Stacey Vanek Smith (2:51)

Are we doomed? In short,

Max Chaffkin (2:58)

This is everybody's business. I'm Max Chaffkin.

Stacey Vanek Smith (3:00)

And I'm Stacey Vanek Smith.

Max Chaffkin (3:02)

Grab your Cracker Jacks and your favorite distressed assets. We are going out to the ballpark.

Stacey Vanek Smith (3:06)

I'm in. I Don't care if I never come back.

Max Chaffkin (3:13)

How do you all feel like the economy is going right now? I feel like it's not going well. Everyone's talking about inflation. I don't drive a car in New

Stacey Vanek Smith (3:23)

York, but I am noticing gas prices.

Tracy Alloway (3:25)

I guess it's struggling as much as our economy in London. It's not great.

Max Chaffkin (3:30)

A disaster. Nobody knows what's going on. Nobody has a plan and the sense

Tracy Alloway (3:35)

of what's going to happen.

Max Chaffkin (3:36)

We are all living month by month.

Randall Williams (3:39)

We just went out to breakfast.

Max Chaffkin (3:41)

We had pancakes and an omelette, and

Randall Williams (3:44)

with the tip, it came to $77. I think it more than doubled. Yeah, more than double.

Tracy Alloway (3:49)

Can't even wake up and get some eggs.

Max Chaffkin (3:50)

There is no sense of security anywhere. A lot of lies. I think everybody is struggling different ways. Where do we find support among ourselves, but not from the government.

Randall Williams (4:04)

And there's not really a future for

Tracy Alloway (4:06)

people our age to buy a house

Randall Williams (4:08)

or anything like that, as she said.

Max Chaffkin (4:10)

Do any of you know what private credit is?

Tracy Alloway (4:14)

No, I do not. No.

Max Chaffkin (4:16)

No. Maybe. I don't know.

Randall Williams (4:19)

No, I'm not aware.

Stacey Vanek Smith (4:20)

That was our producer Jasmine JT Green talking to people in Manhattan. And Max, as you can tell, a lot of people are not feeling great about the economy. Also, maybe not 1000% sure what private credit is.

Max Chaffkin (4:34)

Not me. Stacy, I got it 100%.

Stacey Vanek Smith (4:37)

I know you do, and as do I. We know everything about private credit, but some of our listeners might not. We should be cognizant.

Max Chaffkin (4:44)

If I'm being honest, there may be a few little bits that I'm hazy on.

Stacey Vanek Smith (4:49)

We're very lucky to have someone who does understand private credit. Here in the studio with us, Tracy Alloway, host of the Odd Lots podcast. Fellow Bloomberg. Ian, welcome, Tracy.

Tracy Alloway (5:00)

Thank you so much. Thanks for having me.

Stacey Vanek Smith (5:02)

First of all, what do you think of what people were saying about the economy? What was your reaction to that?

Tracy Alloway (5:07)

Yeah, I mean, that tends to be what you hear nowadays. In fact, it tends to be what you've been hearing for a couple of years, which I think is why people are kind of uncertain about what it means, what sentiment means right now. Because you'll remember in 2022, 2023, if you looked at all the consumer sentiment surveys, everyone was basically saying things are terrible.

Stacey Vanek Smith (5:26)

Yes.

Tracy Alloway (5:26)

And yet if you look at the headline numbers of the economy, it was kind of chugging along for. So there was a lot of introspection about whether the surveys weren't just not working anymore. Fast forward to today and it seems thing people feel worse about things than ever, really. But the big question mark is still, are you going to see that actually show up in the economic numbers?

Max Chaffkin (5:49)

All right. Tracy, Stacey and I are professional business journalists. We have been both doing this for a very long time. We follow news closely. So of course we know what private credit is and why people worried about. But just in case, hypothetically, if we weren't 100% sure what this conversation is, because there've been a lot of headlines. There've been headlines about redemptions. Blue Owl, like, there's a lot of stuff. A lot of people are anxious. Can you just lay out what this asset class is and why it has gotten so big over the last few years?

Tracy Alloway (6:23)

Sure. So let me reframe this with a question to you guys. But if I said, what's shadow banking, do you think you'd have a better handle on what shadow banking is versus private credit?

Stacey Vanek Smith (6:34)

I feel like it sounds much more ominous.

Tracy Alloway (6:37)

Okay.

Max Chaffkin (6:37)

Unregulated lending.

Tracy Alloway (6:39)

Yeah. All right. We're getting at something here. Okay. So when I first started covering this space, we called it shadow banking. And when I first started covering it was in the aftermath of the 2008 financial crisis. You had all these new bank regulations coming in which basically made it either har harder or impossible or more expensive for banks to make certain loans and investments. And so all that activity started migrating away from the regulated banks to non bank players. And if you think back to 2008, that makes a lot of sense. Right. We just experienced this terrible financial crisis where all the big banks basically had to be bailed out by the government. Regulators, policymakers, government officials were saying, we never want to do that ever again. And so we want all that risky activity to be pushed away from the banks to entities that aren't important enough to be bailed out if things get wrong. But the idea was that you're going to move stuff out of the regulated banking system so that you're not going to end up with a systemic crisis the way you saw with mortgages, right. Banks made a bunch of bad mortgages, those went south. You had all this leverage that was built onto the mortgages. And when people stopped paying their mortgages, suddenly all of that was in doubt and the entire system basically collapsed. So we never want to see that again. And this is when you started to see new credit entities, new fund managers, they all had different names back then. Broadly, we referred to them as the shadow banking system. So I used to be at the Financial Times and I remember 2012, 2013, writing about the rise of the shadow banking system.

Stacey Vanek Smith (8:20)

Did they just rebrand to private credit?

Tracy Alloway (8:22)

Yes. This is what I'm getting at. I had this realization. I can't believe it didn't like it took me a while to get it. I was like, oh, private credit it. We're actually just talking about shadow banking.

Stacey Vanek Smith (8:32)

Junk bonds sometimes get called high yield bonds because if you're selling them, you don't want to say, buy my junk bonds.

Tracy Alloway (8:38)

That's exactly right. And we should talk about the impact on the junk bond market as well from private credit. But this is exactly what happened. You had these companies called business development companies who were in a very similar business to the banks. They were extending credit to companies, usually smaller or riskier companies that banks no longer could or wanted to lend to. And they really started to take off in the aftermath of the financial crisis. You got the rebrand around private credit. It was pitched as this, like, juicy yield generating investment. It's not as safe as investing in what we call an investment grade or blue chip bond, like something issued by a really safe company. But it was still supposed to be secured lending. So if the company went belly up, there were some assets that you could supposedly get in a deal default scenario and you would have some recovery of your original investment. But in the meantime, you were earning yields of 9%, which was great. That's private credit. Now it's the loans that have been pushed out of the regulated banking system and have now been funneled into business development companies, BDCs, into certain securitizations, and then also into massive funds whose whole raison d' etre is to extend private credit to other investors.

Stacey Vanek Smith (9:58)

Okay, trouble started here, like last year that we started to see. I feel like I started to see more and more headlines. What started to go wrong?

Tracy Alloway (10:07)

So I think the real trouble started late last year. You started to see some investors in private credit vehicles, but they started to want to get their money out. So the thinking was like, growth is maybe slowing. Maybe some of these private credit investments are looking a little bit bubbly. Again, I think it's really important to emphasize how much money went into the space. So we're talking about a private credit market that's now estimated to be $1.8 trillion, which is not that big actually in the grand scheme of investments. But just to put it into context, it's bigger than the junk bond market now, and that's happened in just a couple years. The junk bond market started in like the 1970s with Mike Milken. And now the private credit market has managed to eclipse it in basically five years or so. That's enormous amounts of growth. And so it's understandable that people are starting to say, wait a second, like that money has grown so fast, there's been so much money pouring into the space. Do we actually know if those loans are high quality, if we're investing to good companies? The other thing about private credit is the clue is in the name, right? It's very private. It's very opaque. If you're an investor who wants to invest in a company, you have a bunch of different choices for doing that. You can buy. Buy the stock. Right. Or you can buy a bond issued by the company in the public market. This is what we call public credit, basically syndicated bonds and loans. When a company sells a bond in the public market, there's a lot of documentation and red tape that gets attached to that. They usually have financials that get released very regularly. You can see how the company is doing, what the company's assets look like. If you have a company that is investing or selling a private loan or private bond, you don't really get that it's not rated by the rating agencies for the most part. So you're sort of relying on the deal makers around that particular structure to get it right. And so it's not that surprising that when things start to look a little wobbly on the economic front that people are going, wait a second. What actually is all this private credit?

Max Chaffkin (12:20)

It seems to me that there are two concerns going on. One is about this asset class. Are these companies that have been making these loans, are they going to be okay? A lot of investors are worried. I think so far what the private credit executives have said is, our loans are still fine, we're still okay. There is like a second question, which is, could this somehow spill over into the larger economy? Could this line you. You talked about at the top, Tracy, that we tried to draw a line between the banking we were okay with and banking we weren't okay with.

Tracy Alloway (12:52)

Yeah.

Max Chaffkin (12:52)

And I'm curious what you think of both of those questions. Like first the asset class, but the risk of some broader contagion.

Tracy Alloway (12:59)

Yeah. Okay. Two very big topics and excellent questions. So on the first one on the marks, the. One of the defining features of private credit and one of the reasons that people were interested in it, in addition to the yield, is that it doesn't actually get marked to market that frequently.

Stacey Vanek Smith (13:15)

What does that mean?

Tracy Alloway (13:16)

So that means it doesn't get reassessed as frequently as mark as stuff in the public market. So if you have a syndicated loan, a loan that was publicly issued and is trading, that thing gets reevaluated, it gets repriced on a pretty regular basis. It varies depending on what type of loan it is. But if you have a private credit loan that gets reassessed, I think it's on a quarterly basis for most BDCs. And so you don't really know what your ultimate selling price is going to be if there's a fire sale basically in the market. And so one of the concerns we're seeing now is when people start to pull their money out of private credit vehicles. If the funds actually have to rush to sell their portfolio to meet those redemption requests, how much money are they actually going to be able to get for those loans, especially if everyone is having to sell at the same time? And that's why you've seen a bunch of private credit funds start to reinforce gates that are actually in the documentation. So we've had just in the past week, Apollo and Aries say that we've had a bunch of investors asking for their money back. But the difference is because we wanted this to be different from the regulated banking system, we put up gates on those funds. So we can say, or the fund managers can say, we're only going to let you take out 5% of the money at any given time.

Stacey Vanek Smith (14:39)

You said in the beginning that when you were starting out as a reporter, you were covering the after effects of the financial crisis, the housing crisis. Is this shaping up to be that?

Tracy Alloway (14:50)

Yeah. Okay, well, this goes back to Matt's question, AKA are we doomed?

Max Chaffkin (14:54)

And how.

Tracy Alloway (14:55)

Yeah, this one's tough for me because when I look at some of the stuff that's happening, a lot of the behavioral stuff seems very 2008 esque. So you have Jeffries, which has been one of the more aggressive private credit players, is their stock has fallen by 40 or 50%. They're now pitching themselves to a Japanese bank as a takeover target, which feels very like 2007, 2008 to me. You had these all hands on deck calls that you know, Aries and Apollo are doing with their employees. You have some banks that are starting to publish their own exposure to private credit, which again, think back to 2007, 2008, you had all the banks going, this is our subprime exposure. Stuff like that makes me nervous. However, it's difficult to see that there is that much leverage attached to private credit. But at the same time, this is where I also start to get worried because we know, for instance, that one of the Major investors in private credit has been the insurance companies. We know that banks have also partnered with private credit firms in some of this lending, which, to get back to the original start of this conversation, seems kind of insane if you're thinking that all of this was supposed to get that riskier activity away from the banking system. Some of it supposedly has been used in what's known as the repo market as collateral, which, again, has 2008 connotations. So there are little linkages in the system that worry me. And because the space tends to be so opaque and because it's still relatively new, it's really hard to track some of those linkages. So I would say, you know, broadly, 1.8 trillion sounds like a lot. It's probably not in the grand scheme of things, but just as in the financial crisis, you don't tend to find out about these added layers of leverage until the losses start materializing.

Stacey Vanek Smith (16:48)

So it doesn't sound like you are completely buying into the panic. You are concerned, but you're not like,

Tracy Alloway (16:55)

yeah, I think, okay, I think that's a fair way to be at the moment. But again, there are a lot of unknowns here. And one thing I would emphasize is, again, this is a new asset class that grew really, really quickly. It's never been through a down cycle. And so we're about to find out what that down cycle actually looks like. And potentially we're about to find out in a down cycle that is unlike many other down cycles in history. So we have worries over AI and the threat to a lot of companies. I should have mentioned earlier, but a lot of private credit has been extended to software companies who now basically face an existential question mark over their business. And then we have the whole Iran situation where we're talking about the closure of the Strait of Hormuz, which is a scenario that, that oil analysts have worried about for years and years and years with ripple effects into everything that we buy. You think about energy, transportation, plastic, packaging on your food that has the potential to push up inflation, which presumably would lead to higher interest rates. So you could get this big economic slowing right when the Fed starts raising interest rates and raising the cost of capital for companies. That's a pretty bad mix for private credit, I would argue.

Stacey Vanek Smith (18:12)

All right, Tracy Alloway, Odd Lots, thank you so much.

Tracy Alloway (18:16)

Thank you so much for having me.

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Max Chaffkin (20:42)

Stacey we have reached the seventh inning stretch of this podcast, so we're gonna move on to a topic that is close to my heart and I would argue, close to everyone's heart. Baseball. Major League Baseball is okay. The season starts today and I would argue that this is a really interesting business story because you go back about a decade and there were all of these kind of like obituaries written about baseball and its decline or apparent decline. You know, ratings were falling the Fans were getting old.

Stacey Vanek Smith (21:14)

They're long games.

Max Chaffkin (21:15)

The games are really long. You also had. The NBA was having a moment. The National Basketball association and the NFL had far and away surpassed everyone. We've talked about this before.

Stacey Vanek Smith (21:25)

It's always having a moment.

Max Chaffkin (21:27)

But. But baseball is having a little bit of a cultural moment. The ratings have been going up for two years in a row. Attendance is up. The average age of the fan has fallen dramatically over the last six years. So yeah, it was like from what

Stacey Vanek Smith (21:43)

to what, from 50 to. I'm skeptical. I feel like we need to bring

Max Chaffkin (21:46)

in an expert and we've got one. Randall Williams, Bloomberg sports reporter. He is here with us now. Randall, how are you?

Randall Williams (21:52)

I'm doing all right. It's interesting to hear the way you all talk about baseball.

Stacey Vanek Smith (21:55)

All right, Randall, am I a hater?

Max Chaffkin (21:57)

I don't know why I'm not a hater.

Stacey Vanek Smith (21:59)

I'm. I'm just wondering.

Randall Williams (22:00)

I think America's biggest pastime has definitely gotten younger.

Tracy Alloway (22:03)

Oh, okay.

Randall Williams (22:04)

I think even going to the games, watching the games, it's pulled me to the screen. When I was younger and I used to play mlb, the show, which is baseball's video game. One of the issues that I have was that it wasn't fast paced enough for my 10 or 11 year old mind. And now even I'm tuning in for the World Baseball Classic on tv, which is a bigger time commitment than any video game could ever be.

Max Chaffkin (22:25)

Randall brought up the World Baseball Classic, that is this international tournament. We heard a clip at the top of the show. Team Italy. Randall, I'm sure you were a Team Italy guy.

Randall Williams (22:33)

Absolutely.

Max Chaffkin (22:34)

Team Italy overperformed. The ratings for this thing were really good. The World Baseball classic final averaged 11 million viewers in the U.S. that's like a, a basketball finals game. Like maybe not a big game, but that's a good rating. The World Series ratings were really high, incredibly high. So there is a lot going on and I wanted to just take this kind of step by step. Randall, you brought up the rule changes that I think have been a big part of driving this turnaround. Can you just explain why that happened and how it's happened?

Randall Williams (23:05)

The games were going on too long. There was too much space between when a pitcher was throwing the ball and when a batter was swinging. And just the time period, I mean, that's why it was a pastime, is because you could go to a baseball game and not care about the baseball and just literally explore around the park and then come sit down and, you know, maybe it might still be the inning of which you got up and left from. Nowadays, an inning can be over very quickly because of the pitch clock. And we saw this sort of in the World Series where Shohei Ohtani pitched in game seven. And you had Toronto's manager who's telling them, like, listen, I know he needs to get warmed up, but I don't want to give him too much time to where now he's fully warm. Let's get this expedited. And so that's one of the biggest rule changes. And then, of course, like, it helps to have a dynasty. It helps to have the Los Angeles Dodgers, who have a bunch of superstar players outside of Shohei, and they're performing really well. And from a viewership perspective, you either love it or you absolutely hate it. But you want to watch it.

Max Chaffkin (24:01)

Yeah. About three years ago, Rob Manfred, the commissioner, you mentioned him earlier, did a bunch of things, not just the major baseball, like the franchise, the guy who runs baseball. So one of the things that had happened, Randall brought it up, the games had gotten longer, so you were sort of losing people. And there were teams that were taking advantage of this. And so they instituted a sense of essentially a shot clock for pitching. You get penalized if you don't throw the pitch within a certain amount of time. They also changed a bunch of the rules to create more action.

Randall Williams (24:31)

Sports as a business cannot thrive if all they're attracting is sports fans. You have to be good with comments.

Max Chaffkin (24:38)

They made the bases bigger so that it would be easier.

Stacey Vanek Smith (24:41)

Is that true?

Max Chaffkin (24:41)

To steal bases. And they changed a couple of the rules around runners on base to encourage base stealing. They basically wanted to have more action happening.

Stacey Vanek Smith (24:52)

Yeah, that makes sense.

Max Chaffkin (24:54)

But I think the rule change basically worked.

Randall Williams (24:56)

Yeah, absolutely. And we see leagues experiment with rule changes like, this isn't the first time, but for baseball, it has changed things drastically. And it had. It's had a huge impact. On top of that, you have to have a good product as well. You have to have teams perform well. You have to have a compelling show, compelling entertainment, and maybe superstars. Shohei going from the Angels to the Dodgers, and he was almost a Blue Jay as well, that it captivated audiences, for sure. Not just here, but around the world.

Max Chaffkin (25:24)

Yeah. I've said this before on the podcast. I mean, Shohei is like the Babe Ruth. He's like arguably the best baseball player in a hundred years. And as Randall's saying.

Stacey Vanek Smith (25:35)

Is that right?

Randall Williams (25:35)

Yeah. There's a legitimate argument. They call this the greatest baseball game ever played, where he struck out 10 people and hit three home runs in the same game simply doesn't happen.

Max Chaffkin (25:43)

He plays for the biggest team, the LA Dodgers, in the second biggest city in the United States. And he is the. The biggest star in Japan. He's Japanese. And Japanese baseball is a big thing. The sort of MLB Japan connection has grown tremendously over the last. I don't know, since Shohei has been here and even going back before then there's. Baseball is promoting itself in Japan with this wonderful advertisement that was like going around on Twitter. I don't know if you saw it, Randall. I did, but it's all these Japanese people watching the games in the middle of the night because. And getting really excited and being like super into. Into this sport. And you. It, you know, it shows up in the ratings. Baseball, Major League Baseball has started releasing its ratings combining Canada, U.S. and Japan, because Japan is so big.

Stacey Vanek Smith (26:30)

So, Randall, give us like in the spectrum of sports that you cover, where does baseball fall? Because one thing I did notice was that apparently Netflix just cut a deal with Major League Baseball. And we had you on talking about Netflix cutting a deal for football, and that's made it into this big kind of must see event. Is baseball on that same track? Is this a very different.

Randall Williams (26:50)

So I'll give you the top three. And the top three have always been the NFL, the MLB and the NBA. And for many years, I'd say for the past 15, it's been NFL, NBA, MLB. But I would say at this current juncture, the MLB has overtaken the NBA really in terms of interest. And the reason for that is because it's a multitude of things. We've talked about the rule changes, but also there is the dynasty effect of the Dodgers. Like they have have dozens of. It feels like they have a Justice League team. And that helps because not only do they have incredible superstars, they're in the second biggest media market. And people are going to watch that. On top of that, of course, when you have the second biggest media market, people with ratings are then going to tune in and say like, okay, with game seven, you have the greatest World Series of all time. And that's my opinion, of course. But it was a really compelling game in which the Dodgers were outscored. That series, I believe it was 26 to 34, and somehow still came out victorious. And then they go into free agency, reload. And now we're getting ready to start another season again.

Max Chaffkin (27:50)

All right, so I want to bring up a couple other possible explanations. Okay? One is this.

Randall Williams (27:55)

Is this going to be conspiracy?

Max Chaffkin (27:56)

Okay, this one is Borderline conspiracy. But you see it showing up in, I'd say maybe the conservative corners of sports media, this narrative that like the NBA has lost a step because it's too woke and that baseball is like perfectly tuned to the Trump moment or something like that. You know, in polls. There was a poll that kind of went viral a couple weeks ago showing that baseball players are the most Republican of sports athletes. I don't know how, I don't know how seriously we should take this, but I believe the NHL is number two. Do you put any stock in that? Cause you really do see this argument show up that sports have suffered by engaging too much politically. I would argue that baseball has not been as politically engaged as some of the other sports like the NBA. Do you think there's anything to that or is it just.

Randall Williams (28:43)

No, not. Not necessarily. I think the NBA specifically is in this new era that I would call the parody era, where you've had seven different champions. You've had, I believe it's six or seven different international MVPs. And they are typically the dynasty sport. You think of the Lakers, you think of the warriors, you think of the LeBron era, you think of the Bulls and the Celtics, of course, that's been them for 50 years. When you have seven different champions and we're not talking about the Lakers being one of them, that happened in 2020. We had the warriors, but since then it's been Celtics, Denver, and last year Oklahoma City against the Pacers. These are middle sized markets of which sometimes the storytelling isn't always there. I do think that the NBA could do a better job of marketing its superstars, but the product is going to catch up. It's always catches up. Now, what does that look like long term? If Oklahoma City's dynasty continues, or if they do start a dynasty, if the spurs with Victor Wembanyama, or even if the Knicks show up, or Anthony Edwards and the Timberwolves, there can be a sudden surge and at the same time the Dodgers can fall off a cliff. Even with all of these superstars.

Stacey Vanek Smith (29:44)

When you say it sounds like having a dynasty is good, yes, but it seems like having different teams from all over the place win would actually be good for audiences. But it sounds like not so much. Why is that?

Randall Williams (29:57)

It's very fascinating to me because in the NFL, parody has existed for a long time. Like we've lived in this era of the Patriots for 20 years and now the Chiefs, but we've seen different teams win in between there as well, and different teams go to the playoffs and things like that in the NBA, it really hasn't been like that. Like, if you go back 10 years to 2016, it was Cavs, warriors, and then of course you have Warriors, Rapids, rivalry. Right. But again, like the season is so long. And when you think about people who are tuning into these games, there's an argument that not all of these NBA games matter. And so when it is finally time to get to the pinnacle of the NBA Finals, there are some viewers who are like, ah, you know, I'm so used to watching LeBron and Steph that if they're not there, I'm not, I'm not going to watch. Whereas with baseball and with all of these sports, really people watch brands. And so you think of the biggest brands in the NBA. Knicks, Warriors, Celtics, Lakers, you think of them in the NFL, Patriots, Cowboys, I would say Chiefs as well. And then you could throw a couple more in there. When those teams aren't showing up and it is the Pacers and it is the Thunder, then there's going to be a slight downtick, but it'll catch up eventually.

Max Chaffkin (31:08)

I can't believe I'm the one bringing this up, but. Because this is much more up Stacey's alley than mine. But I think another argument you could make is that baseball is more suited to this moment because it's cheaper, it's more affordable. There are studies, sports in general hold up pretty well during economic downturns. Sure, baseball. There's some research suggesting that baseball holds up even better than some of the other sports. I'm not sure why that is, but the games are definitely cheaper. And I was thinking back to the sort of height of the NBA, that kind of Steph Curry era, 2016, 2017, that was also the Zerp era. You know, like people had a lot of money, you could, you could splash out and go and sit courtside at a game. And NBA tickets are really expensive. Baseball tickets, because there's so many games, because the stadiums are bigger, they're just cheaper, it's affordable.

Randall Williams (32:02)

The economics around the leagues are different. And you're right, I do think that basketball and especially football are becoming luxury experiences. The get in price, whether you want to sit at a mid level or upper level is going to cost you a couple hundred bucks. Gone are the days where if you have a family of four, you can just decide on a Thursday that, oh, we're going to go to a Packers game. And I said the packers for a reason, because they're based in Green Bay. Imagine what that's going to look like. For a Knicks game or a Giants game, it might cost a vacation to wherever you want to go. It could very easily cost you 1500, 1600 dollars.

Max Chaffkin (32:34)

You definitely can go to a Brewers game if you're in Wisconsin.

Randall Williams (32:37)

Exactly. Because there's so many games.

Max Chaffkin (32:38)

Yeah.

Randall Williams (32:38)

But I'll leave you all with this. And you brought up a good point about season length. What the NFL is trying to do right now is get one more game for a multitude of reasons, because the fact that the biggest one is that they can sell one more game, the mlb, the argument with the fans is to bring the number of games down so that these games can matter more. But of course, there is media. There's a media conversation around that. And will NBA owners and NBA players want to lose money long term in order to gain money or lose money short term? In order to gain money long term, the MLB is going to have to have a similar conversation. And the reality is these billionaire owners, millionaire players are going to have to decide, do we want to shrink the season in order in order for the next generation of owners and players to make money? And I think the answer to that question is going to be no. They're not going to cut games because they're all too rich right now. In order to be like, why would I care about the player and owner 20 years? I want to be rich now. The NFL, I think will eventually add an 18th game, but I think that's where they'll stop.

Max Chaffkin (33:36)

Randall, you brought up these kind of long term risks and we haven't talked about the big one for baseball, which is the labor dispute. There is a very good chance I am trying to soak up this season.

Stacey Vanek Smith (33:46)

I think. I know it's like the players, right?

Tracy Alloway (33:48)

The.

Max Chaffkin (33:48)

So the owners are very likely to lock the players out at the beginning of next year or as soon as this season ends and it's over. The question of a salary cap. Baseball is the only major sport, Randall, correct me if I'm wrong. Where, where there isn't a salary cap. That's sort of a top level that teams can.

Stacey Vanek Smith (34:06)

There's like an amount the team can spend, Right.

Max Chaffkin (34:08)

That's a salary.

Stacey Vanek Smith (34:09)

And they have to divvy it up.

Max Chaffkin (34:10)

Now in baseball, you can spend as much as you want, which is why

Randall Williams (34:13)

the Dodgers have the superstars that they do there. I had an agent tell me some time ago that if you are a very good baseball player, you might not be top 25, but if you're top 50 and you start your free agency, there's one conversation you need to have. And it's with the Dodgers because they're going to set your market. And the Dodgers are willing to spend $700 million on Sh Otani.

Stacey Vanek Smith (34:31)

And if that's what he makes, wow, that's.

Randall Williams (34:33)

That's his contract over a long period of time, but an incredible amount of money. And we're. And 700 million is top. But imagine like these guys are trying to get anywhere between 150 and maybe $250 million max. Go ahead.

Max Chaffkin (34:46)

I just was going to ask you, Randall, where do you think it's going to go? I mean, like, as a fan, I am trying to soak in this season because we may not have a baseball season next year, which is like super sad. And it does feel like baseball has made all of this progress. And it's like, you're kidding me. You're going to blow all that up over a salary dispute? But it seems like they might.

Randall Williams (35:06)

So here's the reality is that, that if you were watching the WNBA this season, there was a collective bargaining negotiation between the players and the owners, that everyone was like, this is ugly. There might not be a season, but the WNBA had one big advantage and they had time. Like the season starts in the WNBA around April. And they had at least six to seven months. And I'm sure that they had many different collective bargaining sessions over the course of a year. Like when they opted out, it was November 24th. They negotiated for over a year. Baseball does not necessarily have that time on their side. And you brought up the point of salary cap versus a minimum spending limit because the players are going to say you have owners who are okay with not winning, who are okay with not competing because of the fact that these media deals are paying X amount of dollars and they're not selling their teams. And I think that is a problem. And you, again, you should soak up this season because I don't know if you're the players. You cannot give up a salary cap. That is a losing conversation. Now, I do think in terms of competitive equity, it would help. But is it going to help more than having a minimum requirement that owners have to spend on players? I don't know. And what would I rather see? Would I rather see the Dodgers build a Justice League squad or would I rather see the Pittsburgh Pirates essentially don't care about probably the best pitcher in baseball and not build around him just because he's going to pack out the stadium by himself? I personally would rather see a minimum requirement, but we're going to find out how it's all going to play out over the course of many months.

Max Chaffkin (36:38)

Okay, Randall, I always ask you the kind of sports question at the end of these conversations, okay, but who do you.

Randall Williams (36:43)

Is this a fun one?

Max Chaffkin (36:44)

Who do you have this year?

Tracy Alloway (36:45)

Who.

Max Chaffkin (36:45)

Which, which are the Dodgers?

Randall Williams (36:46)

I'll tell you what I'm rooting for. Yeah, I'll tell you what I'm rooting for. I'm rooting for Dodgers, Yankees. And the reason for that is. Oh God, I'm sorry. Like, I'm sorry. I'm not a purist.

Stacey Vanek Smith (36:56)

I'm someone Dodgers met.

Randall Williams (36:57)

I'm someone who ro.

Max Chaffkin (36:58)

Thank you.

Randall Williams (36:59)

Matter of fact, I'll give you two I'm rooting for Dodgers, Yankees, or I'm rooting for Mets, Yankees. And the reason for that is because I root for the business of sports. And I do think that those type of matchups and I would even go a rematch from last year with Dodgers, Blue Jays. Those type of matchups bring people to the screen and ultimately we all want this business to grow. We don't want baseball to be in a bad spot as it was 10 years ago. And I think if this is going to be a swan song season for however many months and years that they're

Max Chaffkin (37:26)

going to you say go out with

Randall Williams (37:27)

a bang, go out with a bang. Let's. I, I think that's best. But also we'll see. I love an underdog story, but those three would be my matchups. I would like to see Dodgers, Yankees, Yankees, Mets or Dodgers, Blue Jays all over again.

Max Chaffkin (37:40)

Randall Williams, thanks for being here.

Randall Williams (37:41)

Thank you all for having me.

Stacey Vanek Smith (37:42)

Thanks, Randall.

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Stacey Vanek Smith (39:56)

All right, Max. We have spent a lot of the last few months talking about prediction markets.

Max Chaffkin (40:02)

So much time, Stacey, that we decided we needed a little theme song every time we talk about this topic.

Stacey Vanek Smith (40:10)

I think that's fair.

Max Chaffkin (40:10)

I bring you a new segment, everybody's business listeners. It's called this week in Prediction Markets.

Randall Williams (40:22)

Whoa.

Stacey Vanek Smith (40:22)

What is awesome. I think it's great. I feel very excited to hear the latest development in prediction markets.

Max Chaffkin (40:28)

All right, so the big news in this world is backlash. It's it.

Stacey Vanek Smith (40:34)

You know, we end of prediction markets.

Max Chaffkin (40:36)

And remember our last, the last time we talked about this on the live show with Robert Smith and Jacob Goldstein, and we sort of kept circling around all the kind of uncomfortable things about this world. The fact that you could bet on the return of his Lord and savior, Jesus Christ, or that you could.

Stacey Vanek Smith (40:54)

Or war or people dying.

Max Chaffkin (40:56)

There's been insider trading. There's been all sorts of stuff. And I think regulators and even people are starting to catch up. So let me just run you down a couple of things that have happened super recently. One is that the state of Arizona charged Kalshee criminally with operating a sports book, an illegal sports book.

Stacey Vanek Smith (41:19)

Sports betting is, I am guessing, illegal in Arizona.

Max Chaffkin (41:23)

No, but it's, it's regulated under a separate regime. And so, and so this is coming up in a couple of states. Basically what they're saying is that Kalshee and Poly Market, which, remember, you can bet on elections, you can bet on war, you can bet on anything. But, but a lot of what people actually bet on is sports. And what they're saying is that this is a backdoor to unregulated sports betting. And I think anyone who uses these sites, and we've talked about this on the podcast before, there's some truth to that because there is not a huge difference between placing a bet on DraftKings and placing a bet on Polymarket. At least from the point of view of most people who are gambling. There are some technical differences, but you know, you're, you're ultimately risking money on the outcome of a sports, sports game, of a sports ball match.

Stacey Vanek Smith (42:14)

How big of a deal is it for Calcium Polymarket if they can't do sports bets?

Max Chaffkin (42:19)

I think it would be really, really bad. The volume numbers is like most of their business. I think it's the majority of at least cow she's business. I don't know that we know for sure what Poly Markets volumes look like, but they're huge. You know, the, the numbers have spiked during the Super Bowl. If you go on one of these sites, you know, right now you'll see that.

Stacey Vanek Smith (42:40)

Didn't Polymarket just cut a deal with Major League Baseball?

Max Chaffkin (42:44)

Polymarket cut a deal with Major League Baseball. And that gets me to another point, which is that when they cut this deal, AOC Alexandria Ocasio Cortez, potential Democratic presidential contender Congresswoman tweeted basically saying, let me read this comment cuz I think it's indicative of a vibe shift. This is sack regarding the Poly Market MLB deal. I know as a politician these companies are gonna spend a billion dollars against me for saying it, but shruggy emoji pervasive gambling is not good for society. It turns life into a casino, traps people in addiction and debt, surges domestic violence and fosters manipulation. And what's, what's interesting about this is you saw a lot of people in kind of AOC's camp cheering along, but also a lot of Republicans. Bill O'Reilly, who I didn't realize is still around, but he still hosts his own, you know, conservative talk show, had a headline that was like shocker. I agree with aoc. I saw a lot of that on social media. Just a lot of sort of politicians getting mad and this is showing up in some bills. There's actually a bill in the House right now to stop sports gambling on prediction markets. And then a Senate bill which was, is about to be introduced today I believe, according to Axios.

Stacey Vanek Smith (43:56)

But there are a lot of other places to bet on sports. So it's not like sports betting would go away. It's just these particular sites would not allow it.

Max Chaffkin (44:03)

Yeah, and if that happened, it would be very bad for these sites, these prediction market sites.

Stacey Vanek Smith (44:08)

There's March Madness happening in our office right now. I've never understood what that means. Is that just because I don't know about brackets? I've never. I don't know what a bracket means. I don't. I've done stories on it. I don't know what a bracket means.

Max Chaffkin (44:20)

All right, we'll have Tracee alloway next week to explain.

Stacey Vanek Smith (44:23)

We can put together. We can walk through brackets. That would.

Max Chaffkin (44:26)

I would appreciate that this has been this week in prediction markets. This show is Produced by Jasmine J.T. green and Stacy Wong. Magnus Henriksen is our supervising producer. Sam Rogich handles engineering and Dave Purcell fact checks. Special thanks to Jeff Muskus, Julia Rubin and Maria Ling. If you have a minute, please rate and review the show. It'll mean a lot to us. And if you have a story that should be our business or a sports bet you want to suggest suggests that we make, email us@everybody's bloomberg.net that's everybody with an S. Bloomberg.net Thank you for listening and we'll see you next week.

Tracy Alloway (45:11)

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