Penn and ESPN Gamble on New Partnership & Credit Card Debt Soars Over $1 Trillion

0:00Stocks? ETFs? Or what about mutual funds? Choosing your investments is easier with Fidelity. Our step-by-step experience can help you pick out the right investments for you. Plus, with recurring investments, you can decide how much and how often to invest. Lastly, there's 24-7 help if and when you need it. To find your next investment, head to fidelity.com slash trading. Investing involves risk, including risk of loss. Fidelity Brokerage Services, LLC. Member NYSC SIPC. Good morning, Brew Daily Show. I am Neil Freiman. And I'm Toby Howell. On today's pod, American credit card debt hit a milestone that has got to be freaking out Dave Ramsey.

0:39And WeWork's roller coaster ride over the past few years just took a major turn. Then ESPN is finally jumping into the sports gambling world in a drama-filled deal that leaves Barstool Sports out to dry. Plus, a game designer is opening a new Holocaust museum in a surprising place, the Battle Royale game Fortnite. It's Wednesday, August 9th. Let's ride.

1:07Okay, so I played a board game. It was Settlers of Catan against Toby last night. And let me just say, if you want a calm, relaxing game night, Toby is not your guy. I mean, this was the most intense board game experience I've ever had. You could see this kid's competitive jeans kick in. There was pacing. There was yelling. I think there was even a little foaming at the mouth. Neil is being so mean to me. That's why. Was I? Settlers of Catan allows you to target certain players, and I felt like I was being unjustly targeted by you and your brother. So I'm surprised we're sitting here together today because I didn't think we were going to make it to the studio this morning.

1:46It got intense for sure. Neil ended up beating me, so there you go. Congrats to Neil. I know, but Toby, in all honesty, Toby is way better, and he was guiding me along. So thank you for your guidance and your mentorship in Catan. Toby's really good. He plays online a lot. So if you want to play, Toby, do you have like a username or something? I'm going to keep that username secret because I don't want people targeting me, you know? Got to maintain my competitive advantage. Congratulations, Neil. That's what we'll leave it at. Everyone give Neil congratulations. Thank you. We'll pause there and let everyone do it.

2:21Now we're done. All right, let's jump into our top story where we have big news out of the sports media world. Last night, the gambling giant Penn Entertainment and the media company Barstool Sports announced they were splitting up. And yes, Neil, there is drama because Penn dumped Barstool for another suitor, the worldwide leader in sports, ESPN. So remember, Penn took a stake in Barstool back in 2020, valuing the company at around$551 million, with the idea of merging its presence in the gambling world with Barstool's presence on every frat bro's Instagram page. The marriage got a little rocky over time as Barstool and Penn tried to roll out the Barstool sportsbook nationwide, but was often met with regulatory resistance due to Barstool's reputation in some cases.

3:08So enter ESPN. They provide a much bigger reach than Barstool with a squeaky clean image. Penn is paying ESPN$1.5 billion over the next 10 years for the right to be its sportsbook provider, with the pair rolling out ESPN Bet in 16 states this fall. Neil, pretty seismic deal, not only for bar soul is left out to dry, but it's wild to see ESPN finally fully embracing gambling. Right. So Bob Iger, who's the CEO from his previous stint as CEO, he was like, we are not getting into gambling because we are the house of mouse. We are this family friendly institution that you come to for your kids entertainment.

3:49And we don't want to be associated with those, you know, unsavory betters over there. But it's just crazy how the tide has turned since the Supreme Court allowed states to legalize sports gambling. I think about 30 states now offer legal sports wagering. And ESPN is in some dire straits right now. It used to be Disney's cash cow. But as users have cut the cord on cable, ESPN is looking for new revenue streams. And this seems like a pretty natural extension. And Bob Iger has kind of changed his tune. Yeah, absolutely. And you know what I think is kind of funny, too, is Bob Chappick, which was the CEO in between Bob Iger's stints.

4:27His thing, he's like, I kind of want to do sports gambling, and Bob Iger was always against it. But this was like the one thing that Bob Chappick did that Bob Iger's like, all right, fine, I'll give you this one, Bob. But I would like to call out, it's not a sure thing that this is definitely going to succeed because Fox Corp and Flutter Entertainment, They created Foxbet a few years ago, and it's barely made a dent in the U.S. gambling landscape. It's under 2 % market share. So it's one of those things where on paper it makes a ton of sense. Like ESPN is by far the biggest sports provider on the Internet.

5:02So it probably should succeed, but it's not a guarantee that it can just break into a market that's kind of dominated by FanDuel and DraftKings. Right. We put up a chart on our YouTube page right now that says that shows how dominant FanDuel and DraftKings are. Looks like FanDuel has 37 percent of the market and DraftKings is almost 25 percent. And the analysis here was that FanDuel and DraftKings don't really need ESPN. Why like why did Penn is a quite a small player in the U.S. market as we're looking at this chart. And it's like, why didn't they you know, why didn't ESPN partner with someone bigger?

5:35Why did they go with someone who's more regional player who's smaller? And that's because DraftKings and FanDuel are doing just fine on their own. They don't think they need maybe, you know, you said ESPN has a pristine reputation and all of that. But their reach is kind of lessening in this new age where sports media is a little more fragmented. And going into places like Barstool that people are just like, I don't really need ESPN as my news provider anymore for sports. Except they do carry a lot of the live games. They have a lot of those rights that we talked about yesterday. So I'm just nervous about the journalistic integrity associated with this deal, too, because now that ESPN's incentives are aligned with the gambling market, anything that they report on that moves the line in either direction ends up benefiting them in some way.

6:19So I'm sure they will take a lot of necessary precautions, say all the disclaimers that like their editorial initiatives are separate from their gambling initiatives. But I do just part of me is a little sad and a little nervous that like this reporting is going to directly influence ESPN's bottom line. They already have gambling shows. They have gambling shows, but now they are directly profiting off of because they own their own sportsbook at this point. Let's quickly touch on the Barstool thing because Penn bought Barstool in 2020, paid over$500 million in total for a stake. And now, according to reports, it's kind of just giving it up for nothing back to the founder, Dave Portnoy.

6:57It's kind of a sign that this deal did not work out for Penn at all. It thought it could use Barstool's leverage on digital platforms as a use for acquisition for its sportsbooks. but it just did not work out. And it's kind of saying, all right, Barstool, let's just go our separate ways. You weren't exactly what we needed to grow our gambling presence in the US. Yeah, and you kind of see Penn stock jumped. At one point, it was up 30%. It settled around 10 % by market close. So people clearly see this as like a positive. I mean, ESPN is bigger than Barstool, no matter which way you cut it. Yeah, and I mean, the reports were that Dave Portnoy was getting his stake in Barstool back for zero dollars there were some stipulations uh that went on top of it if they eventually do sell again Penn would uh receive 50 percent of that like liquidation event so but so a lot of people are saying like big win for Barstool because finally they have control they don't have like these regulators uh breathing down their neck again so they got in a lot of trouble over stuff they said yeah it stopped them from getting gambling licenses in certain states.

8:04For sure. All right. Moving on. I've got a big round number alert, which I feel like we need a sound effect for. There you go. Anyway, last quarter, Americans' credit card debt shot up to more than$1 trillion for the first time ever, according to numbers released by the New York Fed. That's$193 billion more from the start of the year and$264 billion above April 2021 levels, which was the lowest point since the beginning of the pandemic. So what's going on? Well, everything is more expensive. Inflation has made things cost more and rising interest rates have only made things worse. Plus, more people are just getting credit cards.

8:42So it stands to reason that more credit cards in circulation will lead to more debt. There are 70 million more credit card accounts open now than before the pandemic in 2019. So this might all sound like a three alarm fire for the economy, one trillion in credit card debt, But it really isn't. Context is everything. And as a financial advisor, Josh Brown points out, the economy, household net worth and home equity have all grown much faster than credit card debt since the pandemic started. As it stands now, credit card debt is just six percent of the total deposits households have in the bank, which is about the lowest percentage in two decades.

9:17So certainly a milestone you don't really want to hit. But I don't think this is bad as that one trillion dollar headline suggests. suggests. It does make me nervous though, because like that is just so much debt. But yeah, it's a weird thing where like this debt is a sign of a relatively like healthy economic environment, because as long as consumers have enough money in the bank to kind of service that debt, pay off that debt, then it's not a bad thing. The one thing that is on the rise is delinquency rates, which are up to 3.18 % from 3%, which honestly is kind of in line with historical norms, But delinquency rates fell a lot during the pandemic because we got stimmy checks, stimulus checks, which put a lot of money in the bank for people.

10:02Plus, no one was buying anything either, like a lot of economic activity ground to a halt. So that was definitely like a magical time where delinquency rates fell. And now we're seeing it return to kind of normal levels. Yeah. And I want to talk about the fact that other kinds of debt Americans are in a really good position for because of low interest rates. And they locked in those low interest rates in 2020 and 2021, specifically, you know, mortgages. I mean, 73 percent of outstanding mortgages in the U.S. have a rate below 4.4 percent right now because everyone refinanced back then. And that is lower than most savings accounts that you can get.

10:41So other kinds of debt besides credit card debt, there are these fixed rates that people locked themselves into a couple of years ago. And they're sitting really pretty over the next few years. We should have bought a house, Neil. What the heck were we doing? Well, we had three months in 2020, right? Like March, April, May, and June in 2020. You could have bought a house for really cheap then at a rock bottom interest rate and feel really good about it. I know. We didn't have the cash flow at the time, but if we have a time machine, let's go back and grab ourselves a house. So definitely the Fed was like, so far consumers have withstood the economic difficulties and they're super resilient.

11:20There are some warnings, as you mentioned. I mean, there was a report yesterday from Bank of America that more Americans are tapping their 401ks for emergency savings. And you have these student loans coming due finally after more than three years in October. We've been saying that. That is coming. And so there does seem to be increased stress on households, but maybe not the super alarming threat. Three alarm threat. The three alarm fire that the one trillion suggests. For sure. All right, Neil, let's move on to our next story where Wigovi, the ultra hyped anti-obesity drug, is demonstrating it has rains that would make Joaquin Phoenix proud.

11:59Yesterday, results from a late-stage clinical trial showed that it cut the risk of major cardiovascular episodes like a stroke or heart attacks by a whopping 20%. Wagovi was originally only supposed to treat weight loss, and it is very good at that, helping people lose 15 % of their body weight over the course of 68 weeks. And now we get news that it also helps treat the number one cause of death in this country, which is heart disease, too. Truly the bojackson of drugs. Now, the study is not peer-reviewed yet, and Wagovi is not ready for mass distribution as of now. But, Neil, what can't this drug do?

12:36This was a blockbuster result. If you just looked at what the analysts had to say, one was like, if they played baseball in Denmark, Wagovi just hit a home run, which I don't know why you go with a baseball metaphor if you know that they don't play baseball in Denmark. I went with the baseball metaphor, too, though, with Bo Jackson. And so it clearly lends itself to some sort of baseball metaphor. And then Barron's was like, without a doubt, this makes Wigovie and Eli Lilly's similar drug, Manjaro. Without a doubt, this seals their fate as the best selling drugs of all time. Because expectations were on the high end of the range that this would reduce risks of these major cardiovascular events by 15 % the most.

13:21And this came in at 20%. And so this sent their stocks absolutely flying and they were already crushing the market. But Novo Nordisk, who makes Wigobi and Eli Lilly, just absolutely rampaged over the market yesterday. Yeah, Novo Nordisk jumped 17%. That equated to a gain of$60 billion in market cap. And this is a race to watch. It's closing in on LVMH as Europe's most valuable company, which at the start of the year, like a lot of people never probably have never heard of Novo Nordisk. And now it's breathing down LVMH's neck, quite the rise. And yeah, you're totally right. It's a rising tide, kind of floated all boats because a lot of these drug companies have similar drugs to each other.

14:01So Eli Lilly jumped 15%. So did Weight Watchers, actually, that jumped 13 % because a lot of people thought these drugs would be bad for Weight Watchers, but they're incorporating it into their Weight Watching program. So again, like these stocks were just up and to the right yesterday. And one thing we really should mention why this is a really important result is because it will put pressure on insurers to cover this because previously these drugs, an anti-obesity drug is considered a lifestyle drug. It's not a need to have thing, but now that it reduces heart risk or it's been shown to reduce heart risk, then this is an overall health issue and insurers will start covering this, maybe not tomorrow, but in the next few years, Medicare will cover this and these things are super expensive, $1 ,300 a month for weekly injections.

14:50So that is one of the major consequences of these findings is that we're going to start getting insurance for this. Yeah, it is crazy. We get news every single week that these drugs do something better or some additional effect. And yes, we do have to say like this study wasn't peer reviewed yet, but it included 18 ,000 adults and Novo Nordic says they're going to present more in-depth findings at a conference later this month. So honestly, 20 % reduction in cardiovascular events is going to be good news no matter which. The story going forward here will be production. Can they build enough factories to meet the demand here or else you're going to see supply shortages for years?

15:29For sure. All right, Neil, before we jump into our next story, we're going to take a quick break. My name is Percy Jackson. Getting in trouble is like breathing for me. The hit series returns to Disney Plus and Hulu. The danger the camp is under is greater than you can possibly imagine. For the key to our survival, three of you must quest to the sea of monsters. Let's go do the impossible.

15:58Percy Jackson and the Olympians. New season two-episode premiere December 10th on Disney Plus and Hulu. Learn more at DisneyPlus.com slash What's On. Lemo, Lemo! And Doug. Here we have the Lemo, Lemo in its natural habitat, helping people customize their car insurance and save hundreds with Liberty Mutual. Fascinating. It's accompanied by his natural ally, Doug. Uh, Lemo? Is that guy with the binoculars watching us? Cut the camera! They see us! Only pay for what you need at libertymutual.com. Liberty, Liberty, Liberty, Liberty. Savings vary. Underwritten by Liberty Mutual Insurance Company affiliates, excludes Massachusetts.

16:38All right, I want to take us to the offshore wind industry, which is currently facing 40 mile per hour gusts as projects get delayed and canceled on both sides of the Atlantic. In recent weeks, at least 10 offshore projects amounting to$33 billion have been pushed back or stalled in the U.S. and Europe, which are counting on wind power to meet their aggressive climate goals. Execs say the industry is facing its first ever crisis. So why aren't these things getting built? First of all, cost. Like we talked about with the Georgia nuclear reactor last week, these power projects are hugely expensive, costing tens of billions of dollars.

17:15And many wind companies are just finding it just won't be profitable to continue spending money on building offshore wind farms, especially as costs for materials like steel and labor and labels have soared. And then this is what I really want to talk about. There is fierce opposition by local governments in the U.S. who are making the permitting process a living hell. Despite a big push by the federal government to build offshore farms, cities and towns across the U.S. are saying, not in my backyard, also known as NIMBY. According to the National Renewable Energy Laboratory, 461 municipalities put zoning restrictions on wind turbines as of last year, which is quadruple the number from 2018.

17:59These offshore wind farms are just running into all sorts of problems. Yeah, it's tough. And the one that people have kind of been keying in on is it's called Ocean Wind One, which is the largest offshore wind project to clear a federal regulatory hurdle. That's happening about 15 miles offshore of New Jersey. And that's what was crazy to me is that there's all these not in my backyard, all these NIMBYs saying it's bad for property values, it's bad for tourism, it's bad for the environment. But the thing I looked up is how far can the human I see on a clear day, the human eye can only see three miles and this is 15 miles offshore.

18:35So I don't buy the not in my backyard argument. It's so, I mean, I understand where they're coming from, but I looked it up. Like we can only see three miles and that's 15 miles offshore. This is in Ocean City, New Jersey. And a lot of us on the podcast have been to Ocean City, New Jersey. You're underestimating how crystal clear those waters and that sky is, man. It is beautiful down there. But yes, this is, there's been a huge mounting opposition to it down in Ocean City. And this is seen as a proxy for battles up and down the East Coast. There are 31 projects in development from Martha's Vineyard, Cape Cod, all of these beach towns.

19:08And a lot of residents there are saying this is over industrialization of our area. We want to keep our beaches pristine. They are employing tactics that some would say are not so accurate, like you just mentioned. A big thing has also been the fact that surveys for wind projects are going to kill whales. And experts say, marine experts say that that is just simply not true. And they've kind of lobbed all the, a bunch of other false accusations in their campaign to stop it. But they filed a lawsuit and they could very well win. And, and, you know, you can tie up companies with a local permitting process.

19:40It is, I'm not going to say the word, but a B word on, uh, for, for any developer to do anything in a local government as anyone who's on like a zoning planning or zoning or planning board knows. Yeah, I think it is just the double. They're just getting caught in between angry local governments and just like inflation has been destroying these wind farms because, I mean, one Swedish developer had to shelve a project off the coast of Britain because cost between 40 % to$16 billion. Like we're talking in the billion range. It is very similar to the nuclear power plant we mentioned that just opened in Georgia.

20:17like these things over the long run they're they're net positive like they are a more renewable energy source but in the short term like dang it it hurts it hurts the wallet you're seeing uh local you know america has a very strong local rule right like we love our state governments we love our local governments we don't want the federal government telling us what to do and you're seeing that play out with wind farms here because the federal government i mean biden has has uh offered$1 trillion in subsidies and tax incentives for renewable energy through the Inflation Reduction Act. So there's this big push from the federal government.

20:55And then you have local government meeting it with a ton of opposition. It's getting tied up and a lot of stuff isn't happening. And you saw this when a lot of cell towers went up in the 90s, when mobile phones run out and the federal government through telecommunications companies was like, we need to get these cell towers up so you have service. And then local governments were like, absolutely not. We don't want big cell towers ruining our property values or looking like, you know, weird in our local communities. It is deja vu all over again. And what happened there was the federal government kind of Congress passed an act that said that kind of stripped a lot of power away from local governments to stop these projects from happening.

21:32And maybe it'll do something here that would be very contentious. So we will see. All right, moving on to our next story. I You can't be a comeback story. WeWork, just kidding. There's no comeback story here. The struggling co-working company warned yesterday that its future is in substantial doubt and that it could soon file for bankruptcy as its financial position dwindles from bad to bankruptcy level bad. It is a remarkable fall from grace for a company that just four years ago was one of the most valuable startups in the world at a valuation of$47 billion. At one point in 2018, WeWork was the largest occupier of office space in New York City, topping JP Morgan.

22:17But just like Icarus, WeWork soared too high, too fast, and it got burned. CEO Adam Neumann left the company in disgrace. Its valuation plunged, it scrapped its planned IPO, and then COVID ripped out the office market from under it. There are so many documentaries you can watch to understand this story, but it's truly not in a good place right now. Yeah, it's down 96%. Its stock is down 96 % over the last year. To me, though, it's always been a little confusing because WeWork has said that their offices are back to what their pre-pandemic occupancy rates were. They're 72 % full. So the company technically did recover to where it was pre-pandemic.

22:56And that was the other thing is that a lot of analysts and a lot of, at least the narrative within WeWork was that the pandemic and remote work and this move to hybrid work was actually going to help WeWork because people wanted more flexible working arrangements. But I guess that just hasn't come to fruition and their debt load is just too big. Yeah, I think they say they saw a lot of churn from membership. So people were going into WeWorks, but maybe not finding it valuable enough for them. So they canceled and they saw net loss in total occupancy and memberships over the last quarter. But I was one of those people where I'm thinking I'm a CEO, I have employees in maybe six different cities across the U S or the world, and I want them to get a little office environment and maybe a few days a week so they can meet each other and work on projects.

23:40Why not get a, we work in LA, Chicago, Salt Lake city, wherever you are and bring your employees back there. And I was like, Oh, this is going to be great for we work this new hybrid, uh, working arrangement, this gradual return to office a few days a week. Yeah. But it's just too expensive. Yeah. Like that may be working for them, but they just have too much office space that they build up during the Adam Newman era that they are. It's just like their, their profitability is just not going to work out, even if they get more people back. Yeah. And here's the other thing too, that confused me is IWG is another flexible office lease company that actually lets building owners and floor owners lease out their desks to workers, they're killing it.

24:23They had a 48 % surge in profits for the half year. They made$252 million in profit in the first six months of this year. So clearly the flexible office model can work as long as you structure the economics correctly. It's just WeWork went too big, too fast, like zero interest rate phenomenon, bought too much office space. So I guess RIP WeWork, we can't say RIP WeWork yet, but it's teetering for sure. I know in a few weeks I'm going to actually say a comeback story about B-Work and it won't be a joke. All right, Neil, let's move on to our last story, which takes us to the world of video games, where Fortnite maker Epic Games just made a bold decision to open a virtual Holocaust museum within the game.

25:03So why is this a bold decision? Well, Fortnite is not exactly a serious place. You can hit emotes, play as characters like a humanoid banana, and it's more known for its no scoping than its introspective content. But the game designer Luke Bernard behind the project is all aboard the Fortnite hype train. That's because the game has over 239 million monthly active players, giving Bernard's museum a much larger reach than an IRL museum could ever hope for. And with a 2018 study finding that 80 % of Americans have never visited a Holocaust museum in person, it could be a powerful way to educate people who would have never otherwise had the experience what do we think about this move from epic games yeah i mean when you first hear the news you get like this you're like whoa this is this is going to be weird but the more you read about it the more you read about the intention behind the project and the thought that went into it you're like damn this is actually awesome because not like 80 of people aren't going to a holocaust museum of course because they're only in certain cities you have to pay to go in and the fact that you can get you know go in on fortnight where people already are i'm not i don't know whether if you're in fortnight you're like well you know i'm i'm done battling i want to go look at a holocaust museum fortnight has expanded to have these creative modes we're not actually fighting and fortnight did or epic learned its lesson too because they hosted a 2021 in-game event that was celebrating martin luther king and during the event everyone was dancing like they were being just what you do in Fortnite, which is, it's an unserious place to be.

26:38And so this time around, they're not allowing you to bring weapons in. You can't break anything. You can't dance in the museum. So they are trying to infuse it with as much decorum as you can in a virtual space with these characters. But yeah, I'm on board with like creating - Is this super interesting? I think virtual museums in general kind of suck. Like remember during the pandemic, you know, the MoMA and all these art museums had like, come visit a virtual gallery. and I went online for like five seconds. I was like, yeah, this is super boring. But Fortnite is definitely more immersive and the thought that went into this is really interesting because he's Luke Bernard, the designer is trying to tell stories that really haven't been told before and that might be appealed to a younger audience like what happened to Sephardic North African Jews, which I would say if you go into a regular Holocaust museum in real life, you wouldn't see a lot about that and maybe the Black Panther tank battalion that liberated a concentration camp.