Mayweather vs. Ortiz: Hope For Boxing

Posted on by David Wright

Here’s the NYT on Money Mayweahter:

Mayweather, regarded as one of the best boxers in history, fights under a highly unusual financial structure, exchanging upfront risk for back-end profit while retaining total control. He is even responsible for paying his opponent, in this case a business expense of at least $2 million…

In his previous four fights, Mayweather earned $115 million. For Saturday night’s event, he is expected to make about $40 million, and the checks will come for years, determined by the results of many things beyond the fight itself, like the gate and the pay-per-view television numbers.

More here.

The Superstar Phenomenon means the brightest stars will be ‘bigger than the sport’. This is a tired phrase, but I think it has real meaning in boxing, where an athlete can supplant the entire organizational power structure and, effectively, ply his trade independently. Mayweather can and does regularly.

‘Bigger than the sport’ does not describe, say, LeBron James or Roger Federer or Tiger Woods (ok, these examples are all from 2008 but stay with me). They cannot quit dealing with the NBA or the ATP or PGA and remain relevant. There’s a powerful force that keeps these superstars in the fold: Monopoly.

Fans want the best to compete with each other in an unbridled athletic competition; ironically, financial and organizational competition (i.e. capitalism) prevents this. Multiple organizational bodies (‘leagues’) compete by holding their athletes hostage. They say to each other: together we can give the fans what they want: superfights, superbowls and world-super-grand-mega-intercontinental undisputed championships. Apart the pie is smaller. So let’s cooperate!

But these aren’t your grandfather’s competing organizational bodies. The AFL and ABA deliberately pursued a strategy of selling their Pepsi recipe to Coke. They wanted to cash out.

But because there is no dominant player in boxing, nobody blinks. The economic model is a classic prisoner’s dilemma where nobody plays nice.

I wish I could measure it, but my feeling is that casual fans’ interest in boxing is weak for smaller fight and increasing for personality-driven superstar bouts. This means that promoting bodies are banking concentrating their resources on those superstar bouts. They need these fights bad and Floyd’s nicking their lunch.

A potential way around this is the UFC (monopoly) model. You know what I notice most about the UFC ? Small records and young athletes.

Guys don’t have 30-something fights before they hit the big time. And once you hit the big time, the lights shine on you until someone knocks them out.

Boxing promoters have this tendency to milk a superstar cash cow by setting up weak fights with plausible contenders insiders know can never live up. This cements the superstar as The Best ($ka-ching-ching$), while the real contenders languish. A lesser sport (and SMALLER PIE, I shout from the rooftops) is the result.

There are signs that the other superduperstar in boxing is getting his (business) act together. If Paquiao can duplicate Mayweather Promotions and the next superstar after that follows suit, my hope is that the promoters (the sanctioning bodies are laughably irrelevant) will collude to destroy the superstar model.

Tournaments. Younger stars. More stars.

Starve the beast.

Mothers Of Two Are Just Like Action Heroes

Posted on by David Wright

Here is Tyler Cowen quoting Matt Yglesias:

I was always struck in college, watching people head off into the field of finance, by the mismatch between the demographics of the folks who’d go be bankers and the stated desire to manage risk. If I’m conjuring up in my head a vision of a prudent risk manager, I’m thinking maybe a mother of two. Someone smart, of course, but also someone who’s cautious. Someone who sees the whole field. Someone who juggles. I’m not thinking “young smart arrogant dude with limited practical experience and a burning desire to get ahead.” That to me sounds more like a rogue trader!

Here is the whole Yglesias post, which doesn’t add too much.

MY metaphor of choice is action movie heroes.

The ultimate action hero doesn’t fear anything. You can torture him, you can threaten him, you can do what you like and he won’t give you the nuclear codes no matter what! He is, dare I say, a bit of a rogue.

But suddenly the evil villain cackles ominously and, oh look! From behind a secret door comes the buxom female lead our hero has been pillaging for the last few days and may or may not have feelings for despite his gruff exterior! And she’s precariously perched above a shark tank! I thought he told her to stay by the beach with the boat and wait until midnight!?

Gasp! He’s been had! And the nuclear codes are given up.

Mothers of two aren’t the only people with something to lose. Even rogues have weaknesses that can bring them into line.

Let’s Flip This Around

Posted on by David Wright

Here’s the conclusion of a Barker-linked paper:

Corporations listed in Fortune’s “100 Best Companies to Work For in America” had equity returns that were 3.5% per year higher than those of their peers, indicating that employee satisfaction correlates positively with shareholder returns, says Alex Edmans of the Wharton School.

more here.

A friend of mine once told me that every single one of these ‘puff lists’ is compiled with extreme cynicism. The point is to check very carefully for potential bias by asking questions like: who has compiled this list and what companies would yield maximum benefits for this author? Are those the same companies as the ones on the list?

It doesn’t surprise me that these puffed up companies are the most profitable ones: those are the companies that are the highest value/status advertisers, affiliates and clients. Perhaps Alex Edmans is revealing bias as opposed to correlation.

The New Pitchbook Paradigm

Posted on by David Wright

One of my pet theories is that eventually all information is going to be distributed via the “web browser stack” of technologies. Here’s what I mean by this:

Today, people in jobs like mine spend a lot of time building sales presentations. People call these different things: “decks”, “pitchbooks”, “submissions”, etc. They’re all the same thing: a summary of deal-relevant data, narrative and visualizations available in both print and electronic form distributed by email or ftp.

The technologies used are still dominated by Microsoft Office, which is probably 90% of the reason why Microsoft is in any way relevant these days. We write using Word, we analyze using Excel and Access, we present with Powerpoint and we (ugh) code in VBA. We then ‘pdf’ (verb) the documents, which is another proprietary bit of software, and email the files out.

This setup is expensive, time consuming and will one day go to the way of the Telex and the Typing Pool. Here’s tomorrow’s paradigm:

  • Write Text In HTML
  • Style in CSS
  • Distribute Information by Web Server
  • Send Data via FTP
  • Visualize With Jquery-based applications (yikes!)

The data are immutable (bye bye adobe), the odious Microsoft Word is finally slayed and email file limits are forever circumvented. Microsoft’s last stand will be with Excel, as long as it doesn’t commit upgrade suicide, which the latest version suggests is a real possibility. That program is still one of the greatest products ever developed.

One of the projects I’m taking on at work is to build parallel sales documents in HTML/CSS (Powerpoint may already be almost dead). Because I don’t want to infect my mind with the odious MS Word any more than I need to, I’ll probably build everything in HTML and write a script that translates it into Word.

Hopefully, I’ll be successful and begin to engineer a transition from the old stack to the new. We may be first movers here, folks! We’ll be so high status, clients will shower us with business.

Third Point, LLC Destroys $100m

Posted on by David Wright

Sorry about the big quote, but I need to set the stage here:

Daniel Loeb, the founder of Third Point LLC, started a reinsurance company that can invest in his $8 billion hedge fund, joining rival David Einhorn in seeking more permanent capital.

Third Point Re, which is based in Bermuda, hired John Berger as chief investment officer and has about $500 million in capital, according to two investors familiar with the plan. New York-based Third Point wants to raise $250 million to $500 million more and plans to eventually sell shares of the reinsurer to the public, said the investors, who asked not to be identified because the firm is private.

Here’s more.

First, let’s clear one thing up: the insurance market is soft because there’s too much capacity. Reinsurers are running break-even and, to the extent that there is any price increases in catastrophe-driven lines, it’s in tiny little corners of the market (New Zealand EQ, Japan EQ and other non-US, non-EU catastrophe zones).

And these price increases don’t matter globally because they are being completely captured by incumbent players. Until a company or two dies by the sword and the market reprices the business that killed them (ie policies with lots of claims and fat renewals), nobody is getting rich.

So the market would instantly value a startup at 80% of book. In this case that destroys 100m. Why does Third Point want to lean into these headwinds?

Well, he wants to create a little walled garden where he can play by himself:

Loeb follows Einhorn, head of New York-based Greenlight Capital Inc., in creating a reinsurer as a way to raise capital for his hedge fund that isn’t subject to client redemptions. Reinsurers, which help insurers shoulder risk, earn premiums that they invest to make a profit.

When you put money into a regulated entity, it’s stuck. This is why AIG policyholders had nothing to fear from all the bond insurance shenanigans. Loeb is locking down a chunk of capital into a straight-up illiquid private equity bet.

What’s more, cat reinsurers do not invest for profit. Their liabilities have an 18-to-20-month duration at best and last time I checked, nobody’s getting rich on 2-year paper.

From a straight-up financial perspective, this move is lunacy. But Loeb gets his sandbox, even if he’s trading liquidity for nothing.

Good luck, Danny-boy.

I Already Know Where I am And I Don’t Care Where You Are

Posted on by David Wright

Here’s a TechCrunch article desperately trying to be breathless:

Pew: More Than A Quarter Of U.S. Adults Use Mobile And Social Location-Based Services

Which is somewhat contradicted in the article. Here’s the real story:

Pew reports that 28% of cell owners use phones to get directions or recommendations based on their current location (that works out to 23% of all U.S. adults). Only 5 percent of cell phone owners user their phone to check-in to locations using apps like Foursquare or Gowalla.

When you correct for smartphone users, the percentages climb a bit.

One in ten smartphone owners (12%) have used Foursquare, Gowalla, or a similar application and 55% of smartphone owners have used a location-based information service.

Huh, so half of all smartphone users DON’T use location services?

Social media and location services doesn’t get me excited as a businessman. At all. They both work on the following problems:

  • You don’t know where you are
  • You don’t know where you’re going
  • You’re bored and want to see what your friends are up to
  • You’re bored and want to find something to do

These are great if you’re between 15 and 30, moved to a new city or are looking for all kinds of new experiences.

Most people have lived in the same area for years/decades (they know where they are). Most people have a thousand more things to do than they need (they don’t care where you are).

The revenue model is advertising (Google wins, yeah, I get that) and the profit model is shoestring bootstrapping (ok, Amazon too). The macro effect is to enhance the superstar phenomenon for restaurants and other services in big cities.

Maybe it raises the quality of restaurant food.

Big whoop.

Skills Transition

Posted on by David Wright

Michael Mandel again:

Over the past year, jobs in electronic shopping establishments are up 11% (the zigs and zags come from holiday employment).  Jobs in “internet publishing, broadcasting and web search portal” establishments are up 20%. Employment in computer systems design, programming and related is up 5%, but that’s off a much larger base (please excuse the funky formatting…my power is still out).

This probably understates the demand for these kinds of jobs, as I would bet that wages are rising faster than average for these kinds of skilled workers.

I wonder, too, at people that are ‘overemployed’ in jobs in which they learn as they go. It isn’t just computer programmers that program computers after all.

I wonder if it would make sense to take a series of jobs whose title and function have largely stayed the same, but in which the application of technology has completely transformed the skills required.

How about school teachers? They’ve been integrating computers into the classroom for years now. Since when did a teacher need to understand that kind of technology?

Since the day that everyone did.

Would You Walk Away?

Posted on by David Wright

Let’s say you bought a house at the top of the market and a subsequent market crash left you with substantial negative equity.

There’s no recourse against your other assets if you walk. You haven’t got many other assets, anyway.

All you lose is your credit rating.

What good is credit for?

As far as I can tell, the only thing credit is really any good for is a mortgage. The rest you can save for pretty easily. And maybe you should be living your life that way, anyway.

Remember that borrowing includes tail risk of a Kafkaesque lack of control. Trouble likes company.

I’d probably chuck the keys.

Biting Off More Than You Can Chew

Posted on by David Wright

Here are two related posts on entrepreneurship.

The second discusses why startups fail. The biggest cause is one that plagues companies everwhere: too much scale too fast. Too much investment before you’re ready.

The first article discusses the reason why this happens:

We’re all plagued by this defect of human nature — thinking we know more than we do — which then causes us to miss opportunities to actually learn something.

And causes us to take opportunities to fail. Learning is boring and hard and embarrassing. You feel stupid, you procrastinate. You probably feel guilty about procrastinating. The smallest things are impossible to figure out.

Then you give up learning and building stuff and just lash out in activity. Bang, you’re dead.

Warning, personal rant directly ahead:

I’m still working on the weekend project and it seems that every time I turn around there’s some other super basic, super simple new thing I don’t understand that takes me forever to figure out.

For example, I’ve been completely hung up for two weeks trying to get a web server going. I have to learn how to configure Apache with Windows. Then php with Windows and Apache. None of it friggen works properly.

TWO WEEKS! And basically nothing to show for it.  Meanwhile, tweaks and improvements on the basic engine of my project languish incomplete.

But the rest works, if barely. This is the bottleneck. This where I need to spend my time.

It is an indescribably frustrating process to not even be able to SET UP my tools, much less learn to use them. I’m looking forward to learning another programming language, actually. It should go much faster this time because I’ve got the basics down fairly well.

But working in the old comfort zone isn’t going to help me, is it.