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THE HEADLINES

 

SPREAD MONEY, IT’S THE BROOKLYN WAY

Kevin Durant and Kyrie Irving aren’t the only big names coming to the Brooklyn Nets franchise. Alibaba co-founder Joseph Tsai is buying the (rest of the) team from Michail Prokhorov for $1.35B, at a $2.35B valuation, making it the largest purchase of a sports franchise in history.

Of course, Tsai already owns 49% of the franchise which he bought back in 2017 for $1B. That deal came with a 3-year option to buy the remainder of the team for $1.35B, which will still need the league’s approval. One can only assume that the requirements include having enough money and not being Donald Sterling.

Tsai seems to be exercising his option to buy for good reason. The Nets revenue is expected to grow 10% to 15% after the franchise signed two of the NBA’s biggest names.

Pay the man

Hats off to Prokhorov. This dude bought the franchise when it was still the New Jersey Nets in 2010, brought them from the armpit of America to the bustling borough of Brooklyn and has since made a sh*t ton of money … as in just short of $2B. The Russian billionaire bought an 80% share of the Nets for $223M (and the rest in 2015) along with a stake in the Barclays Center, which BTW is not included in the deal.

 

SEEING RED

“Fear thee not, global markets, help is on the way.” – my famous last words from Wednesday’s newsletter

US markets had a worse day than Adam Neumann, suffering their worst performance of 2019, with the Dow dropping 800 points, as the inverted yield curve sparked fears of an upcoming economic recession.

What does that mean?

The yield on the benchmark 10-year Treasury note (1.623%) briefly dropped below the yield on the 2-year Treasury (1.634%). The 30-year Treasury also reached a record low of 2.015%.

Seriously, what does this mean?

This means that investors piled into 10 and 30-year Treasurys, seeking shelter from the market uncertainty and a potential slowdown in the economy. Couldn’t they have just bought Dogecoin?

So, we’re f*cked?

Well … there have been five yield curve inversions in the past 41 years … and according to Credit Suisse, an economic recession has occurred after each. On average the recession came 22 months after the fact.

There is a silver lining though, as the S&P 500 has seen an average gain of 15% during the 18 month period following the inversion. YOLO.

 

RISK AND REWARD

The We Company, the parent company of WeWork, released filings for its IPO, which revealed the company has been growing rapidly. But there’s good news and there’s bad news …

The good news is that We Co. quadrupled its revenue from 2016 to 2018 to $1.82B. The bad news? As revenue grew, so did losses. Over that same four year span, the firm lost more than, wait for it … $1.61B. In 2019? We doubled revenue to more than $1.535B, while losses sunk to $689.7M, not counting a one-time gain of $486.2 million.

On Wednesday, the preferred workspace of kombucha loving startup founders announced that it has secured roughly $6B of debt from the likes JPMorgan and Goldman Sachs. Debt that it will need to maintain its precipitous pace. The loans would close upon an IPO, and the banks involved are pushing WeWork to raise between $3B and $4B via the public offering, the high end of its range.

The company, which filed to go private in December 2018, is aiming for a go-live date of September. You know, before the markets completely collapse and we are all forced to live in a post-apocalyptic WeDystopia.

Neumann!

More worrisome than the company’s massive losses? The laundry list of “risks” associated with the company, many of which are tied to the relationship the company has with CEO Adam Neumann. A relationship in which Neumann has purchased at least four properties and leased them back to the company.

Not to mention the massive loans Neumann and other execs have taken out from the company with, how do you say, “favorable” terms. In fact, the CEO voted “most punchable” in high school has taken on almost $1 billion in personal loans and credit from WeWork and its lenders.

The filing’s risks also include a pair of interviews Neumann held with Axios and Business Insider back in May. Interviews which may or may not violate SEC’s IPO quiet period rules …

According to the SEC, the quiet period “extends from the time a company files a registration statement with the SEC until SEC staff declare the registration statement ‘effective.’” If it’s found that Neumann’s interviews violated the quiet period, We Co. would be required to buy back all shares sold in the IPO at the purchase price for one year, plus statutory interest.

Oh, and in case you were wondering, “community adjusted EBITDA,” a made-up profitability metric that was used widely in its the company’s bond prospectus was nowhere to be found in its IPO filing.

 

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IN OTHER NEWS

• “If it wasn’t for you meddling journalists we would have gotten away with it too!” – Huawei, probably. A WSJ investigation alleges that Huawei technicians have helped African governments spy on political opponents on a handful of occasions. The world’s largest telecom has apparently been helping politicians intercept encrypted communications and social media, and use cell data to track opponent’s every move. Color me shocked. This included surveillance of Ugandan pop star turned opposition leader, Bobi Wine. You can’t make this sh*t up, folks.

 

• Define “loose cannon.” Overstock’s CEO Patrick Byrne is what Charlie Kelly would call a “wildcard,” having penned a statement called “Overstock.com CEO Comments on Deep State.” *Facepalm* Mr. Byrne alleges that he was part of a federal investigation linked to 2016 election meddling … even though no one asked him if he was. In his statement, the CEO called federal investigators “the Men in Black.” Of course, Byrne is no stranger to controversy. In fact, he likened his company’s cryptocurrency to the polio vaccine. Unsurprisingly, Overstock shares have fallen 36% since the note dropped.

 

• “I have an idea, let’s make the poors deal with it.” – Jeff Bezos on how to dispose of unwanted inventory. Amazon has a lot of third-party inventory at its warehouses that robots move much more efficiently than human beings. But what happens when third-party vendors can’t sell the goods? The vendor’s options include paying 50 cents to get the item returned or paying 15 cents for Amazon to destroy it (aka re-label it as an AmazonBasics product). That is until now. Beginning on September 1st Amazon will give third party vendors in the US and UK a third option: donate the goods. This comes after a study in France indicated that the company disposed of roughly 3M items in 2018. Mind you, Amazon does much less business in France than it does in the US And UK.

 

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