Sports Betting, Challenges Facing Young Men, and The Fall of Sam Bankman-Fried — with Michael Lewis

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1:23Download today. Episode 328. 328 is the country code belonging to Guyana. In 1928, Mickey Mouse first appeared in the sound cartoon Steamboat Willie. What's the difference between Disney Plus and YouPorn? Disney Plus wants you to hate your stepmother. Go! Go! Go!

1:50Welcome to the 328th episode of The Prop G-Pod. In today's episode, we speak with Michael Lewis, the host of the podcast Against the Rules and New York Times bestselling author of several books, including The Fifth Risk, Flash Boys, and The Big Short. We discuss with Michael the state of sports betting, the challenges young men face, and the controversy surrounding the book Going Infinite, which explores the rise and fall of Sam Bakeman Freed. I really enjoyed this conversation. He's a very – simply put, Michael is a great storyteller and has written some of the kind of iconic books of our time.

2:22Okay, what's happening? Home in London before heading to South Africa for the holidays. I'm super excited. I'm taking my sister and her family. My sister is turning 50, which in the Galloway household means she's turning 40. And love hanging out. You know, it's wonderful. So my sister and I never lived in the same household. I was raised by a single immigrant mother. My dad, that was my dad's second wife, as far as we know. Pretty sure there was another one in there that we don't know about. And then he started his third marriage while he was married to my mother. Bad form. Bad form. And he married Linda, who is Ashley's.

3:00They had a daughter, and that was Ashley. And Ashley and I always got along, but part of it was we didn't live together, so we were just kind of, you know, just 10 years difference between the two of us. And as we got older, we became kind of, it was sort of fun to just sort of wake up and realize you had a sibling that you got along with and you still felt that familial bond with, and we had been close siblings. It's always struck me how many siblings don't get along. And I think that's one of my biggest fears about my boys is they're going to grow up and for whatever reason not be close. But I found that not living with my sibling and then waking up and finding out you had this intelligent, interesting, nice person who felt a bond with you was really wonderful.

3:41It's also been key in helping take care of my father. Anyways, I'm super excited about going to South Africa. I love Africa. This will be my third time. And people say, don't say Africa. That's like saying North America. Every part of Africa I've been to, I've really enjoyed. Anyways, moving on. Major shakeup in the advertising world. Omnicom announced a$13.25 billion all-stock deal to acquire its rival, Interpublic Group. The deal would create the world's largest advertising business, merging the third largest ad buyer, Omnicom, with the fourth largest, Interpublic. According to 2020 figures, the combined entity would generate over$25 billion in annual revenue, surpassing competitors, including WPP and Publisi.

4:25By the numbers, let's look at it. WPP registered$19 billion, Publisi$16 billion, Omnicom$15 billion, and IPG$11 billion. And this is what happens when there's essentially a tectonic shift away from your sector. And that is the first thing that happens is cost cutting. The second thing that happens is consolidation. So you can bulk up, which is effectively a way of cost cutting because then you only need one headquarters, one CFO, one admin staff. The modern kind of ad conglomerate was sort of forged by Sir Martin Sorrell, and it was the following. These are good businesses, or at least they used to be, the ad agency business or the agency business where companies would think, all right, we're Intel.

5:05We're not that creative. We get engineers to come work here. But we're not about making commercials or designing logos or putting on conferences or buying keywords or what have you. So we're going to outsource this part of the company. and we need to find really creative people who see all these types of ideas and played with the wrong toys or the right toys and were those people that decorated their desk in funky shit or you went over to their apartment and their apartment just seemed cooler than yours even though they made less money, those people. And we need to outsource it. And from 1945 to 1995, the algorithm for printing money or creating shareholder value was the following, a mediocre shoe, salty snack or car and then wrap brand codes or these amazing brand codes around it of masculinity, maternal love, European elegance, American macho, whatever it might be, to be smart, to be practical, whatever it was.

5:52And the thing about brand building was it was the ultimate strategy because the sword around building a brand was so incredibly sharp. It was such valerian steel. And it was specifically not the creative, but the fact that you could consolidate the market and reach people with these pieces of creative that created these intangible associations wrapped around a mediocre product. You could find 80 % of all of America in one of three places, NBC, ABC, or CBS for five hours a day so we could build these brands. So essentially the ability to find a mediocre product and build amazing associations around it such that it became not$8 of leather and laces but$140 of being like Mike or not$0.20 of peanut butter paste but$2 or$3 of maternal love because choosing moms, choosing Jeff.

6:39This was the ultimate way to kind of build shareholder value. And you had General Motors, you had P &G, you had Coca-Cola. I think kind of the beginning of the decline of the brand age was when Honda introduced a compact car in the U.S. and said, all right, it's not all about branding. It's just about a better car at a better price. And then the big, big unlock or kind of the last nail or what really took the vampire of kind of ad-supported or the brand age down or was sort of the wooden stake in Don Draper's heart was the introduction of Google. And that is you no longer need to defer to the shorthand of a brand.

7:12And a brand is just diligence, right? I used to stay at the Mandarin Oriental, the Four Seasons, wherever I'd go. One, because someone else was paying for it. And two, they always do a good job. Now I want to use my social graph, Google, AI to find out that the best gym in Europe or in Berlin is at the Soho House. Or that I want to stay at, you know, which lodge do I want to stay at in Africa? All of a sudden, I'm no longer deferring strictly to the brand, right? I can find, I can do my own homework. and also a big digital unlock, right? Tesla doesn't need to advertise as much because if you can tune up your electric car over the airwaves, that's amazing.

7:45Google, Instagram are in fact 10X better products. So digital innovation has kind of made product cool again. Brands are now built by supply chain and innovation and technology that unlocks some sort of product feature. That leaves ad agencies, quite frankly, with declining power. And the problem is it hasn't been overnight. It's kind of like the magazine industry. The worst thing that can happen to you, is to die slowly. Because the thing about marketing and ad spending is that it's incredibly resilient. It's always been about 1.5 % of GDP, but it also doesn't grow a lot as a whole. Google hasn't grown the market.

8:20They've just taken tens and now hundreds of billions of dollars out of the ecosystem. It is a bit of a zero-sum game. And these guys have been on the wrong end of that. Now, the merger we're talking about here is expected to result in$750 million in annual cost savings. Omnicom CEO, John Wren. I met with John Wren literally 25 years ago about potentially selling my brand strategy firm profit to him. Seemed like a very smart guy. He'll lead the new company, which will keep the Omnicom name, the combined company, Interpublic IPG CEO, Philip Krakowski, will serve as the co-chief operating officer, co-officer.

8:55That means he's on his way out. Omnicom shareholders will own 60.6 % of the combined company, while Interpublic shareholders will command 39.4%. Interpublic shares were up 11 % on the news, while Omnicoms fell 6%. Typically, the acquiring company who's on top, their shares fall because usually people get excited about building a bigger empire and they overpay. Only one in three acquisitions works. Omnicom has tried to do this before. Back in 2013, Omnicom tried a$35 billion merger with Publisi, but it fell apart due to regulatory issues. Still, Omnicom CEO John Wren remains optimistic and has said the current regulatory environment is more friendly to business.

9:32It's not that they're more friendly to business, John. It's just they realize what trouble you're in and that you need to bulk up or specifically cut costs. The notion that they're going to get in the way of this or they're going to have some sort of monopoly power is just insane. Now, I wouldn't put it past the DOJ or FTC because in my mind, they do make irrational decisions every once in a while. But for God's sakes, this isn't about monopoly power or controlling the media ecosystem. This is about literally just trying to stay afloat. In sum, if you can't beat big tech, you need to consolidate and get bigger yourself.

10:03The deal is expected to close in the second half of 2025. The big question is, will this integration actually succeed? This is the right thing to do. IPG's on bottom here. If you're at headquarters, in admin, in middle management, you're not client-facing, you're not ringing the register at IPG, folks, let's be clear. You're on the green mile. And while John Wren will paint a vision of the future and how there'll be a lot of growth and they don't have an immediate layoffs plan, okay, stick around to get the severance. But be clear, if you're not directly linked to a client or a critical, mission-critical function, and you're making a good living, you're about to be consolidated.

10:43We'll be right back for our conversation with Michael Lewis. Change is always happening. But no matter what changes in five years, there's one thing that will stay the same. The price of your internet. With the Xfinity five-year price guarantee, you get five years of the most reliable Wi-Fi with our best equipment included for a price that stays exactly the same. Restrictions apply. New residential customers only. Taxes and fees extra and subject to change. Most reliable Wi-Fi based on OpenSignal Awards USA. Fixed Broadband Experience Report, August 2024. Tuesday on NBC, Jimmy Fallon and Bozema St.

11:22John 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 Tuesday on NBC.

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12:27welcome back here's our conversation with michael lewis new york times best-selling author and host of the podcast against the rules michael where does this podcast find you smoke tree ranch off the side of Palm Springs, which is a gated community created by Walt Disney and some of his pals way back when. Wow. Let's bust right into it. In the latest season of your podcast, Against the Rules, you investigate sports betting, which we talk a lot about here on the pod, which you refer to as a great social experiment. Walk us through the state of play of this experience and where you think we're headed.

13:03So in 1992, Bill Bradley, then a senator, created essentially a federal ban on sports betting. It exempted Nevada, but basically it was against the law. And the Supreme Court repealed that in 2018. And the new law of the land is states can legalize it if they want to. And 39 states have. And about two-thirds of the American population has access to sports betting on their phones. About one-third still doesn't. And the industry here is dominated by two companies, FanDuel and DraftKings. They have, a little hard to say exactly, but say roughly 70 % of the market. And they were, before they were sports gambling companies, they were daily fantasy sports companies, which gave, they actually was the perfect, the perfect thing to be before mobile sports gambling is legalized as a daily fantasy sports company.

13:59You know all the customers. You have data on all the customers. Sports bets in America have skyrocketed. It's, again, a little hard to say because it's hard to know what numbers to trust because there was an illegal market that presumably is not quite as big as it used to be. But the legal market has gone from a few billion to over 100 billion a year. And there's just starting to be some academic research showing the social effects of this. I mean, it's kind of cool, this. The way it's rolled out has created these natural experiments that you have because you have states that are side by side.

14:37One has legalized it, one has not legalized it. So you can sort of tease out the effects of legalizing it. But bankruptcies are up. Savings rates are down. If it follows the path that it followed in the United Kingdom and Australia, suicide rates will be up. So there's some social costs to it all. But I think, like, really early days. I mean, you know, it's only been legal for six years. There were companies that have really only been up and running in most states for just a few years. It's kind of not hard to make some predictions about where it's going, but it's not there yet. So I'm a glass half empty kind of guy, but you cited some stats.

15:15That's, I've seen 20 to 30 % increase in bankruptcies in states that legalize it. I see young men with kind of less structure in their lives who are more prone to addiction. I think six out of seven gambling addicts are men. My understanding is gambling has the highest suicide rate because if you're addicted to meth, people figure it out and try and intervene. You can get in way over your skis with gambling and nobody knows and you decide there's only one way out. I'll use an academic error. I think this is a fucking disaster. Your thoughts? Yeah, I'm totally with you. This is why I was drawn to the subject.

15:47I couldn't believe, well, look, once it's legalized, I'm a little shocked by the insensitivity to the public health crisis it's going to trigger. because it's essentially Wild West in how you can get to the customer. And they aren't, you know, the sports gambling companies, they were mistaken for casino companies when the people kind of thought, oh, it's going to be like a casino business. So that the kind of VIG, what the house takes, about roughly 5%, it's always been kind of 5%, remain kind of 5%. This number keeps going up with these companies. They're like, it's like at 15%. And effectively what they are doing is mining the entire U.S.

16:33population for people willing to make stupid sports bets. And they have a finely honed ability to identify anybody who actually knows what they're doing, like the sharp gambler, someone who actually might have some edge in a sport, and toss them out or limit them to the point where they're effectively tossed out. So that their business is built on people who don't know what they're doing. and it's further in a way that you know casinos when you're in a casino of course it's manipulating you in all kinds of diabolical ways but when the casino's in your pocket it's like your whole life is in the casino kind of thing and they have an they have an ability to sort of like nudge people in doing stuff that they just wouldn't think to do it's it is and it's making the dumber and dumber bets when you kind of think about okay like what's the disaster going to look like it's not just men It's young men.

17:26Young men are the real target. The Lancet, the British medical publication, just came out with a study that said, I mean, this number is so high that I want to just pause before I say it. But the 26 % of young men who are exposed to gambling develop some sort of gambling problem. That seems very high. But even if it's half that, it's like the NCAA, whose new president, Charlie Baker, was just shocked by the gambling activity he was seeing on campuses, commissioned a study to see how many people were doing this. And more than 60 percent of young men on college campuses are sports gambling. So you do the math.

18:07It's just like you got it. We're like, it's almost like we're creating a pool of future gambling addicts. And you're right. It's very interesting. You're right about like when you think about what's going to stop this train, if you compare it to like opioids, like opioids was able to run for 20 years before anybody really put a stop to it. and 750 ,000 people die. And it was about as visible an epidemic as you can have. This, it's invisible. You don't see what's happening to people until, so you wonder if it takes 20 years for the society to get its hands around the opioid industry, how long is it going to take it to get its hands around the gambling industry?

18:51So yes, I agree with you. It's like, how on earth did we let this happen? But it's of a piece with other things we have let happen. I mean, when I think about it, it's not only my fear isn't only about gambling addiction, but when you put kind of an on-demand Dopa bag in young people's pockets, just as they're kind of hardwiring their brain and learning about life and reward, that we're just setting them up to be just fucking Dopa monsters. And if they can't get it from gambling because they run out of money, they're going to find it somewhere else. Have you seen any of my thesis is we are literally unleashing into the economy, into the world, millions of dopa monsters that are just going to find whatever way they can.

19:36Opiates, sex, porn, online shopping. They're just going to be so hungry for that rush because their brains will have been wired to expect that rush. that it's going to have all sorts of ramifications outside of gambling. Am I catastrophizing here? I mean, it doesn't sound unreasonable to me. My first thought when you started down that little path was, it's interesting that sports used to be a place where you learned the slow rewards that come from hard. The late gratification, yeah. Yeah, you learned the opposite thing. And we're turning this mechanism that used to take young men and teach them a certain lesson.

20:19Are you taking it to teach a different lesson? So it was disturbing enough to me that I have a seven, my youngest is a 17-year-old son. Like I gave him some money and adult supervision so he could learn how to navigate this world because it does feel like not only are we creating a world of, you know, dopamine addicts, but the signal you send, especially the young men, because they're so susceptible to this, is the world actually doesn't give a shit about you. That it's out to get you. When I got into this, when I started working on the story, what motivated me was the book I wrote about, stuff I'd learned in the book I'd written about the pandemic.

21:04I got interested in it because the U.S. response in the beginning was just so appalling. We had like, you know, 20 % of the world's deaths with 4 % of the world's population in the first six months. And I learned in the process that this was that in the few years running leading up to the pandemic, we'd had experienced a decline of life expectancy in three straight years. And that had not happened since 1918. And I thought, well, the pandemic's happening in the context of a society that's already not taking care of its people. that some basic failure is occurring. And this feels like part of that, that it's like it's a public health problem and that it's not that hard, even if you can't do anything about legalizing sports gambling, it's not that hard to do some things to blunt its effects.

21:53So here's my solution. I'm trying to work within the constraints of the society. I don't think actually me going off about how diabolical it all is, is going to help anything. They're doing something that I think is kind of interesting. The company, the sports gambling companies. They are, because they're so good at chucking out of their businesses anybody who knows what they're doing. They're isolating people who don't know what they're doing. So by definition, if you have an account in good standing at FanDuel and DraftKings and you're doing a lot of sports betting, you have signals to the world, you don't know what you're doing.

22:30I think that if we get that message out and that if you say, like, if you're looking for someone to manage your money, the first question you should ask them is, do they have an account in good standing at FanDuel and DraftKings? If they do, you should never give them your money to manage. Like, that if you make it a point of shame that you're in good with the industry, that you might stigmatize it in a way that makes it less dangerous. We'll be right back.

23:16We'll see you next time.

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24:34Your book, Going Infinite, you fell under some of what I call the same texture of criticism as Walter Isaacson's biography on Elon Musk, and that you were kind of seen loosely as having a front row seat, but not seeing what was going on. Do you think that's a fair criticism? I didn't write it until after it all collapsed. when I sat down to write the first words, there wasn't much I didn't know had happened. I mean, very little happened, came out in the trial that wasn't already kind of known. But it is true that I was there, a fly on the wall from kind of end of 2021 through the collapse in November of 2022.

25:16And if you'd have said he has the money, the customer's money in Alameda, I would have said, you're insane. There's no way. That would be so dumb. So I did poke, everybody did this. Everybody who saw the structure of the business. He's got his own private hedge fund or trading firm on the side of an exchange, and he owns them both. I did ask lots of questions about conflicts of interest, but what I imagined would be the problem wasn't the problem. I imagine the problem was that his trading firm would have the same sort of privileged access to the exchange that high frequency traders get on the New York Stock Exchange and privileged access to data and so on.

26:01So front running, whatever. And that wasn't the case. I did not see that like, oh, yeah, the money's in the wrong place. So that's true. Did I, in retrospect, think I should have seen it? Not really. No one else saw it either. You know, there wasn't the interesting thing. There are many interesting things about the story. But one interesting thing is, yeah, a lot of people said, I wonder if they're shady like FTX. But that's the in crypto. That's easy. Like as a heuristic, if you're if you're a successful crypto business, you're you know, you're largely unregulated and you're 26 years old and no one's paying that much attention.