Bets & the Economy: Wells Fargo CEO Charlie Scharf & Fanatics CEO Michael Rubin 9/10/25

24:27I've seen numbers, how it adds into big banks to the profits. is that a real profit generator for you? No. It's not a real profit generator. Would demand, is there not enough supply to meet the demand for loans because you want to keep it in there and keep earning a nice interest rate on it? Does that actually happen? We want to lend. You want to lend. That's what we do. And it's not just about how much money we make. It's about when you lend to someone, it allows us to have a broader relationship and provide advice and treasury services and things like that. It's a much more profitable relationship.

25:09Yeah, that's the business. It's not, you know, we're not a red herring that you hear. It's just another way to complain about the Fed. Well, I think, you know, listen, there's a question about, you know, when you have this excess cash, which we have to keep for a bunch of reasons, you know, people decided what we should get paid on that. But listen, first and foremost, we want to be able to lend as much as possible. And given the situation that we're in now, it's a really exciting time for us because we can lend in ways that we were restricted when we had the restrictions prior to June. You've seen Ken Griffin has been critical of the Fed.

25:45Most CEOs in America have not been, I'm sorry, not critical of the Fed, critical of the president about undermining what he would argue is the independence of the Fed. Where do you stand yourself on the independence of the Fed issue? Listen, I mean, I absolutely support the independence of the Fed. The Fed has to be independent. And the Fed is independent. I mean, you know, the fact is, you know, these terms are not coterminous with those of elected officials for a reason. And so, you know, every president who appoints someone in any role, whether it's a Fed or not, takes into a lot of things into account, including, you know, in this case, views on interest rates.

26:26So that's not something new. And, you know, we just, you know, differentiate, you know, there's a big difference between the president having an opinion on interest rates and believing that that changes the level of independence of the Fed. Right. We've got we've got senators. We've got everyone from from progressive senators having a view on what the Fed should do all the way to the president. And that's not new. This president happens to be very vocal about it. But that sounds like you don't think it's that big a problem for the president to be this vocal about it. I think the administration is entitled to be vocal about it.

26:58And I think the Fed should do what it believes it should do based upon the information that it sees. Charlie, the market has closed at new highs again yesterday. Your stock has outperformed the market. I think it's up more than 15 percent year to date versus around 10 percent for the S &P 500. But your stock dropped in April just like everybody else's did. I think it was trading down at around$60 versus above$80 today. That was all around concerns around tariffs in April. Was that just a big head fake? Was that far too much concern that the market put into it? Or do you think the market is misreading the potential disruption for tariffs at this point?

27:40Well, I think you've got a couple of different things going on. I mean, the market, first of all, the volatility in the markets is extreme. Yeah. And a lot of it relates to who's owning stocks, why people are involved in these things, and the amount of information that just flows. And I think, listen, the market has certainly up till now gotten wrong with the impact of tariffs will be, both on prices in general, but also what the impact on markets are. And I think, you know, there was a view, certainly early on around Liberation Day, of just the extreme impact that tariffs at that levels could have.

28:12What you found is that the ultimate levels are more moderate than that, that businesses have been able to plan, have been preparing in many, many ways. And the impact ultimately on consumers will be far less. So therefore, the economic environment and the environment for banks is very different than people initially thought it could play itself out. And so, again, we sit here today. It's a pretty good environment for us. Right. Markets are open. There's an incredible amount of liquidity. Consumers are strong. Businesses are strong. And yeah, there are these questions that remain about employment and about what levels of pricing will be.

28:48But one thing that we do have overall is we have an administration, which is a pro-growth administration. And so, you know, that as a, you know, balancing all of these other things out there, I think, is part of what you're seeing in terms of where the market's reacting. You know, we talked about AI earlier, but I'm actually curious whether you think that the broader economy is being lifted by this AI boom. How much of the economy? And is that a pocket? Is that a gold rush, a sugar rush? What is that? You're on the board of Microsoft, so you have a pretty good insight into the idea of how much big tech is going to continue to spend and what kind of pace that will look like over the next five years.

29:26Yeah, like I said before, I think it's very early on. So I think in terms of what you're actually seeing in the ability of companies to get, to use AI to become more efficient and to drive more value, it's very, very early on. Everyone's focused on it. Everyone's spending. But people are figuring out you're just starting to see the impact. So I do think it's going to be meaningful. I think instead what you're seeing is you're seeing just normal kicking around. there are risks out there. People are thinking about employment. They're thinking about inflation. And we need to get smarter about how we run our business.

30:03We've got to control inventories. We've got to control headcount. And I think that is today's primary driver. But we do have this big benefit coming in terms of what the whole AI revolution means. You don't look at this and think that this is like fiber in 1998 or 99 in terms of these data centers? Because there's sort of a massive trickle-down effect, which is great in this moment. The question is, is that a sustainable scenario? What I think is that the use cases for the AI tools that now exist are huge. And even in our own company, there's almost nothing that we do that we shouldn't be able to do differently because of AI.

30:40It could be credit memos. It could be advice for customers. It could be a huge number of things. And it takes a huge amount of information and data to get that right. And where we are in terms of developing models, we're not at the end of that. I'm still thinking about it. You said in both red and blue states, plenty of corporations, medium, small, big, are saying we are okay with trying to correct the trade imbalances that have built up over the years. So we're not entirely opposed to tariffs. We just need to find a way to deal with them. Is that is that really what you said? I yeah, I've been I was surprised.

31:22I mean, I think when I'm surprised that you said we don't we never hear that or at least we put along. We wouldn't want that word getting out. So some people are saying I travel the country almost every week. I'm going to be in Phoenix later today. I'm having a dinner with commercial banking clients. And again, what they say is that there's a reality that trade has been unfair, that people can come in and compete in this market in a way where they're subsidized by foreign governments. We can't offer our products on a similar basis outside the country and many are happy that we're willing to take that on.

31:53No one likes uncertainty, no one likes the idea of increased pricing, but they are hopeful that the tariffs wind up at a reasonable level. So far that's been the case and everyone's been able to share in that in a way which hasn't driven significant price increases. So they're looking at what the end result is, which is a more competitive set of companies in this country, which we support because we're such a big American company. That's who we are. I would put, we never would, but I would put that out on CBC.com or that's Squawk.com, but don't wait for that anytime soon. Thank you. Charlie Sharp.

32:26May have just made it happen.

32:30Cheese will be next. Coming up on Squawk Pod, a longtime guest of the show, from many eras of e-commerce to the multi-billion dollar sports company Fanatics, Michael Rubin. If we had asked you in 1999 whether there'd be sports gambling in America, whether you would be one of the sort of leaders trying to make a real way in that space, would have you believed it? Yeah, absolutely. I'm honestly surprised how long it took. We'll be right back.

33:03You're listening to Squawk Pod during our 30th anniversary week with Joe Kernan, Becky Quick, and Andrew Ross Sorkin. And some of the folks that actually make the magic happen every day. This is the control room back in Eaglewood Cliffs. Guys, turn around for a minute. Lots of our friends and family who are here. The responsible parties. Greg Lord. Paul DeFabio, our director. Matt Greco. Terry King, Octavius Williams, Dave Evans, Dan Mescon, Rob Contino, Patrick Brooks, George Manises. And John LaFont's not in this control room. He sits over on the side, but he's our audio guy who has been with us for almost all of the last 30 years.

33:44Took a brief hiatus and then we lured him back. Oh, right there. There he is. I just saw him. Turn around, guys. Look at the camera. Look this way. Mwah! Joining us right now is another guest who's been coming on Squawk Box since the late 90s. I hope you have some video of this, Michael. Michael Rubin, CEO of Fanatics, is here. We've got a lot to talk about what's going on today. But you actually went back, I think, at like 99. I'm just happy I don't see any videos right now because I would have been like pudgy, less hair, a really awkward suit. So thank God there's no footage. Not yet. Not yet.

34:21I don't know where the producers are with the footage. Wait, less hair? You have more hair? Yeah, I get a little bit of hair from the back of my head to the front of my head. It's like you've got to stay younger. And you copped it. That's cool. Yeah, of course. I'm always very transparent. You look great. And look, we have incriminating videos about you, of course. I know. I do want to congratulate you after your comeback at Fanatics Fest this year. Thank you. We actually did catch a pass from Brady when he, like, underhand threw it to you because he wanted to give you, like, a, you know, like, a, you know, I want this guy to catch.

34:45With a bunch of, like, pine tar, like, it's sticky. We do what we've got to do. All of us. Both of us. Okay, so here's the question. If we had asked you in 1999 whether there'd be sports gambling in America, whether you would be one of the sort of leaders trying to make a real way in that space, would have you believed it? Yeah, absolutely. I think you have to look at the rest of the world. I think sports gambling has been a big business in so many geographies throughout the world for such a long period of time. I think it was only natural that a market that was big and vibrant but illegal here would migrate to a much legal and safer approach.

35:21So I think I'm honestly surprised how long it took. And so in the late 90s, you could have looked in England or Germany or France or any of these other markets that were fully regulated, had big businesses and said, this has to make sense. It's got to come to the U.S. How when you think about the valuation of your business, the whole the whole fanatics business, what is the sports book represent to you? Yeah, I think it represents a pretty meaningful part of our growth. I'll tell you, I just realized when I walked in here today, it's a two-year anniversary from when we started taking bets. And we're now the third largest player in the sports market in the U.S.

35:53We're the fastest growing sportsbook in the U.S. And it's really because we have a better value proposition and it's working. Last night, I went to a friend's tequila launch, and two different people came up to me and said, hey, thanks for what you did with creating fair play. Fair play is a policy where if your player gets injured in the first, it used to be the first quarter, now it's the first half of the game, we take them out of the player prop. And so hundreds of thousands of bets that would have lost, people actually won as a result of that. But we had one last week where it cost us a million and a half dollars, but it's the right thing to do to kind of give that insurance.

36:25And nobody else does that? Now competitors are copying us. By the way, DraftKings, Jason's a good friend of mine, they copied us. Okay? Other companies are copying us. You guys are the fastest growing. Where are you? That's because you started from zero base. You started from zero. Where are you just in terms of, like, raw numbers? How soon before you can do some of them? Three, right? Yeah, we're number three, but we have about eight. Look, FanDuel, DraftKings, absolute leaders. They've built incredible businesses. They're both really well run. And they each have about 35 % of the market. We have 8 % of the market, but we had 4 % a year ago and zero the year before.

36:57So we're definitely the fastest growing. And are you taking from either of them? I think we're taking from everybody. Look, they have great businesses. I think some of the small competitors have been easier to take from. But we went out and said, how do we make this better for sports bettors? And just our value prop. We had a lot of thought went into this. How do we do something that's different and better? And so instead of spending money in advertising, let's give it. That's what I was going to say. The customer acquisition costs have always been like this big killer. But you think you can acquire more customers without spending marketing?

37:22Well, our customer acquisition cost is definitely less than a DraftKings or FanDuel. And the reason is every time you bet with Fanatics, whether you win or lose, we give you fan cash that you can then make other bets with. You can get merchandise. You can get trading cards. That's what I was going to say. Tying it all together, do you find those synergies make it a much stickier place? How do you play with that? How do you use that? Much stickier, resonating really well. Look, we're going to give out a billion dollars of fan cash next year to bettors. Do you count that as customer acquisition cost when you do that?

37:52I think we just, look, we run a little bit of a lower margin, but I think we can make it up in volume and doing the right thing. Your customer acquisition cost is lower, but you're spending that money in other ways. Absolutely. Our customer acquisition cost is lower for sure, okay, than a FanDor or DraftKings. And we also have a lot of brand marketing for fanatics that we have from the commerce business, from the collectibles business. And so I think a lot, and we have 120 million customers, and more than 50 % of those customers, they know about the sportsbook. A lot of those customers use the sportsbook.

38:22I used some of your fancasts the other, on Monday night, and I won, but it's rare. Because what you have to do is, no, when you have normal balance, you bet$10, and you get the 10 back, and you make$30. When you do fan cash, all you get are your winnings. So most of the time you don't win, so the fan cash goes away. But it was a genius invention by Matt King, the CEO of our gaming business, who used to run a fan deal before he came to us. And he really came and said, look, I want to make this better for customers. What do we do different? He said we're going to do two things. Number one, every time someone makes a bet with us, we're going to give them fan cash.

38:56That's a billion dollars we're going to give out next year they can use for merchandise, for tickets, to make more bets, to buy collectibles. That's really resonating well. Again, win or lose, you get the fan cash. Number two, this fair play, which is kind of like this free insurance. And that value prop is what's resonated so well. So that's where we've driven the growth of our gaming business. Do you see long term there's going to be more consolidation, though, in this space? Because the weirdest part about this business is you would think, you know, they would say the house wins. And therefore, it should be this massively profitable, crazy, over-the-top industry that just prints cash.

39:27And I think part of it is the acquisition cost. Part of it is the competition. most of these businesses have not been like wildly excessively profitable yet yeah so i'd say outside of the u.s they are wildly profitable and i think in the u.s they're becoming wildly profitable right in front of our eyes so if you look at draft kings that you know two years ago they were losing half a billion or billion dollars maybe three years ago this year they're going to make 900 million dollars i think fanduel is going to make a billion 250 this year so these companies have very quickly swung from tough businesses to very good businesses and what happened was i think in an environment when the market was a little bit ridiculous.

40:02And by the way, Wall Street had a part to play in, you know, they had a real role in this. You know, they were given free money away, so people spent illogically on customer acquisition. When we got into the business in 2021, what I said to my board was, look, I love this business long-term for fanatics, but I don't think the economics currently make sense. Let's bring Matt on, let's evaluate the market. It took us two years to launch, and by the time we launched, everything was more logical. And today it's the most logical it's ever been. So I'd say we're in a much more thoughtful market today, but the market is still just getting going.

40:35In terms of what you are going to spend that may cut into your margins to do things to win fan loyalty, to bring them back, is that a constant or is there a point where you can ease up on some of that? Because the thought with the customer acquisition cost is it would eventually go down. You would have people, you would buy loyalty, but it's a really tough competitive market. Sure. So the way to think about that is hold rate. How much do you keep from a customer? And I think if you look at a Flutter or FanDuel they could hold in the U.S., you know, 13 or 14 percent. The traffic against might hold 12 percent.

41:08Today we're at 10 percent. Maybe structurally we're always 100 basis points or 200 basis points lower. That's still a great business for us. And when you take the synergy of the Fanatics ecosystem and what it means to collectibles and what it means to the commerce business and how these things all integrate together, it's an incredibly big opportunity for us. When we look, you asked about the value of the business. When we think about what gaming can be, in our five-year plan, we have gaming being 40 % of our profits. Really? Okay? And we're very bullish about that. And where is it now? Yeah. I mean, today, we've spent$1.5 billion since we've launched, including the M &A deal we did.

41:45No. We'll lose about$300 million this year. We'll lose about$150 million next year. And then we'll make, you know, several hundred million dollars in 27. We feel great about that because if you look at what did Flutter and Fandul spend between the M &A, same way we look at it, they spent six to seven billion dollars. Same for DraftKings. So we look at a less than two billion dollars spend to get to profitability versus these guys having a six or seven billion dollar spend. Again, they built great businesses, but they spent a lot more to do it. Michael, we might be in a open window for IPOs. Do you even look at this moment at all and say, I want to use this window?

42:18No, I don't. We don't really get excited about market changes. We think about how do we build the best business. What I'm really excited about is look what's going on in our collectibles business. I mean, we are driving the entire collectibles industry. That business, we won all the rights in 2021. In January 1st, 2022, we bought Topps. It was a half a billion dollar business. It'll be more than a three billion dollar business. I have to say, watching what you've done with that has been really, really impressive. As somebody who's got a kid who collects all of these cards, I mean, that has been something to behold, to watch what you're doing with this stuff and how you ramp that up.

42:51Thank you. And I'll tell you the most interesting thing. When we bought the rights in 2021 from the sports leagues and the players associations, they all thought we were nuts. I did, too. Right. Because we're walking and saying, look, you're at an all-time COVID high. Collectibles has never been bigger. And we're going to walk in and guarantee you 100 percent of what you make. We're going to give you a higher royalty rate. We're going to let you participate in all the secondary markets that you don't participate in today. And then, by the way, we're actually going to start to market this category for the first time.

43:17But it was also based, if I believe, and maybe just the world changed, a little bit on digital cards. Remember, because it was a whole NFT craze, everyone thought maybe that was where this was all going to head. And most of this has been physical for you. It's all physical. We did get in and out of the NFT business very quickly. It was about four months. We raised$100 million and then gave the money back to investors. Probably we have the only investors that didn't lose money in the NFT business. But my point was, when I think about whether we should go public or not, what I'm thinking about right now is how do we build the best company?

43:46But when's the time to go public? Once you're profitable? When do you need the money and why? Well, we don't need the money. We have a good balance sheet. The company has no liquidity needs. But at some point, you're going to probably want to wait for employees and others. I think the most important thing about long term, I think you want to give your investors and your employees liquidity. But right now, we think about our business. We're growing so quickly. this year, you know, we thought it would be approaching$9 billion will be substantially over$9 billion. Next year will be over$12 billion.

44:15And so for us, we're just thinking about how do we build the best business? There's so much growth in collectibles, so much growth in gaming, so much growth in our core commerce business. And then you think, those three businesses alone, I'll tell you our plan. We think we can do over$5 billion in profits over 2030 in just the three businesses we're in. We have a couple other businesses we're launching. I know we've got to go, but I've got one final question for you. everybody's talking about how we are in this like sports. I don't know if it's a bubble or what's going on, but everybody's interested in the business of sports now, right?

44:48That is like the thing. No question. The thing. Everyone's buying into different leagues. And I'm not talking just about the NFL and the NBA and MLB. I'm talking about, you know, paddle and sailing and drone racing and all of this stuff. And so the question is how you actually see this whole space play out Also, because the media rights have become a huge component part of this. And again, even beyond sort of the majors or any of those pets dot com. I mean, it feels like an Internet. So I don't want some of those. I guarantee I've never watched it. I think obviously I think in the overall sports ecosystem, I think there's going to continue to be significant appreciations.

45:28Why every day that goes by, people are trying to do more and more with fanatics. I think you're talking about sports team ownership. Look, there's only 32 NFL teams. There's only 30 baseball teams. So when you look at the scarcity and you look at the amount of money in this world, there's so many people chasing, you know, this small amount of teams. The same thing with Fanatics. Look, we think we can be the most valuable company in sport in the next five years. But to Andrew's point, WNBA is one thing to see that as a huge growth market. It's another thing when you get to I have found myself watching competitive pillow fighting for about five minutes.

45:59I haven't watched competitive pillow fighting. That could be done a certain way. Yeah. Is that the way you think? Is that at your house? with your husband and kids? Or is that like... Yeah, I was laughing with him. I was laughing with him. Like, this is hilarious. No, I meant it was a pillow fighting at your house. Oh, no, no, no. It's on YouTube. Are you going to watch Pickleball? So let me just... Look, I think in general, if you look at... Look, I don't understand AI the way you guys probably do and most people do today, but I will tell you... I bet you do. Well, here's what I'd say to you.

46:26I think there will be a lot of winners, but there will probably be more losers in that space as the market really just continues to develop. In sports, I think there's going to be a very high percentage of winners. So I think if you invest in sports teams, if you invest in sports companies, if you're a partner in Fanatics, I think you're going to be very fortunate because I think the momentum in sports is very clear, and I think there's a ton of wind behind our back. And so I think overall, will certain things fail? Of course. Do you ever miss owning a team outright? Not in the slightest. I can't believe that.

46:59You're such a fan. How do you not miss that? Because for me, there's so much fun about trying to build one of the most interesting consumer brands in the world. If I sit here today saying just the three businesses that we're in, we think can make more than$5 billion. The brainiac. Are you still have your seats? I feel bad saying this. I think I went to two Sixers games last year. The second I sold my ownership, I never looked back. Because you're a businessman first and foremost. Were you up in the rafters? You were not up in the rafters. Let me say this. Let me say this. I think it really became a conflict.

47:33I want to build our betting business and build our collectibles business. And we just kept getting bigger and bigger. It was too complicated. You are a monster businessman. I give you that. I can't believe that overtook your sports. It's the one thing I'm actually pretty decent at, and I love it. It's so fun. This is your game. It's my game. I get to play it every day. And it's a great thing. I say this all the time to some of my friends or some of the best athletes in the world. I am so lucky that until I die, I can do this from when I wake up until I go to bed every day and get to play a great game.

48:00And that's something that I'm so fortunate for. And so. As you laugh at them, like your days are numbered. Well, it's funny. You see certain people who can make an incredible transition and other people that can't. But I think it's very difficult to go from being one of the best athletes in the world to, hey, what am I going to do next? Now, some people make that transition incredibly well. Like I look at the drive Tom Brady has and like the same intensity. Steph Curry. Yeah, got him to win seven Super Bowls is why he's so successful in business. But I know I'm going to play this game for the rest of my life.

48:32And for me, I remember when I watched the Nike movie, Air, two years ago. And as soon as it got done, I looked at Camille. I'm like, how old do you think Phil Knight is now? And I went and Googled him. He was 85 two years ago. I'm like, I'm 51. Think what I can do over the next 30 years, what we can build fanatics into. The second half of your life should be better than the first half. And we're just getting started with fanatics. People say, oh, you're running a big company. We're not. We're only, whatever,$12 ,500,$13 billion next year, 22 ,000 people. we're just getting started. And so we have these three incredible businesses and so much to grow with them.

49:06I think it would be easier for you to win at business than to win an NBA title. Well, by the way, it definitely is easier because winning an NBA title is really hard and we never did it. And it's one of the things that really frustrated me is that we gave it everything we had. I think he means you. All right. No, I mean him. No, he went to Sixers. No, I think he means you winning it. No, the reason that Fanatics is, that he said, is not profitable is because I'm cleaning up day in and day out. And when you, you know, your margins are going to be squeaked. Listen, look, we're technically... join.

49:32You wouldn't be. And you know, we're terrified of having a business. That's what I mean. Back down. So you better be. We need you and everybody watching this show. Michael Rubin. Thank you. Thank you for coming on the show. As long as you have. Eighteen dollars the other night. Congrats. Congrats. We love following your progress. So thank you. Appreciate being here. Great to see you. And that is Squawk Pod for today. Thanks for listening. Squawk Box is hosted by Joe Kernan, Becky Quick and Andrew Ross Sorkin. Tune in weekday mornings on CNBC at 6 Eastern to To get the smartest takes and analysis from our TV show right into your ears, please follow Squawk Pod wherever you get your podcasts.

50:07We'll meet you right back here tomorrow. We are clear. Thanks, guys.