Latest / Bloomberg Intelligence / Walmart Slides After Slowest US Sales Growth in Six Years

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Walmart Slides After Slowest US Sales Growth in Six Years · Bloomberg Intelligence

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  Speaker 2: Walmart, I mean, man, the stock's down nine point two percent.
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  Speaker 2: That's the biggest decline since like May of twenty twenty two.
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  Speaker 2: I mean, this is a big day for Walmart.
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  Speaker 3: Walmart stock does not move up or down by that
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  Speaker 3: kind of by that kind of size. I mean, it
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  Speaker 3: just doesn't. It's it's a blue trip stock. I mean
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  Speaker 3: it moves up or down half of one percent on
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  Speaker 3: those days.
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  Speaker 2: Eight hundred and twenty five billion dollars in market caps,
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  Speaker 2: So some real money's being traded here today. Red Brown
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  Speaker 2: joins us here. He's a consumer reporter for Bloomberg News,
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  Speaker 2: joining us live here in our Bloomberg INTERACTI Brookers Studio.
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  Speaker 2: Read what happened with Walmart and the results. Why it's
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  Speaker 2: the street so down and out on this name today?
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  Speaker 4: Yeah, I mean the size of the move also kind
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  Speaker 4: of took me and made me pause as well, because
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  Speaker 4: it is it's extreme, especially I mean for Walmart of
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  Speaker 4: all people. So I think the reaction really is coming
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  Speaker 4: from this top line miss. So Walmart's US source the
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  Speaker 4: same sort of sales missed, even the sort of most
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  Speaker 4: pessimistic outlook for among analysts. So I think that's probably
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  Speaker 4: kind of leading to some of the move that we're seeing.
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  Speaker 4: A big piece of the companies calling out is lower
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  Speaker 4: drug pricing was kind of a factor in that. But
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  Speaker 4: even when you strip that out, sales only grew three
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  Speaker 4: point four percent, which still would have been a slight miss,
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  Speaker 4: which is still kind of a rare happening for Walmart.
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  Speaker 4: So I think that the conversation sort of sort of
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  Speaker 4: shifts to like kind of what can they do now
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  Speaker 4: and what does this sort of mean for the wider economy.
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  Speaker 3: Yeah, the fact that within the earnings that got my
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  Speaker 3: attention was shopper spending less per trip during the quarter.
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  Speaker 3: You would think that in this kind of environment, with
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  Speaker 3: inflation being so persistent, gas prices staying high, that people
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  Speaker 3: would double down on a place like Walmart. What is
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  Speaker 3: the company staying and what did it reveal on the
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  Speaker 3: earnings call about how it's going to move forward?
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  Speaker 2: Then?
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  Speaker 4: Yeah, I think the most interesting thing that came out
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  Speaker 4: in an interview my colleague did and also during the call,
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  Speaker 4: was that they cut prices on eleven thousand items.
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  Speaker 5: That's almost double what they usually do at this time
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  Speaker 5: of the year.
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  Speaker 4: So I think that sort of speaks to how Walmart
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  Speaker 4: is going to be moving forward. This strategy has been
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  Speaker 4: to continue to prioritize market share. You'll hear this kind
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  Speaker 4: of across consumer companies P ANDNG sort of similar sort
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  Speaker 4: of economic barometer saying very similar things, And I think
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  Speaker 4: that is the sort of path forward here is we
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  Speaker 4: have to cut prices to keep people coming in. You know,
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  Speaker 4: we saw foot traffic. Even though ticket was down, foot
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  Speaker 4: traffic was also misresults. So it's not down so up slightly.
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  Speaker 4: But yeah, people are cutting back in terms of the
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  Speaker 4: number of times of shopping and when they go, they're
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  Speaker 4: also probably putting less things in their basket as well.
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  Speaker 4: So the way forward seems to be kind of continue
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  Speaker 4: to cut prices. But at the same time, there's prices
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  Speaker 4: that are outside of their control, right, so fuel and inflation,
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  Speaker 4: I mean it's not food inflation, sorry, interest rates. All
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  Speaker 4: these things that are out side of Walmart's control are
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  Speaker 4: are weighing on the business as well.
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  Speaker 2: Fifty one analysts cover the stock, which just shows you
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  Speaker 2: the terrible economics of cell side research. Who needs fifty
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  Speaker 2: one annals covering one stock? Forty five buys five holds
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  Speaker 2: one sell. The streets still bullish on Walmart? Is there
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  Speaker 2: any reason to believe their sales softness was a Walmart
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  Speaker 2: issue versus more of a kind of a macro consumer issue.
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  Speaker 4: That's a that's a good question. I guess I could
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  Speaker 4: probably make an argument for both. Look, some of the
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  Speaker 4: strategies they're making are gonna kind of are doing are
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  Speaker 4: going to contribute to lower sales, right Like, if you're
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  Speaker 4: cutting the price of a lot of items, you're gonna
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  Speaker 4: that's gonna lead to kind of a slow down of
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  Speaker 4: the top line. But at the same time, if you're
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  Speaker 4: also seeing that less people are coming in than expected
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  Speaker 4: even with these these lower, lower price items, you know,
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  Speaker 4: there's probably some sort of read that you could you
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  Speaker 4: can make about kind of the health.
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  Speaker 5: Of the consumer in general.
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  Speaker 4: Obviously, we've seen consumer sentiment come down as well.
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  Speaker 5: I think some some of the lower levels we've.
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  Speaker 4: Seen in kind of recent hiss so that also sort
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  Speaker 4: of kind of leads me to believe that this is
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  Speaker 4: a wider issue. I just we're all feeling it, right,
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  Speaker 4: Like we all see every single day the things that
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  Speaker 4: we're doing. We have to cut back, we have to
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  Speaker 4: make decisions about maybe stretching for a higher priced item.
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  Speaker 4: I don't think that there was a ton of discussion
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  Speaker 4: around sort of those items is more discretionary pieces, But
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  Speaker 4: that would also be sort of an issue that would
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  Speaker 4: probably make us, make us conclude that people are just
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  Speaker 4: needing to trim and it's immacting even someone like Walmart.
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  Speaker 3: Within within the earnings, recent food borne illnesses also weighing
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  Speaker 3: on demand for things like package lettuce and strawberries, because
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  Speaker 3: groceries is a huge part of Walmart's business. I know
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  Speaker 3: you also cover the restaurant companies. Is there anything new
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  Speaker 3: in that how lettuce tainted lettuce or tainted vegetables issue?
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  Speaker 2: Right now?
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  Speaker 4: Nothing new off the top of my head that I
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  Speaker 4: could say in terms of like maybe where the outbreak
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  Speaker 4: is going. But what is interesting to me is sort
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  Speaker 4: of the sort of like secondary effects of that. So
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  Speaker 4: it's like, you know, you have to think about like
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  Speaker 4: things like croutons, right like if people aren't eating.
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  Speaker 5: As much salad, like, oh, do I need croutons? Do
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  Speaker 5: I need salad dressing?
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  Speaker 6: Right?
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  Speaker 5: So there are these sort of like knock on secondary.
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  Speaker 3: Effects that do I need my cherry tomatoes?
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  Speaker 5: Exactly right?
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  Speaker 4: There's all there's so many things that it's just like,
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  Speaker 4: you know, nuts, whatever you're throwing on the salads, right,
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  Speaker 4: It's just like it does have sort of a ripple
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  Speaker 4: effect to other parts of the economy.
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  Speaker 5: So I guess that would be.
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  Speaker 4: Sort of the newest thing that I guess we're going
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  Speaker 4: to keep watching. It's just like who else sort of
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  Speaker 4: has to deal with some of this fallout?
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  Speaker 2: Today is salad day for me. By the way, are
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  Speaker 2: you still going to get a salad?
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  Speaker 6: Yeah?
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  Speaker 3: Really, you're not deterred by this at all. Please, you've
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  Speaker 3: been no adjustments. None is a solid place, less crowded
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  Speaker 3: than it used to be.
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  Speaker 2: I'll tell you what. The salad line is less crowded
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  Speaker 2: than and the sandwich line is very crowded. The solid
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  Speaker 2: line I breezed right through. So I mean again, born
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  Speaker 2: and raised in New Jersey, I consume every carcent egenen
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  Speaker 2: there is that known to man, and I'm doing just fine.
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  Speaker 2: I'm immune to all this stuff. How about the supermarket
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  Speaker 2: side of Walmart. Again, that is a that drives traffic.
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  Speaker 2: They're not how'sapp is, they're not cutting prices there are
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  Speaker 2: they on the supermarket.
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  Speaker 4: Or I believe So it's if you're cutting you know,
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  Speaker 4: eleven thousand items, you know, like it's obviously going to
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  Speaker 4: be there displayed on the e commerce. But the stores,
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  Speaker 4: the company said, like, the stores are still obviously an
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  Speaker 4: incredibly important part of our business.
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  Speaker 5: So and that you know, oftentimes, you know, if.
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  Speaker 4: You're going to cut back too, there's all these prices
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  Speaker 4: that come with e commerce as well, right, Like there's
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  Speaker 4: delivery fees, maybe not less so for someone like Walmart,
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  Speaker 4: you can kind of minimize some of those.
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  Speaker 5: But like, you know, if.
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  Speaker 4: I'm going to be going to get gas, I'm going
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  Speaker 4: to be making all of my sort of grocery and
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  Speaker 4: errands in one trip, right, I don't want to be
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  Speaker 4: driving as much as I need to be. Yeah, Right,
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  Speaker 4: so you know it does matter kind of what's going
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  Speaker 4: on with the stores, and yeah, they're having to make
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  Speaker 4: adjustments even at the sort of a keystone.
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  Speaker 5: Of the business.
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  Speaker 3: Before we let you go, was there anything said about
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  Speaker 3: spending on AI. I know they spent a lot on
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  Speaker 3: the e commerce business. But did they mention AI at
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  Speaker 3: all on the earnings call.
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  Speaker 5: Off the top of my head, I'm not.
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  Speaker 4: I think they did say something that it's still kind
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  Speaker 4: of driving traffic and things like that. Still investing there obviously,
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  Speaker 4: like you know, big big push on e commerce and
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  Speaker 4: trying to get people to you know, surface new things
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  Speaker 4: or trying to sort of predict what people might need,
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  Speaker 4: making sure the ads are in the right place. So
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  Speaker 4: I'm definitely still part of the the sort of tech drive,
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  Speaker 4: especially with the new CEO who has been kind of
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  Speaker 4: heavily involved in that with the business. So I don't
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  Speaker 4: imagine that that that investment will probably be going anywhere
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  Speaker 4: anytime soon.
• 7:23
  Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 1: get your podcasts, or watch us live on YouTube.
• 7:44
  Speaker 2: Get reported some numbers, pretty darn good numbers, and they're
• 7:46
  Speaker 2: calling maybe the end of the cycle here, that we
• 7:48
  Speaker 2: could have an upcycle coming and stocks up seven percent today,
• 7:51
  Speaker 2: up thirty four percent you're to date. When we want
• 7:53
  Speaker 2: to talk about all those tractors and machinery stuff, we
• 7:56
  Speaker 2: talked to Chris Gielino. He does all that stuff for
• 7:58
  Speaker 2: Bloomberg Intelligence. Chris, youbin, you're locked in on deer. What
• 8:02
  Speaker 2: do we hear from them with their most recent earnings.
• 8:06
  Speaker 7: Yeah, it was a really solid quarter in good execution
• 8:09
  Speaker 7: and what is still a really challenging AG market. As
• 8:12
  Speaker 7: we kind of you know, just bounce along the trough
• 8:14
  Speaker 7: of the cycle here, they put up better than expected
• 8:17
  Speaker 7: sales and margins across all three businesses, with notable strength
• 8:22
  Speaker 7: in some of the smaller AG equipment as well as construction.
• 8:26
  Speaker 7: They did also benefit from a tire free refund in
• 8:29
  Speaker 7: the quarter, which was a meaningful contributor to the beat.
• 8:32
  Speaker 2: But I really think one.
• 8:33
  Speaker 7: Of the most important takeaways from this quarter was that
• 8:37
  Speaker 7: management noted, you know, particular strength in their early order
• 8:41
  Speaker 7: programs for next year. So their early order programs were
• 8:44
  Speaker 7: up mid single digits, which was much better than we
• 8:47
  Speaker 7: were expecting. We were looking at something more of like
• 8:49
  Speaker 7: a flat retail market next year. So I think this
• 8:52
  Speaker 7: certainly provides some optimism as we move into twenty twenty seven.
• 8:56
  Speaker 3: And just a red headline here crossing the Bloomberg terminal.
• 8:58
  Speaker 3: Scott Bess and the Treasury Secretary says he or they
• 9:02
  Speaker 3: someone at the White House will be holding a press
• 9:04
  Speaker 3: conference on Monday on Iran plans. So of course we
• 9:08
  Speaker 3: will keep you posted when that happens. But again, the
• 9:11
  Speaker 3: White House or Scott Besson will be holding a press
• 9:13
  Speaker 3: conference on Monday on Iran plans. All right, let's get
• 9:16
  Speaker 3: back to Christopher Cillino on Deer's latest results. Chris, what
• 9:20
  Speaker 3: can we What have we learned about the US agg
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  Speaker 3: cycle farm cycle versus those outside of the US.
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  Speaker 7: Yeah, so, I think one of the takeaways from this
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  Speaker 7: quarter is that in North America, demand is still soft
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  Speaker 7: but relatively stable. We haven't seen further deterioration. You're starting
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  Speaker 7: to see a little bit of an improvement in terms
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  Speaker 7: of crop prices. You still have elevated input costs. Net,
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  Speaker 7: things haven't really changed much. We're kind of bouncing along
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  Speaker 7: the bottom. The two regions that we're watching that you
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  Speaker 7: saw some deterioration during the quarter were one Europe and
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  Speaker 7: two South America. Europe obviously has some hot, dry condition
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  Speaker 7: and then a little bit more of an impact there
• 10:02
  Speaker 7: in terms of input costs in the Iran conflict, and
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  Speaker 7: then down in South America, you continue to have credit constraints,
• 10:09
  Speaker 7: Financing remains a challenge, and you have an upcoming presidential
• 10:12
  Speaker 7: election in October. So i'd expect demand in that market
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  Speaker 7: to remain really challenged until we get to the to
• 10:18
  Speaker 7: the fourth quarter, at least from a calendar year perspective.
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  Speaker 2: So the US farmer still challenged? Is that what we're hearing,
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  Speaker 2: Chris from the deers of the world.
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  Speaker 7: Yeah, you know, there really hasn't been a lot of movement,
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  Speaker 7: and i'd say, like the improvement we have seen in
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  Speaker 7: crop prices, while it's encouraging, we're still you know, at
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  Speaker 7: historically low levels. There's just still a lot of uncertainty
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  Speaker 7: around input costs. The input cost hit is going to
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  Speaker 7: come a little bit later in North America then compared
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  Speaker 7: to what you'll see in South America because of the
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  Speaker 7: double cropping, and then obviously in Europe. But really sentiment
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  Speaker 7: has hasn't really changed a lot. You're starting to see
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  Speaker 7: a little bit of signs of optimism, but I think
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  Speaker 7: the biggest read across in terms of health of the
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  Speaker 7: farmer and their appetite to go out and spend on
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  Speaker 7: equipment next year was the early order programs that Deer
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  Speaker 7: mentioned in that mid single digit increase. So again we're
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  Speaker 7: coming off a low base, but it is certainly encouraging
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  Speaker 7: to say that we're, you know, have really kind of
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  Speaker 7: solidified that twenty six will be the bottom.
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  Speaker 3: Chris, is there any kind of tariff story here with Deer,
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  Speaker 3: whether their goods are being tarffed when they're exported to
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  Speaker 3: other countries, or whether parts for their equipment aren't being tarffed.
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  Speaker 7: Yeah, so the tariff impact certainly played a part in
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  Speaker 7: their three key results. It was roughly one hundred and
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  Speaker 7: ten million dollars refund benefit in the quarter, so we
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  Speaker 7: estimated contributed about twenty nine cents of the of the
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  Speaker 7: thirty nine cent beat, so certainly meaningful. It doesn't sound
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  Speaker 7: like Deer anticipates further refunds moving forward. They did have
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  Speaker 7: a bigger refund than their fiscal two Q net for
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  Speaker 7: the entire year, we're looking at a gross tariff head
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  Speaker 7: win of somewhere in the neighborhood of one point one
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  Speaker 7: billion dollars. That's slightly better than they anticipated in the
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  Speaker 7: prior quarter of about one point two billion, and We're
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  Speaker 7: looking at twenty twenty seven run rate kind of in
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  Speaker 7: that billion dollar range, so still ahead wind as we
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  Speaker 7: move into next year on a growth spasis.
• 12:15
  Speaker 5: Stay with us.
• 12:16
  Speaker 2: More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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• 12:33
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• 12:37
  Speaker 2: A lot of stuff going on in the tech space.
• 12:38
  Speaker 2: I want to focus a little bit on Meta here
• 12:40
  Speaker 2: a couple things It struck me here, and we're going
• 12:43
  Speaker 2: to check in with man Deep Se, global tech research
• 12:45
  Speaker 2: head for Bloomberg Intelligence. Meta Platforms is spending hundreds of
• 12:49
  Speaker 2: millions of dollars a year to access artificial intelligence models
• 12:53
  Speaker 2: through Microsoft's as Your Cloud service. That surprised me. Should
• 12:57
  Speaker 2: it surprise me?
• 13:00
  Speaker 8: Because Meta is one of the biggest spenders on Capex
• 13:04
  Speaker 8: to build these data centers. So the natural question anyone
• 13:07
  Speaker 8: would ask is why do they have to use someone
• 13:10
  Speaker 8: else's cloud as coming from you know, so much capacity?
• 13:14
  Speaker 8: And I think in this case, theory are trying to
• 13:17
  Speaker 8: develop a model that's kind of neck and neck with
• 13:20
  Speaker 8: the frontier labs like Anthropic and open Ai.
• 13:23
  Speaker 6: But they are still trailing.
• 13:25
  Speaker 8: So the purpose of using Microsoft Cloud could be just
• 13:29
  Speaker 8: to benchmark against open Ai. So open AI's models are
• 13:34
  Speaker 8: available on Azure, and if Meta really wants to benchmark
• 13:38
  Speaker 8: the performance, then they can't do it on their own infrastructure.
• 13:40
  Speaker 8: They have to use a cloud infrastructure, and in this case,
• 13:44
  Speaker 8: I would say they have selected the one where they
• 13:47
  Speaker 8: are least competitive with. You know, I can't imagine Meta
• 13:50
  Speaker 8: using Google Cloud or Amazon. So it's more like Microsoft
• 13:56
  Speaker 8: is friendly to everyone, and it doesn't surprise me that
• 14:00
  Speaker 8: Meta is one of their customers.
• 14:02
  Speaker 2: MetaStock is off seventeen percent ish year to date. Is
• 14:07
  Speaker 2: that because the streets questioning their AI spend? Is it
• 14:12
  Speaker 2: concerned about this the court trial they're in? What's kind
• 14:16
  Speaker 2: of behind this year? Because I'm actually concerned about this trial,
• 14:20
  Speaker 2: although met Cheltenhilm yesterday from Bloomberg Intelligences, I don't have
• 14:23
  Speaker 2: to worry too much. Yeah, but what do you think
• 14:25
  Speaker 2: is impacting the stock from it?
• 14:27
  Speaker 8: I think it's more to do with the lack of
• 14:29
  Speaker 8: monetization on this AI spend. So with Microsoft, with Amazon,
• 14:34
  Speaker 8: with Google, they have a cloud business to show the
• 14:37
  Speaker 8: monetization tied to this infrastructure build out with Meta, Yes,
• 14:42
  Speaker 8: their top line is great, but they don't have that
• 14:44
  Speaker 8: cloud line. So and Mark Zuckerberg did talk about renting
• 14:49
  Speaker 8: compute the first time, but that's a lower margin business
• 14:52
  Speaker 8: for a company like Meta, which is incremental margins of
• 14:55
  Speaker 8: over fifty percent. So from that perspective, they would rather
• 14:58
  Speaker 8: be in that model business where they are having other
• 15:02
  Speaker 8: companies use their model that they're training. And that's where
• 15:06
  Speaker 8: because the model has been behind the frontier labs, no
• 15:09
  Speaker 8: one is using their models right now, so they want
• 15:12
  Speaker 8: to get up to speed, and you really kind of
• 15:15
  Speaker 8: get up that frontier where the hope is they will
• 15:18
  Speaker 8: eventually figure out like open weight models have caught up
• 15:21
  Speaker 8: to the frontier models and all these open right models
• 15:25
  Speaker 8: like Kimi and deep Seek they are challenging now the
• 15:27
  Speaker 8: frontier labs. Why can't Meta catch up? And that's the
• 15:31
  Speaker 8: part that as has been the biggest drag on the
• 15:33
  Speaker 8: stock in my opinion.
• 15:34
  Speaker 2: Does a company offer a timeline when they think they
• 15:37
  Speaker 2: will have a competitive model.
• 15:39
  Speaker 8: I think they will have a harder time raising twenty
• 15:41
  Speaker 8: twenty seven capex if they are not able to figure
• 15:44
  Speaker 8: that out, which is why the fallback option is to
• 15:47
  Speaker 8: rent compute like SpaceX did to Google and Entropic. Okay, look,
• 15:52
  Speaker 8: we can't make revenue on anything else. We can make
• 15:55
  Speaker 8: revenue on renting our data center to Google or Entropic.
• 15:59
  Speaker 8: So same thing Meta could do as well. They could
• 16:01
  Speaker 8: start renting their data center capacity to you know, a
• 16:05
  Speaker 8: Microsoft or someone who who can make better use of
• 16:08
  Speaker 8: it at the model there and so that's the fallback.
• 16:11
  Speaker 6: But Mark said that's his.
• 16:13
  Speaker 8: Least favorable option, so he would rather not go in
• 16:17
  Speaker 8: that direction.
• 16:17
  Speaker 2: Yeah, I mean Capex in twenty twenty four to thirty
• 16:20
  Speaker 2: seven bill eighty nine billion, I guess in twenty twenty
• 16:25
  Speaker 2: six one hundred and thirty nine billion, going to two
• 16:27
  Speaker 2: hundred billion next year.
• 16:29
  Speaker 6: Yes?
• 16:30
  Speaker 2: Is that all so that they can have an AI model.
• 16:34
  Speaker 6: And they use a lot of AI internally.
• 16:38
  Speaker 8: But look if a Google is running its Google Search
• 16:42
  Speaker 8: and all YouTube and still able to generate one hundred
• 16:46
  Speaker 8: billion dollars in Google Cloud revenue, that you have to
• 16:48
  Speaker 8: ask yourself why can't Meta do the same?
• 16:50
  Speaker 6: I mean Meta has family of apps?
• 16:52
  Speaker 2: Is that the strategy for Meta to have a cloud business.
• 16:56
  Speaker 8: They have to have some form of cloud whether it's
• 16:59
  Speaker 8: renting compute or renting APIs use of their models via APIs,
• 17:04
  Speaker 8: they need to have some external monetization. You can't just
• 17:07
  Speaker 8: say I'm using entire two hundred billion dollars worth of
• 17:10
  Speaker 8: infrastructure for my internal consumption.
• 17:13
  Speaker 6: That is not going to fly.
• 17:14
  Speaker 8: You need to have an external customer facing element. And
• 17:17
  Speaker 8: that's what they need to show.
• 17:18
  Speaker 2: Are they again, are they given a timeline when they
• 17:20
  Speaker 2: will have that?
• 17:22
  Speaker 8: I mean, they keep saying their models are getting better,
• 17:24
  Speaker 8: but the proof will be when they start monetizing it
• 17:28
  Speaker 8: through APIs.
• 17:29
  Speaker 6: The way Google is doing it, it.
• 17:31
  Speaker 2: Sounds like what some companies will call in a transition
• 17:34
  Speaker 2: period on this whole spending. And that's what this market
• 17:37
  Speaker 2: typically doesn't like.
• 17:38
  Speaker 8: Transition periods, and especially if it turns if there's a
• 17:41
  Speaker 8: risk like metaworks where you just blow through fifty billion
• 17:44
  Speaker 8: plus off capex and then say we didn't get anything
• 17:48
  Speaker 8: out of it. That's what I think the stock is
• 17:50
  Speaker 8: reflecting right now.
• 17:51
  Speaker 2: The fat was in hindsight, how do they talk about
• 17:54
  Speaker 2: the metaverse these days?
• 17:56
  Speaker 8: That we still believe in it, but we have pivoted
• 17:58
  Speaker 8: towards AI.
• 18:00
  Speaker 2: Wow, So now it's another it's another bet on zuck
• 18:04
  Speaker 2: Zuckerberg two coming.
• 18:05
  Speaker 6: The difference is all the other hyperscalers believe in this too.
• 18:09
  Speaker 6: With Meadowers, they were the only ones. No one else
• 18:12
  Speaker 6: kind of was investing the same way as Meta was.
• 18:15
  Speaker 2: In this case.
• 18:16
  Speaker 6: Everyone is bigger than you know, Meta in terms of
• 18:19
  Speaker 6: their span.
• 18:21
  Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
• 18:28
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 18:32
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• 18:35
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• 18:38
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• 18:42
  Speaker 2: Well, well, owning, you know, a big league sports franchise, NFL, NBA,
• 18:46
  Speaker 2: major League Baseball, whatever, used to be the game for millionaires,
• 18:50
  Speaker 2: and then it became the game for billionaires, and now
• 18:53
  Speaker 2: you can make the argument it is the game for
• 18:55
  Speaker 2: institutional investor types. Think Mark Walter, the owner of the Dodgers,
• 19:01
  Speaker 2: the owner of the Los Angeles Lakers, Well, he sold
• 19:03
  Speaker 2: the Los Angeles Lakers announced the last week twelve and
• 19:06
  Speaker 2: a half billion dollars, less than a year after taking
• 19:08
  Speaker 2: it control of the team for like ten billion dollars,
• 19:10
  Speaker 2: So he's got some pressures on him.
• 19:13
  Speaker 5: Here.
• 19:13
  Speaker 2: Adam Minner joins us here. He's an opinion calmness for
• 19:16
  Speaker 2: Bloomberg News. Adam, I mean Mark Walter is arguably the
• 19:21
  Speaker 2: kind of owner the NBA or the NFL would like
• 19:25
  Speaker 2: to see. I mean, he's part of It's got institutional
• 19:28
  Speaker 2: investor money behind him.
• 19:29
  Speaker 5: What's been wrong here?
• 19:30
  Speaker 2: What's going on?
• 19:32
  Speaker 9: Well, what went wrong is what happens when you get
• 19:34
  Speaker 9: these really big investors. We're not talking about families owning
• 19:38
  Speaker 9: these things anymore. You're talking about guys and gals who
• 19:41
  Speaker 9: owned financial empires. And when something goes wrong in one
• 19:44
  Speaker 9: part of a financial empire, it usually infects the rest
• 19:47
  Speaker 9: of the financial empire. And that's what's happened with Mark Walter.
• 19:50
  Speaker 9: There's an investigation into how he's managed money with his
• 19:54
  Speaker 9: insurance companies. The federal government's looking into him, and as
• 19:58
  Speaker 9: a result, he needs to get cash quickly, so he
• 20:01
  Speaker 9: owns all these sports franchises, and he did what an
• 20:04
  Speaker 9: investor does. He looked to liquidate something so he has cash.
• 20:08
  Speaker 9: That's what an investor does. It's not necessarily what we
• 20:11
  Speaker 9: as fans or leagues who look at teams as something
• 20:14
  Speaker 9: that need to be stewarded. That's not what they necessarily want.
• 20:18
  Speaker 9: So we're sort of seeing this conflict here between you know,
• 20:20
  Speaker 9: a high risk investor and what it usually means, traditionally,
• 20:26
  Speaker 9: historically means to be an owner in a league like
• 20:29
  Speaker 9: the NBA or the NFL.
• 20:30
  Speaker 3: Or MLB, and Adam, it feels like every entity is
• 20:35
  Speaker 3: now investigating him. The DJ included did the sellers of
• 20:39
  Speaker 3: the various teams that sold to Mark Walter ever do
• 20:42
  Speaker 3: their due diligence? I mean, what level of due diligence
• 20:45
  Speaker 3: is thereby the seller or by the league as a whole.
• 20:48
  Speaker 3: And we're talking across different leads here because of his
• 20:51
  Speaker 3: exposure to all these different teams.
• 20:53
  Speaker 9: Yeah, it's a great question. I mean, certainly they do
• 20:56
  Speaker 9: their due diligence. The first thing they want to know,
• 20:58
  Speaker 9: the most important thing they want to know is does
• 20:59
  Speaker 9: he have the money?
• 21:01
  Speaker 2: And Mark Walter clearly had the money.
• 21:03
  Speaker 9: I mean he could he could write the check if
• 21:05
  Speaker 9: you will, for the Lakers. They also want to make
• 21:07
  Speaker 9: sure that there's nothing you know untoward about the money,
• 21:10
  Speaker 9: if there is investments, if there's sources of revenues that
• 21:15
  Speaker 9: you know, contradict a league's you know, image, adult oriented
• 21:19
  Speaker 9: enterprises that kind of thing. They don't want that kind
• 21:21
  Speaker 9: of owner there. But the leagues are not generally going
• 21:24
  Speaker 9: to get into the mechanics of you know, if he's
• 21:27
  Speaker 9: taking money from just speaking, you know, theoretically here taking
• 21:31
  Speaker 9: money from one part of his empire and putting it
• 21:33
  Speaker 9: into another. You know, it's interesting when he purchased the
• 21:36
  Speaker 9: Dodgers over a decade ago, there were concerns about where
• 21:40
  Speaker 9: the money was coming from, not that there were untoward places,
• 21:43
  Speaker 9: but that again he was making deals where he was
• 21:46
  Speaker 9: using insurance money, money from his insurance companies to finance
• 21:50
  Speaker 9: the Dodgers. This was looked into, and it was it
• 21:53
  Speaker 9: was ultimately at the time decided that he hadn't done
• 21:55
  Speaker 9: anything wrong. But again this issue has now come up
• 21:59
  Speaker 9: again and it raises question about whether the leagues NBA,
• 22:02
  Speaker 9: you know, NFL in particular, because they're the ones with
• 22:05
  Speaker 9: the most expensive franchises, should be taking a more careful
• 22:08
  Speaker 9: look at how these complicated deals are being financed by
• 22:11
  Speaker 9: these financiers, by these investors.
• 22:13
  Speaker 2: Adam, We've seen a trend over the list decade or
• 22:17
  Speaker 2: so of leagues like the NFL and the NBA permitting
• 22:20
  Speaker 2: private equity money to take a stake here at limited stakes.
• 22:26
  Speaker 2: Has that been deemed successful? A good thing? It certainly
• 22:29
  Speaker 2: pushed up valuations.
• 22:30
  Speaker 9: I would think, well, yes, from the point of view
• 22:33
  Speaker 9: of the leagues, it's successful because it's pushed up valuations.
• 22:37
  Speaker 9: And on top of pushing up valuations, it's it's given
• 22:40
  Speaker 9: a lot of teams, you know, a quick source of
• 22:43
  Speaker 9: cash if they want it. You know, if you're a
• 22:46
  Speaker 9: team owner who's looking to build a stadium, why not
• 22:50
  Speaker 9: sell off ten percent of your R franchise to a
• 22:54
  Speaker 9: private equity firm who has a non voting interest in
• 22:57
  Speaker 9: your team and you can use that cash then to
• 22:59
  Speaker 9: build the infrastructure you want further build out your team.
• 23:02
  Speaker 9: So so far it's been successful. You know, I think
• 23:05
  Speaker 9: it's important to note, you know, Mark Walter is not
• 23:07
  Speaker 9: private equity, but he comes from that world of institutional
• 23:10
  Speaker 9: investors where you have, you know, sort of different motivations.
• 23:14
  Speaker 9: You are willing to take risks and you are willing
• 23:16
  Speaker 9: to maximize your return. You know, a guy like Walter
• 23:19
  Speaker 9: is accustomed to when the when the price is.
• 23:21
  Speaker 2: Right, you sell and you know, let the chips fall.
• 23:25
  Speaker 9: Where they may. You know, with the Lakers, you know
• 23:28
  Speaker 9: they're falling in some uncomfortable ways. I mean, since Walter
• 23:31
  Speaker 9: bought the team less than a year ago, they've had
• 23:33
  Speaker 9: two rounds of layoffs. You have players who have you know,
• 23:36
  Speaker 9: said we're going to commit to this franchise. You know,
• 23:38
  Speaker 9: now they have to wonder what's this new ownership group? Mean,
• 23:41
  Speaker 9: you have the Bus family who owned them before Walter
• 23:45
  Speaker 9: came in. They're now in a few because they still
• 23:47
  Speaker 9: own less than twenty percent of the team. But Genie Buss,
• 23:50
  Speaker 9: one of the six siblings, was the acting governor. What's
• 23:54
  Speaker 9: going to happen to her? So it's you know, this
• 23:56
  Speaker 9: sell quick Ethos has really turned things on their.
• 23:59
  Speaker 3: Ears, gotten messy very quickly. Adam, we have about thirty
• 24:02
  Speaker 3: seconds left. What will you be watching for as this
• 24:06
  Speaker 3: Mark Walter's saga continues, it feels like we're always ready
• 24:10
  Speaker 3: for another shoe to drop.
• 24:12
  Speaker 9: Yeah, well, I think the shoe that I'm watching and
• 24:14
  Speaker 9: a lot of people are watching is what is he
• 24:15
  Speaker 9: going to sell next? It's been reported, including by Bloomberg,
• 24:20
  Speaker 9: that he is looking to sell his steak in Chelsea,
• 24:22
  Speaker 9: the Premier League football club. He has other assets as well.
• 24:26
  Speaker 9: Will we start seeing rumors that he's looking at selling
• 24:29
  Speaker 9: the Dodgers, which are sort of the crown jewel that
• 24:32
  Speaker 9: he has remaining. So he has a lot of other
• 24:34
  Speaker 9: sports assets to sell, and so that's what I'm watching.
• 24:38
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