The Phantom Debt Haunting Americans & A Bidding War for the NBA

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0:29Good Morning Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, the NBA could leave TNT, which raises the all-important question, what's going to happen to Charles Barkley? Then GM is killing the Chevy Malibu. Is this the end of the road for sedans? It's Friday, May 10th. Let's ride.

0:52I want to close the loop on the Apple ad you may have heard us talk about yesterday. Apple put out this advertisement for their new iPad this week that showed an industrial press crushing things like instruments, art supplies, cameras, and other symbols of artistic expression until eventually all that remained was their new sleek device. Discourse ensued. Customers got real angry saying the ad was anti-Apple. It's celebrating destruction of art by soulless technology and Steve Jobs would never have let something like this happen. Well, the discourse may have won out because yesterday in a pretty unprecedented move, Apple issued an apology and said the ad wouldn't air on TV as planned.

1:30Neil, companies, let alone Apple, they don't walk back ads very often. Not typically. I mean, I'm remembering the Peloton Christmas ad from a few years ago that was a similar debacle. But you could say for Apple that this was pretty much a huge success because this video was viewed 53 million times. So maybe they looked at their metrics that they were trying to hit on the ad and they're like, we would never have guessed that anyone would have seen this over 50 million times. So, you know, maybe we don't even need to pay all this money for it to go on TV. Obviously, it was a huge PR disaster. But I do think in a few weeks from now, no one's going to remember this.

2:02Another wrinkle to this controversy is that someone found an LG ad from 2008 that was essentially the same ad, a bunch of art supplies being crushed by an industrial press. But at that time, it felt revolutionary because it was cool that you could put all that stuff into a phone. These days, it's not as cool and it feels a lot more soulless. So many wrinkles to this, so much discourse. but I think the bookend of it was that maybe it was successful. Now we want to tell you about the Wendy's Cinnabon pull apart. I have had multiple people text me about these ads asking, Toby, have you guys actually eaten it?

2:36Have we eaten it? You think we could talk about the smells, the taste, the tensile strength of the cinnamon sugar bonds without having eaten it? Yes, we've put away our fair share of pull aparts. In fact, I've consumed it in the best manner possible by having Neil pull a piece off and throw it across the room while I catch it in my mouth. Now, we don't actually recommend this approach. We are trained professionals. The icing also tends to splatter if you miss. Not that you've ever missed, Toby. Oh, of course not. And I'm sure that meeting with HR is nothing to worry about. But yes, we've had the Wendy's Cinnabon pull apart and we want you to try it too.

3:11You can do that by going to a Wendy's and ordering it or heading to wendys.com slash morningbrew. Tonight on NBC, Jimmy Fallon and Bozema St. John host the highly anticipated new competition show. I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On brand with Jimmy Fallon. Series premiere tonight on NBC.

3:51Do you recognize that song? Maybe you don't because I sang it so badly. But it is the iconic theme for NBA on NBC. And soon it could be returning to a TV set near you. And that's because the NBA is in the final stages of negotiating its next media rights contracts, which might lead to major changes in how and where you watch the league. Commissioner Adam Silver is aiming to split games between three partners, to Disney and Amazon seem locked in. But that undecided third spot, ah, now there's some intrigue. Right now, two bidders are duking it out. NBCUniversal and Warner Brothers Discovery, which owns TNT and currently airs NBA games.

4:33NBC has offered to fork over$2.5 billion per year, more than double the$1.2 billion Warner Bros. Discovery currently pays. And as it stands, NBC appears to be in the lead to secure the deal. And the main reason why? Well, Warner Bros. just can't afford to outbid it. NBC is owned by Comcast, that giant with a market cap of$150 billion. Warner Bros. Discovery is worth just$18 billion, and it's also in the middle of a severe cost-cutting drive. So if NBC ultimately wins the NBA rights, it'll mean the return of that beloved theme song, but also the end of TNT's Inside the NBA studio show, which is considered one of, if not the best sports shows on TV.

5:13And if that happens, the star of Inside NBA, Charles Barkley, would become one of the most sought after media free agents in decades. Lots at stake here. Lots at stake. Charles Barkley 100 % understands what's at stake too, because when he was negotiating his contract, he signed a 10-year deal a few years ago, and he knew that this rights battle was heating up. And in doing so, he put a clause in his contract that let him opt out if TNT does in fact lose the rights to the NBA. So he saw this on the horizon, and he knows that he can command a premium price. People are already kind of speculating that he could command a deal that rivals the Tony Romo's, the Tom Brady's of the world.

5:55Remember, Tony Romo has a 10-year, $180 million deal with CBS. Tom Brady signed a 10-year,$375 million deal with Fox. The rumor on the street is that Charles Barkley could fetch somewhere in the$18 to$20 million a year range. He's just that compelling and that big a star right now. These guys are making way more than they ever did playing actual sports. But can we just talk about also one of these partners here, which is Amazon. And that appears to be pretty much a go that the NBA is going to give a bunch of its games to Amazon. And five years ago, this would have sounded crazy that a streaming company would be able to buy all of these sports games, these live sports.

6:32But now we just kind of take it for granted. And Apple has MLS and Peacock has a bunch of soccer and a bunch of other sports as well. There's also a rumor going around last night that Netflix could take the NFL's two Christmas Day games. So this has been a huge revolution in how we watch sports is that a lot of them are moving to streaming. We just take it for granted now. Yeah, absolutely. And those are the people that could come after Charles Barkley too, by the way, because ESPN, Amazon, NBC, they are all kind of sniffing around. And if they do win the deal, then they could make an offer for Charles Barkley.

7:05TNT does have the right to match any offer as the incumbent, but will that happen? Probably not. David Zlasa, the CEO of Warner Bros. Discovery, has said that they don't need to have the NBA. That's a direct quote from him. They have the NCAA tournament, NHL, NASCAR. So they still have a solid sports portfolio that they think they can charge carriers a premium in order to carry. So I do think if I was a betting man in this scenario, I do think Warner Bros. does eventually just relinquish the rights because you're right. It's just so expensive for them. And if NBC gets it, the composer of Round Ball Rock, which is that theme song that everyone's loved, and it hasn't appeared since 2002 when NBA last aired basketball games.

7:48He said he'd license it back, so if NBA wanted it back, or if NBC wanted it back, they could definitely take it back. Just watching the highlights of when NBC last had NBA was really the golden years of the NBA with the Michael Jordans of the world in the 90s, and so it would be kind of crazy for it to get back for us basketball fans. You nailed it, by the way. You were right on pitch, perfectly on tune. I liked it. The world of finance has always loved its phantasmagorical illusions. There are zombie companies, shadow banking, and recently a new spooky financial term dropped, phantom debt. The word came from a recent Bloomberg article diving into the risks associated with the buzzy buy now, pay later trend that consumers love.

8:32The problem is, is that companies like Klarna, Affirm, and Afterpay don't report these loans to credit agencies, making it hard to know just how much debt consumers are actually carrying. The argument goes that BNPL is a huge market projected to reach$700 billion globally by 2028. Without this data, it's hard to get a handle on the entire scope of the financial health of American households. A full picture of that health is crucial for someone like the Federal Reserve, who's relying on that data to make decisions on when or if to cut rates. So the real question is, is this hidden debt that people are accruing from BNPL companies actually an issue or not?

9:09Neil, there's data that supports multiple viewpoints here. Yeah, I mean, this industry has grown so big that we just don't know how it's impacting consumer finances. It does appear like people who use BNPL, buy now, pay later, are in a decent amount of debt. More than half of the respondents who use BNPL in a recent survey said it allowed them to purchase more than they could afford. And more than a third of them turned to these BNPL services after maxing out their credit cards. So it does appear like the growth of this industry has allowed people to spend more than they actually would be able to afford otherwise.

9:43Right. And one question is, why is Buy Now Pay Later such a black box? Like, why do these companies refuse to kind of play ball with these credit agencies? They said that BNPL companies are saying, listen, credit agencies, you can't handle the information. You can't handle the truth, essentially. and that releasing that data could harm customers' credit scores, which are obviously very important for things like securing mortgages, other loans, et cetera. But a lot of the credit firms are saying, no, we are equipped. Let us try. And in the meantime, there's some regulatory scrutiny kind of hanging over everything.

10:16So the status quo has been maintained. Nothing has really changed on that front. And so BNPL companies are still this black hole, this black box of debt that we don't have much insight into. Yeah, one thing we do have insight into is credit card debt that is reported. And we do know that Gen Z has more credit card debt than millennials did at that same age a decade ago. So the current average credit card balance for 22 to 24-year-olds was$2 ,800 in the last quarter of 2023. Go back to 2013, and that same age group had an inflation-adjusted balance of$2 ,200 in the same period. You could argue that, you know, wages have gone up in the meantime, but it does appear like Gen Z is taking on a little more debt than they did, than the same age group did a decade ago.

11:01And that might be because these credit card companies allowed more people to take out credit cards in 2021, loosen the terms a little bit. So more people are taking out credit cards. They're getting on their parents' cards as well, which may be a good thing because you can build credit. And that's one of the problems with buy now, pay later is you can't when you make these purchases, there's really a little upside because you can't build credit through them. So is this an issue? Is phantom debt something you should be nervous about? Luke Kawa from Sherwood Media kind of dug into it. He added the reported global buy now, pay later transaction volume to a metric showing how much debt credit card consumers are carrying right now.

11:38And then look at that as a share of U.S. household income. So essentially trying to uncover phantom debt and add it to the data we do have. He said it's higher for sure, but it's not necessarily at levels that are triggering any alarm bales. We're still looking at a lower percentage of credit-driven spending versus the entire period from 1997 to 2009. So he did try to uncover phantom debt, add it to the data we do have, and he said it's not at a crazy level right now. So maybe this phantom is not that scary. Welcome to another edition of Stock of the Week, Dog of the Week, where Toby and I pick two stocks, one that already ordered mom flowers for Mother's Day, and another that's scrambling to snag a card.

12:16Toby, you won the pre-show Who Has Blonder Hair contest, so you get to go first. And I also already sent flowers to my mom, so I am first. Our stock of the week is Reddit. You only get one chance to report your first earnings ever as a public company, and Reddit totally rose to the occasion. Revenue was up 48 % year-over-year to$243 million, smashing estimates of$211 million. It also gave a rosy forecast for the next quarter, saying their better-than-expected performance was powered by making the site easier to use and improving its ad-targeting technology. Turns out, if you make a better product and monetize it better, you make more money.

12:53Moving forward, the biggest reason that Reddit might become a mainstay in the stock of the week column is that it's diversifying its revenue stream by licensing its data to AI companies hungry for high-quality training sets. Historically, it's made 98 % of its revenue from advertising. So there's certainly room to grow here. Neil, Reddit is now up about 45 % since its IPO. Pretty dang good. Yeah, there was a lot of bearish sentiment on Reddit itself when talking about this IPO. A lot of Redditors who talk about finance were like, yeah, I don't see any growth potential for this company. So where is the growth potential?

13:27Yeah, okay, in these AI licensing deals, the company did make only$20 million from that in the first quarter compared to$800 million in annual revenue. So right now, this is a drop in the bucket. I don't know whether that moves the needle. One potential way to grow here, I was shocked when I read this stat, but only 50 % of Reddit's users are international. And so it could really grow that base to 80%, 90%. That's what the CEO wants to get to, which would be more on par with the WhatsApps, the Instagrams of the world. So there's potential for international expansion. Problem is a lot of Reddit is in English, so they need to translate all these posts to other languages to get more international users.

14:12But that to me seems like a huge growth potential. I did not realize how much of Reddit was just Americans. It makes a lot more sense when you think about it. The stat I really want to call it too is that they reported this massive jump in daily active users. It was up 37 % to around 82 million globally, which I also think was a downstream effect of going public. Turns out when you're in the news a lot, a lot of people start turning into Reddit a little bit more. So some analysts were saying that that growth, that daily active user growth number seems sustainable. Maybe it's about that international expansion.

14:46So if Reddit starts pumping out multiple 30 % increases in daily active users, then we are talking about a growing company. And you were right. Some people were bearish. I was bearish on Reddit. We have it. Unfortunately, we have it on audio that I was very bearish. But so far, I've been proven wrong. And we should say at this point, we are not professional. We are not financial advisors. Yeah. And this is not a stock advice. My dog of the week is every stock that did well during the pandemic. All of them. Because they've been cut down to size in our post-COVID high interest rate world. The 50 best performing stocks during 2020 have now lost a collective$1.5 trillion in market value since the end of that year, according to the Financial Times.

15:28Zoom, down 80%. Peloton, been a dog of the week more times than I can remember. Pfizer, the company that made the vaccines that helped end the pandemic, completely erased its COVID gains. Just seven of the 50 biggest corporate winners of 2020 have gained value since then. and the hits just kept coming to pandemic darlings this week. E-commerce giant Shopify plunged 19 % on Wednesday, its biggest drop on record after issuing a gloomy sales forecast for the year. And gaming company Roblox, which was so hot with the use during the pandemic, similarly got crushed when it revealed parents were just not shelling out as much money on the platform to keep their kids entertained.

16:07Toby, if you're the kind of investor who expected COVID trends to become permanent features of society, You're nursing some serious losses right now, and I'm not pointing any fingers. They just weren't durable. These trends that a lot of people thought were paradigm shifting did not shift the paradigm. Video calls, online shopping, the gaming numbers we were seeing, the vaccine numbers we were seeing, none of these were actually things that expanded beyond that specific period. And we're, of course, seeing a lot of these valuations just get a massive haircut. But I was actually surprised at the Tesla figures because Tesla was one of the biggest winners of 2020.

16:45Its stock jumped 780 % over that period. Right now, it's only slipped. It reached a$669 billion valuation by the end of December of 2020. It slipped back to$589 billion. With all the negative, embarrassed Tesla news, it's only down around 11%. Well, it was worth$1 trillion at one point. It did get up. I mean, I'm talking about specifically the 2020 period. So it did have another run up from that. But if you just zoom out and put it in perspective, Tesla is still around that same 2020 number. So that was just one of those figures that I thought it would have taken a bigger haircut. But it's been a little more durable than we thought.

17:20Cybertruck. Cybertruck. Up next, what is going on with the Miss Universe pageants right now?

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17:56Raise the rudders! Raise the sails! Raise the sails! Captain, an unidentified ship is approaching. Over. Roger. Wait, is that an enterprise sails solution? Reach sales professionals, not professional sailors. With LinkedIn ads, you can target the right people by industry, job title, and more. Start converting your B2B audience today. Spend$250 on your first campaign and get a free$250 credit for the next one. Get started today at linkedin.com slash campaign. Terms and conditions apply. Let me fill you in on the drama that is filtering through the Miss USA and Miss Teen USA pageants right now. Both reigning champions resigned within a few days of each other this week, citing mental health and differences in personal values.

18:40But it goes deeper than that. Miss USA Noelia Voigt posted a long, heartfelt message on her Instagram announcing her decision, but sharp-eyed commenters immediately pointed out that the first letters of the sentences in her statement spelled out, I am silenced. Then just days later, Miss Teen USA Uma Sofia Srivastava also resigned, but no hidden messages were uncovered. On top of that, a former social media director, Claudia Michelle, also announced her resignation over the weekend, saying that she is ready to speak some truth because she's not under an NDA. This comes on the heels of rumors that the 2022 pageant was rigged and the sale of Miss Universe organization, which operates both pageants, to a Thailand-based company, JKN Global, for$20 million.

19:25But JKN has since gone bankrupt. It is an entire mess, Neil, with people's lives and millions of dollars on the line. Yeah, this is the first time in 72 years of the pageants that there isn't currently a Miss USA or a Miss Teen USA title holder. And it just feels like we haven't even scratched the surface on what's been going on because it appears the fact that the social media person who resigned and then, you know, aired their dirty laundry with this organization said that these two title holders weren't able to speak. And then we see this. I am silenced hidden messages. They are under these NDAs, these contractual obligations to not speak about what happened to them and what they were going through.

20:07So it feels like we don't even have the beginning of the story at all. The pageant organization said that they were willing to help and they posted words of encouragement for these two people. But unless they release them from these contractual obligations where they can't really talk about what happened, this thing is still going to be shrouded in mystery and speculation is only going to ramp up. Right. Apparently what was happening is that the pageants were just micromanaging these very public faces, these winners of their pageants saying, you can't like this post, you can't come on this post, you can't go to this event, you have handlers.

20:38So it just became a very toxic culture where you feel like you're always being held to this standard that just seems impossible to uphold. I also want to say Uma Sofia, the Miss Teen USA, she started her statement that she posted on Instagram with a quote from Nietzsche saying, there are no beautiful services without a terrible depth. So combine that with the I am silenced hidden message. It is insane how much drama has arised and just like how deep this probably goes because they can't say much. They're trying to do what they can to say what they can without getting in trouble. Seems like a pretty toxic organization, but I'm sure we'll learn more.

21:16Here's a riddle. What has four doors sits low to the ground and has recently been put on the endangered species list. That would be the sedan. Yesterday, General Motors said it would stop making a Chevy Malibu, the last sedan still remaining in its U.S. lineup. It took the lead from Detroit rivals Stellantis and Ford, who have already gotten rid of most of their sedans, to focus on bigger cars like trucks, SUVs, and crossovers. Is anyone going to miss the Malibu? Maybe not. You know, its greatest strength was mostly that it was just there, a real glue guy on the roster. It was first introduced in the 1960s and has been sold more than 10 million times over its lifespan.

21:55But these days, it's just not flying off the lot. In 2023, just 130 ,000 Malibus were sold, down from 200K a decade ago. So what's going to happen to the GM plant outside of Kansas City that makes the Malibu? It's going to be retooled to make the Chevy Bolt, an electric car, and the Cadillac XT4, a luxury SUV, which should tell you all you need to know about where the auto industry is headed. Yeah, the auto industry is definitely heading to electric vehicles, but also just bigger vehicles in general. Traditional cars, which are vehicles that are not SUVs, trucks, or vans make up just around 20 % of U.S.

22:30auto sales at this point. So this is not a growing industry by any means. There's a lot of reasons why sedans are losing popularity. One of the primary reasons that people used to want sedans was that they were lower to the ground but a lot of people are younger and adventurous people they don't necessarily care about that uh the height with which to cry to climb into their car is what they want is a suv or crossover that can fit their surfboard that can fit their golden doodle that they can go adventuring in and that is a little bit more stylish so you just see the shift in consumer preference in the auto industry is meeting consumers where they're at right now.

23:07Yeah. Plus it's more profitable for these companies, these auto companies to make SUVs. I think it's easier to get into a, it's much easier to get into an SUV by stepping up and people like having that height with which to drive and kind of look down at the road, feel like they're a little bus driver, uh, instead of looking up at, as these sedans or muscle cars or these sports cars have typically, yeah, there's safety issues as well. A bigger car is safer as well. And if everyone else has a bigger car on the road, we've talked about auto, auto obesity, as, as France calls it, cars are just getting bigger in general.

23:41So a lot of trends are pushing the industry away from sedans. And it's interesting too, because I can just think back to my high school parking lot. A lot of people had Malibus. It was kind of that starter car for a lot of people, but now maybe high school parking lots are going to look a whole lot different. Could EVs mean the renaissance of sedans because, you know. The sedan-a-sans. The sedan-a-sans because sedans compared to SUVs do have a better range when it comes to EVs. And some companies are bringing back their killed-off sedans in EV form. And so maybe potentially 15 years down the line, we'll see the Malibu-a-sans and we'll get a EV Malibu because people are very concerned with range anxiety and making sure they can get from point A to point B.