria Craig, and me, Sonia Hudson. Our show is mixed by Alex Higgins and Sam Giovinco. We get help from Peter Barber, Michael Lello, David DaSilva, and Gavin Kallman. Our intern is Colvan Miltenberg. Our executive producer is Topher Forges. Flo Phillips is the FT's global head of audio. And our theme song is by Metaphor Music.

13:01Thank you.

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