The Time's Up Edition

Summary

Slate Money – "The Time's Up Edition" (April 2, 2016)

Episode Overview

In this episode, Felix Salmon (host, Fusion), Cathy O’Neil (data scientist, blogger at Mathbabe.org), and Jordan Weissmann (Moneybox columnist at Slate) dissect the week's biggest stories in business and finance. Major topics include the rise of alternative work arrangements in the U.S. labor market, the state of unicorn financing as spotlighted by Spotify’s latest funding maneuver, and the failed acquisition of Starwood by China's mysterious Anbang Insurance. The team rounds off the episode with their signature Numbers Round, highlighting news on gender pay gaps and minimum wage policy.

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Key Discussion Points and Insights

1. The Changing U.S. Labor Market: Alternative Work Arrangements

[01:55–15:34]

Discussion Kickoff

• Cathy O’Neil introduces a new study by Lawrence Katz and Alan Krueger, which revives a long-dormant government survey to analyze "alternative work arrangements."
• “Way more people are, are doing alternative work arrangements. So what does that mean? It means things like consulting...temporary servicing or on call work.” – Cathy O’Neil [02:45]

Findings of the Katz & Krueger Study

• Share of Americans in alternative work has jumped from 10% (2005) to 15.8% (2015).
  • Breakdown: 8.4% are independent contractors; 0.5% are app-based gig workers (Uber et al.); growing segments include contract firm employees supporting companies like Apple or Facebook [04:46–09:06].
  • “...actual like app type stuff...only 0.5% doing actual like app type stuff.” – Jordan Weissmann [05:30]

Labor Market Nuances

• Growth mostly in traditional contracting/subcontracting (cafeteria workers, bus drivers in tech companies), not "Uberification."
• Outsourcing makes unionizing and labor protections harder; this disproportionately affects racial minorities: 58% of subcontractors in Silicon Valley are Black or Latino, vs. only 10% of tech workers [10:13].

"A New Class of Workers"

• The team discusses how this segmentation creates new inequalities and hollowed-out labor protections.
  • “You might be working for Apple technically, but you’re not actually working for Apple.” – Cathy O’Neil [09:58]

Gig Economy's Real Size and Risks

• App-based gig work, including Uber and Instacart, is relatively small but rapidly rising.
• Most growth is in more conventional forms of contingent work (contractors, temps), not digital gig apps.
• Commentary on “mom replacement” companies (apps replacing traditional household/parental services), and tensions between labor fungibility and service quality.

“...this labor is much less fungible than the app companies thought that it would be.” – Felix Salmon [14:35]

Legal Considerations

• Companies face lawsuits over whether workers are misclassified as independent contractors, especially when they are trained or controlled in ways resembling employment.

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2. Spotify’s Convertible Debt Round: What’s Really Going On?

[17:02–26:42]

The "Debt" That Isn't Really Debt

• Spotify, with $572 million cash on hand, raises $1 billion through convertible debt, not equity.
  • “Because this idea that it’s debt that you have to pay back is not really true because there’s no maturity date...there’s no amount of money that you have to pay back at the end of the day.” – Felix Salmon [18:14]

Why Avoid Equity?

• Raising equity now would mean admitting to a "down round" (a lower valuation than before—previously $8.5B).
  • "If they raised equity, then they would have had to admit that it was a down round." – Felix Salmon [19:18]
• The convertible debt sidesteps this embarrassment and keeps the $8.5B valuation optics.

How Does the Convertible Debt Work?

• Investors get rights to convert the debt to equity at a big discount (20% off the IPO price), with the discount increasing the longer the IPO is delayed.
• “That discount is where all of the juice is in this deal and that is a huge discount...” – Felix Salmon [23:05]
• If Spotify never IPOs, investors pile up more bonds, but liquidity only comes at IPO or acquisition.

Speculation on Spotify's Motives

• Some funds may actually be used to buy out existing shareholders, not invest in operations.
• Raises questions about the stability of the "unicorn" ecosystem in Silicon Valley.

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3. The Starwood–Anbang–Marriott Saga: Chinese Acquisition Drama

[28:51–39:01]

Recap of the Bidding War

• Starwood Hotels (Sheraton, Westin, etc.) accepted a merger offer from Marriott, then received a higher all-cash bid from China's Anbang Insurance.
• “Anbang is a highly opaque but enormous Chinese insurance company with $219 billion in assets...” – Felix Salmon [28:51]
• A bidding war ensued; Anbang kept upping its offer until asked to prove it had the cash on hand.

Why Did Anbang Walk Away?

• Uncertainty around whether the company could actually deliver payment; Anbang’s ownership structure is obscure (“37 interlocking holding companies”), and prior cases (Forbes sale) show risk of payments failing to materialize [32:30–34:21].
• Regulatory/political issues: both U.S. (security concerns about Chinese ownership, especially near White House) and Chinese regulators possibly uneasy with the scale and nature of the deal [35:35–37:09].

Motivations for Chinese Buying Spree

• Chinese companies, flush with cash and facing currency devaluation at home, seek hard-assets abroad [34:38].

Stakeholder Perspectives

• Starwood loyalists hoped for Anbang to save their reward perks; Marriott's takeover would likely diminish these [38:03].

  “We just want late checkout and free wifi.” – Felix Salmon [38:40]

---

4. Numbers Round

[41:55–49:04]

Pay Inequality in U.S. Soccer

• Women's national soccer team players earn only 40% of men's; female coach is paid less than a rounding error compared to men's coach Jurgen Klinsmann ($3.2 million/year) [41:57–44:27].

  “She is literally making a rounding error on Jurgen Klinsmann’s $3 million salary.” – Felix Salmon [43:59]

• Despite superior popularity and TV ratings for women’s soccer, pay disparities remain stark [44:47–45:00].

$15 Minimum Wage in California

• California and parts of New York raise minimum wage to $15 (by 2022), a major labor win but with economic unknowns.
  • “600,000” = number of California manufacturing workers making less than $15/hour [45:22].
  • Debate centers on potential job losses and the complexity of attributing effects to the wage hike.

“If California doesn’t fall into the ocean economically, you know, people are probably going to think it’s a good idea to imitate it.” – Jordan Weissmann [48:22]

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Notable Quotes & Memorable Moments (with Timestamps)

• “What they found was that the number had gone up from about 10% of the labor market in 2025up to about 15.8% depending on how you measure this stuff now. And so that's significant. I mean it's a 50% jump...” – Cathy O’Neil [04:26]
• “This labor is much less fungible than the app companies thought it would be.” – Felix Salmon [14:35]
• “It makes it really hard to unionize...because you’re ...not actually working for Apple.” – Cathy O’Neil [09:58]
• “If they raised equity, then they would have had to admit that it was a down round.” – Felix Salmon [19:18]
• “Anbang is a highly opaque but enormous Chinese insurance company with $219 billion in assets...” – Felix Salmon [28:51]
• “We just want late checkout and free wifi.” – Felix Salmon (on hotel loyalty program die-hards) [38:40]
• “She is literally making a rounding error on Jurgen Klinsmann’s $3 million salary.” – Felix Salmon (on U.S. women’s soccer coach) [43:59]
• “If California doesn’t fall into the ocean economically...people are probably going to think it’s a good idea to imitate it.” – Jordan Weissmann [48:22]

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Important Segment Timestamps

• [01:55–15:34] — Alternative work arrangements and the true story of the U.S. labor market
• [17:02–26:42] — Spotify convertible debt funding scheme and implications for unicorns
• [28:51–39:01] — Starwood/Marriott/Anbang bidding saga and Chinese cross-border investments
• [41:55–49:04] — Numbers Round: U.S. soccer pay inequality and California’s minimum wage experiment

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Summary Tone and Style

The discussion is witty, incisive, a touch self-deprecating, and grounded in a blend of data-driven commentary and lived professional experience. The hosts challenge conventions around buzzy economic trends, call out industry euphemisms, and dissect high-finance maneuvers with approachable analogies and humor.

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For Listeners Who Haven’t Heard the Episode

This Slate Money episode is essential listening if you want to understand:

• The real drivers of America's gig/contingent work economy (hint: it's not just Uber).
• How Silicon Valley unicorns use financial engineering to avoid unpleasant truths about their valuations.
• The potential hazards and politics of Chinese companies buying up major U.S. assets.
• How policy debates, like minimum wage increases, are more complex—and less easily measured—than politicians claim.

With a sharp, conversational style, the hosts bring clarity to fast-evolving economic issues and inject solid numbers, memorable data points, and sharp one-liners along the way.

Transcript

[A]

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[B]

Hello and welcome to the Time's up edition of Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Fusion. I'm joined, as ever by Cathy O', Neill, the data scientist and blogger at mathbabe.org hi. You've been reading all manner of research about the gig economy. We're going to try and talk about the entire gig economy without mentioning that word beginning with you. That's the task.

[C]

No, that's not happening. I'm 100% going to undermine that goal today.

[B]

Okay, well, you know, this is. Once again, that's what we do.

[D]

We set goals and undermine them.

[C]

That's what we do. We really self sabotage a bunch.

[B]

Okay, but I'm just going to throw something at Jordan every time he says that word. Or maybe I'll kick him under the table because we are recording from a smaller studio where I can kick Jordan under the table.

[D]

Very cozy here.

[B]

It's cozy.

[C]

Instead of throwing things in my direction.

[B]

Yeah. The guy who's going to be undermining this entire episode is Jordan Weissman, the Money Box columnist at Slate.

[C]

Glad to be here and ruining the fun.

[B]

He has a contrarian take on unicorn financing. And I am going to be talking about escrow accounts and PRC acquisition protocols and actually, no, I'm not going to be talking about hotels and takeovers and stuff. We will come to all of that, but I think first we're going to start with Cathy o'. Neill. What is this paper? What do you. Yeah, tell us. Tell us what you're talking about.

[D]

Okay, so today I want to talk about research that's recently come out. Actually coming out with Dr. Katz and Dr. Krueger about.

[B]

That's Alan Kruger, no less Alan Krueger and Lawrence Katz.

[D]

And Lawrence Katz, I'm sorry, I don't know everybody's first name. It's about the number of Americans who are using so called alternative work arrangements in the United States and how that's changed from in the last 10 years basically. And the answer is it's gotten a lot bigger. Way more people are, are doing alternative work arrangements. So what does that mean? It means things like consulting. It means temporary servicing or on call work.

[C]

And of course it means working for a company. Like Uber.

[D]

Like Uber.

[C]

There I did it. I ruined how you said you were.

[B]

This cuts against what? Justin Fox has been writing a lot about this at Bloomberg View saying twas ever thus. If you actually look at the tax filings, it doesn't seem to have changed very much. What have they found? He claims doesn't exist.

[C]

So here's the thing. For a while there used to be a government survey called the like survey of contingent workers and that told us how many people like this existed. And because we don't fund anything enough in the United States, they stopped doing that around 2005. And so we started having to rely on different kinds of data, sort of second best data to figure out how many of these workers existed. And so they were looking at things like tax filings and they were looking at things like the number of workers who claim to be self employed or hold multiple jobs. And that didn't seem to be going up. In fact it had been going down since the 90s. And so if the whole labor market was being Uber ified, you'd kind of expect those numbers to be rising. What Kruger and Katz did that was very awesome frankly was they went and redid their own version of that old labor department survey. They kind of brought it back to life with funding from Rand and other people. And so they went and surveyed about 6,000 people to say, okay, are you a contract worker, Are you a tempo? Do you work through one of these online intermediaries? And what they found was that the number had gone up from about 10% of the labor market in 2025up to about 15.8% depending on how you measure this stuff now. And so that's significant. I mean it's a 50% jump in the, in the percentage of people doing this.

[B]

Although, although they've only done this survey once so far, right?

[C]

Yes.

[B]

They're still kind of comparing apples with oranges. They're comparing their survey with a different survey which was done 10 years ago.

[C]

They try, if you look at the paper, they try to match it up Pretty well. They go to lengths to weight it correctly and ask similar questions. So it's pretty compelling stuff. The main takeaway, I think, from it and Neil Irwin at the Times hit on this is that it's not really mostly the Uber effect we're seeing.

[D]

Right, right.

[C]

You know, that has, you know, it looks like people working through online intermediaries. Also companies like Avon are included in here, but also Uber, Instacart, things like that are about 0.5% of the labor market now. Yeah.

[D]

So there's like 16% of people are doing temporary work in various forms, but only 0.5% doing actual like app type stuff.

[B]

Yeah.

[C]

Which is a quick rise. I mean, Uber only came around like 2009, but it's not the majority we're seeing. What we're really seeing is the rise of contract workers, temps, things like that. That's what we have to contend with. It's not really the Uber drivers who are the, the majority of this. You know, we're talking about changes in the labor market over the 10 years. Actually, who we should be kind of picturing are the contractors who work in the Apple cafeteria.

[D]

Yeah, actually, I have some statistics about that. So subcontracting in Silicon Valley. So there are people who like clean up the cafeteria after. So after Facebook workers eat there. That kind of employment has risen three times as fast as employment in Silicon Valley.

[B]

So the model used to be the Apple would hire a company to clean up its cafeteria and then the company would employ people who would do the cleaning up. And you're saying that's not happening?

[C]

No, no, they are. That's growing. That's, that's growing.

[B]

But aren't those people like employees, Whatever company is being hired to clean the cafeteria?

[C]

So there was a time where a company might have had its own long time ago, may have had its own cafeteria workers. Like now that just like, would never happen. You would, you would have a, you would outsource that to another company to come in and do it. Other examples, the people who drive the buses.

[B]

Right. I'm just saying. But the company who you outsource it to.

[C]

Yeah.

[B]

They don't employ the people who are actually cleaning up.

[D]

That's also true. They're temporary workers or they're subcontracted.

[C]

They are, there are sometimes subcontractors, but they, they often do employ them. But that's.

[B]

But if they are employed, then they don't show up in your 15.8%.

[C]

No, they do those. They do. Those are considered contingent labor. They don't work for the, the reason they show up in there is because they're contractors. Right? They work for this contracting company. However, they're essentially servicing Apple. They're so, they are really, they are effectively working for another company. They're, they are rendering services to another company day in, day out, but they are technically employed by this contractor.

[B]

So if I work for a company called Fusion, and the only purpose of Fusion is to provide services to Univision, then I'm a contractor.

[C]

That's. No, that's a little different. I mean, that's your company owned by a subsidiary. That's not the same thing.

[B]

But if it wasn't owned by Univision, then I would be a contractor.

[C]

Okay, so there are basically four categories. You have independent contractors. Right? And so that's going to, that would.

[B]

Include the Uber drivers.

[C]

That's your. Yeah, exactly, your Uber drivers. People who work for TaskRabbit, things like that. Also just your regular upper class consultants as well. I mean, this is a, it's a broadcast, what I do.

[D]

Yeah.

[C]

Then you've got on call workers who sort of aren't always employed. And they get, again, they get called up.

[B]

It's in the name on call Walker. Okay, so that would be like people who work for Starbucks. And then Starbucks can say, oh, you're working at 9 o' clock tomorrow and you get into Starbucks or whatever.

[C]

So the way that the authors define on call worker is they report having certain days or hours in which they are not at work but are still on call. They're on standby. So I take that as not necessarily your typical Starbucks worker. Frankly, this is the one I'm least clear on.

[B]

It sounds like my doctor friend.

[C]

Possibly. I mean, they're about 2.6% of the group. Then you have temps, temp agency workers, they're 1.6%. And then you've got 3.1% are workers provided by contract firms. Right. Those are the guys who are working in the Apple cafeteria, for instance. In 10 years, that's jumped from 0.5% of the workforce to 3.1% of the workforce.

[B]

Okay, so, but if I add up those four numbers, we're nowhere near 15.8%.

[C]

Yeah, we are 8.4%. Oh, wait. Which was 8.4 independent contractors.

[B]

Oh, okay, so it's still. So it's. The majority of it is independent contractors, which is what I used to call freelancers.

[C]

Freelancers. There's.

[D]

Yeah, but that's not the group that's grown the most, right?

[C]

Well, it hasn't grown the most. No, the One that's grown the most is these workers provided by contract firms. So that's the ones. So what you're seeing here is companies finding ways to offload labor that they might have previously hired directly themselves. So maybe even those would have been a long time ago. Cafeteria would have, I mean, Apple would have had its own cafeteria staff. Instead they're hiring someone else to do it. And that's a way of.

[B]

But the workers themselves who work in the cafeteria, they still have an employer and they're still employees of an employer. It's just the employer isn't Apple, it's the firm which was contracted.

[C]

Yes, and that's the, you know, there. That brings up all sorts of different issues. It makes it really hard to unionize, among other things. It makes it really hard to demand better treatment, necessarily because you're surround. You might be working for Apple technically, but you're not actually working for Apple.

[D]

Right. And so you can't ask Apple to treat you better. And one of the things that people have noticed is that this falls along, you know, racial lines as well. 10% of the tech workers in Silicon Valley are either black or Latino, but 58% of the subcontractors are black or Latino. And the average pay is 20k versus 113 for the average tech worker. So you see that this sort of new class of workers, the subcontractors are, they don't have nearly the same kind of protections in their jobs or salary. Yeah, I think, and that matters because one of the things that this work has brought up is the question of like, oh, well, maybe this is a good story. Maybe this is a story about how people want more flexibility and they're getting paid for the risk they're taking on by not having regular jobs. But it doesn't look like that's the whole story.

[B]

This is certainly something I can attest to as someone who's seen journalism change over the years. It used to be when I first entered the industry that freelance journalists were extremely well paid and that you basically got compensated for the fact that you weren't working every day and you didn't have the overhead associated with, I don't know, health insurance and desks and that kind of stuff. And because you were that much more flexible and you didn't have any job security, the employers would pay freelancers more than they would pay their staffers. That is no longer the case. Right now, staffers are paid significantly more than freelancers. And I'm not entirely sure when and how that switch happened, but it's clearly happened at this point.

[C]

Yeah, I think. And one of the interesting things about this 15.8% number really is the way it crosses class lines and crosses education lines. And you know, you're in that independent contractor, that 8.4% of the labor market. You've got everything from the Uber driver to the freelancer, to the, you know, mother in suburbia who is taking time off work to raise a kid and also doing consulting on the side. I mean, it's. And actually you see in some of these categories of, you know, kind of contingent labor that you're more likely to do it if you're well educated or fairly wealthy. So it is a complicated story, but I think the one that is grabbing people's attention is this kind of growth of contract workers for contractors, subcontractors that really we haven't been paying as much attention to because there's been so much focus on Uber and companies like that. And it turns out there's this other thing that's much more important that's been happening.

[D]

Yeah. But let's talk a little bit about how surprisingly small the Uber part of the economy is. And when I say Uber, obviously it's not just Uber. The people that the 0.5% of the labor force that is actually working off of like online gigs isn't entirely Uber, but It turns out 2/3 of it is, is actually Uber.

[C]

Oh, is it? I had missed that.

[B]

Yep.

[D]

Two thirds.

[C]

Oh, wow.

[D]

So there's, there's actually, you know, everybody else combined now, by the way, one of the caveats I understand from this, this research is that people would probably only list their primary source of income. So if somebody, so if somebody did Uber but also did Instacart on the side, you might only get Uber.

[B]

I mean, a lot of people have Uber and Lyft on their phones and they just pick whichever one comes first. And if they get more Uber gigs than Lyft gigs, then Uber becomes the primary.

[D]

And if they have a full time job but do a little bit of Lyft on the side, they probably don't pick up on that either. But. Yeah, but by and large, it's kind of a shock by how people are kind of shocked by how little of this online gig stuff we're actually seeing.

[C]

Yeah. And you know, I do think it bears watching. I don't. You know, the fact is it has only been about seven years since this was any kind of a business model at all.

[B]

So it's the business model of, you know, what they call in Silicon Valley sort of mom replacement companies where you, you get an app to do what you would historically get your mom to do, whether it's, whether it's, you know, do your laundry or clean your home or give you a lift to, you know, work or, you know, anything or make food. And all of these mom replacement services in one way or another are based on this idea that there's a kind of fungible mass of people making maybe 10 or $12 an hour who can be, who you can just hire to do this. And although that works as something which is really quite commoditized, like driving a car, I think a lot of them have run into the problem that for a lot of these services, like picking a decent avocado rather than like a crappy hard one, or, or like knowing where to put your things away, you don't, if you're hiring someone to clean your apartment, you want it to be the same person. You don't want it, you know, to teach someone. Every time it becomes much harder. And it turns out this labor is much less fungible than the app companies thought that it would be.

[D]

And actually, good point. Like the training, the amount of training you do affects whether you as an employer are allowed to call the person an employee or independent contractor. So that seems to be coming up in terms of litigation. So lots of companies are getting sued because the people working for them are like, hey, we're employees. We've been trained to pick avocados correctly. So a lot of these companies, their business model looks to be challenged by that kind of question.

[B]

Okay, so on which note, we are going to move on to the other great white hope of online apps, which is music streaming. But before we do that, I need to talk about Casper, which is a great white mattress company. And you get $950 will buy you a king sized mattress of unsurpassable quality. It's kind of an awesome deal, really. You get this thing for 100 days on a free trial basis, which means that if you sleep on it for 100 days and then you change your mind, you can just send it back for free. It's made in America. It's got this combination of latex and memory foam, which is like super. That's the technical word, super. And it's cheap. It's $950 for King, it's $500 for Twin, and it's the obvious way to get a mattress. So go to Casper.com slatemoney and make sure you do that slate money thing, because if you do you get $50 off that twin size mattress becomes $450. You can buy 10 and you're still spending less than you would on like some crazy high end mattress.

[D]

If you buy enough, you can go to the Bahamas with all the money you saved.

[B]

Exactly. Buy a bunch of mattresses and go to the Bahamas. This is the official advice of slate money casper.com SlateMoney and the Caribbean awaits. Jordan.

[C]

Yes, Felix.

[B]

I'm completely obsessed by this latest piece of funding by a Swedish company which we've all heard of called Spotify.

[C]

Yes. I'm glad you're obsessed because I think you and I are probably approaching this story from slightly different angles. I want to know if Spot, if this is a really bad sign for Spotify. My impulse originally was it wasn't, but I think you're going to be able to unpack it a little bit for me.

[D]

What happened?

[C]

So what happened was Spotify, even though Spotify has a ton of cash, by the way, apparently this company has about $572 million in the bank, which is, is, you know, helpful when you're not really making any profits. But they raised another round of funding. However, it wasn't your typical equity round. Instead they did some debt financing. $1 billion worth of convertible debt, where technically it's debt, you have to pay it back, but it can also convert to stock at a discounted rate.

[B]

And like, let's be honest here, there's no, there's nothing debt like about this. Because this idea that it's debt that you have to pay back is not really true because there's no maturity date.

[C]

Yeah.

[B]

And there's no amount of money that you have to pay back at the end of the day.

[C]

Okay, so this is, this is why my impulse originally was this doesn't look so bad for Spotify before we go.

[D]

On because it's kind of complicated what we're saying. So let's take two cases. I feel like the case is there's really two cases. Either Spotify doesn't go IPO or Spotify does go ipo. What happens with this debt in those two cases?

[B]

So this is, this is an incredibly good question and I promise I'm going to answer it, but I'm not going to answer it quite yet.

[D]

Okay.

[B]

Because we have to get to the ipo.

[D]

That is the question.

[B]

But that is, that is a question. It's an important question. And I promise if I don't answer it, you can slap me.

[C]

So when I, when I saw this story, my initial impulse was well, the, the startup market in general isn't so great at the moment. Spotify is encountering some turbulence in part because it has these competitors from. It has competitors like Apple these days. There are some question marks over its future. They're still raising a billion dollar funding round that looks a lot like equity as long as it goes and eventually has an ipo.

[B]

It is equity.

[C]

Yeah, exactly. Except for it's called debt.

[B]

It's called debt because if they raised equity, then they would have had to admit that it was a down round. And there's this weird convention in Silicon Valley that you never raise a down round. The last round of equity that they raised was at an $8.5 billion valuation. And probably Spotify is not worth $8.5 billion anymore, but they just don't want to admit that.

[D]

So a down round is like when you admit that you aren't as worth as much as you used to be.

[B]

Exactly.

[C]

Okay, okay. So you're. So by saying it's convertible debt instead, they can kind of keep the charade going.

[B]

They can fudge the fact that it's a down round.

[D]

No. Is it a down round because the, the company itself isn't doing well, or is it because just everything in Silicon Valley is looking kind of bad right now? As I understand it, the, the startup funding fell 30% in the last quarter of 2015, and there's been like no IPOs this year so far.

[B]

So, I mean, there weren't, there weren't that many IPOs last year. The valuations and the liquidity events are two different things. You can certainly do very small up rounds, you know, but yeah, I think that people are. I think that the answer to your question is that when you do a round $8.5 billion, that's in the expectation that you're just about to IPO. And it's almost like a bridge finance to an IPO. And then the IPO never happened. And everyone was like, well, I'm not going to do another bridge finance to another, you know, IPO out in never never land. If you want to raise more money, you're going to have to raise it on the strength of your fundamentals rather than on the idea that I get to flip this in the ipo, which is happening in a few months.

[D]

So it's kind of like shit or get off the pot.

[B]

No, I don't quite understand this.

[D]

I mean, this, this new debt round, it's like it's time.

[C]

No, I think it's the opposite.

[D]

Oh, really?

[C]

Yeah, it's the opposite, they're saying, okay, will fund you through this convertible debt and you don't have to do an IPO immediately. Whereas before, when you did an $8.5 billion round just on equity, that was like, okay, we're expecting it to go public soon. Okay, yeah.

[B]

Okay, so now I'm going to answer your question, which is that. And I know why you asked the question, because you have this knowledge in the back of your head, which is that there's a whole bunch of documentation in this round about the IPO price. And the idea is that the maturity date of this loan, if you consider it to be a loan, which it really isn't, is basically the IPO whenever the IPO is and with the expectation of the IPO is going to be within a year or so. And that what happens is that you get paid back not in dollars, but in public stock, and you get a certain amount of stock to pay you back for the money that you're putting up right now. So this is not a loan where you need to pay back a certain amount of cash. This is equity raise, where you're buying future equity, basically.

[C]

Yeah. So I guess that brings up the question, though. So if they never ever ipo.

[D]

Yeah.

[C]

If it just spot, which, I mean, if that doesn't happen, Spotify is kind of going bust. I guess that's.

[B]

Well, no, I mean, they have now $1.5 billion in the bank. If they had 0.5 before and they just raised a billion, they have $1.5 billion in the Bank. $1.5 billion will last you quite a long time. So there's not a kind of, if it doesn't IPO in the next year, then it's going bust. But I think what it does show is the risk of this deal. And what I need to do is a little bit of explanation of how high the returns are on this thing. It has a very high interest rate. So what happens is you get paid back your however much you invested, plus interest. Now, the interest rate starts off relatively low. It's like 5%, something like that. It ticks up over time. But the high interest rate comes in the fact that you get that money back at a 20% discount to whatever the IPO price is. So if, let's say that Spotify IPOs at $20 a share, then you get paid back in shares priced at $16. So you can sort of immediately flip them for 20. And then remember, the IPOs all always underprice themselves anyway, so the market price is probably going to be like 25. And so you're getting paid in stock at 16, even though the market price is 25 or whatever. And that discount is where all of the juices in this deal and that is a huge discount and it grows over time. And the, and the fact that the discount is so huge, the fact that the investors are demanding and Spotify is having to pay such a massive discount to its future valuation is an indication that there is serious risk in this deal. And the serious risk in this deal is precisely that it never IPOs. And if it never IPOs, then you basically never get paid back. The coupons are paid pic coupons they're called. They're not even pick toggle coupons, they're pick coupons, pik payment in kind. Which means that instead of the interest payments being in cash, the interest payments are in more of this same bond. And so all you wind up, all you wind up doing is getting bigger and bigger piles of these convertible bonds which will convert into something liquidatable if and only if Spotify ipo.

[D]

So at the end of the day.

[C]

Though, sorry, just one more thing. What happens if Spotify gets bought by Google, for instance? So just another company, whatever that, that's similar to an IPO in that case. Right, okay.

[D]

Okay, quick question about Spotify. It's not profitable right now, right. So, but is this one and a half billion dollars going to make it profitable? Is that the assumption?

[C]

The one theory I've seen so far that what they're going to do about it, do with it is try to expand more into video, which is frankly.

[B]

Yeah, they, my theory is that this.

[C]

Would actually be good for the air, I think if we discuss this.

[B]

Yeah. So my theory is that Spotify has no particular need to have $1.5 billion in the bank. Some people said, well, they need to build a database. Some people are saying they want to move into video. My feeling is that really this is money sloshing around the cap table. And we're not going to get into too much nerdy detail about what a cap table is. It's basically who are the shareholders, who owns the stock, who owns the debt. And that all of these people who bought into that $8.5 billion valuation round ahead of the IPO were short term funders and they were like, I'm going to buy now, I want to cash out. And there are other people in, there are other Spotify shareholders who want to sell their stock. Some of them might be employees, some of them might be managers. And my gut feeling here And I have no evidence of this. My gut feeling is that a large chunk of this billion dollars is effectively a secondary sale. It's a way of paying existing shareholders for their stock. So enough of Spotify, we are going to move on to Anbang, which is the most awesome song.

[D]

Felix, can you do the song?

[B]

Maybe?

[C]

Just do it, everyone. The Slate Money universe is now salivating, teetering Twitter in anticipation.

[B]

Okay, Slate Money is also sponsored this week by Harry's. You remember Harry's, they do the awesome razors. They bought an entire razor factory in Germany and they make five blade razors and then they sell those razors at half the price of the normal razors which you get in your local drugstore. And it's just this really cool sort of disintermediation that they're doing good razors, cheap. What's more to say, I was razor.

[D]

Shopping the other day and I was like, this razor only has four razors.

[B]

I know, like four is, four is nothing. Four is nothing. If you don't have five, you're not even in the game.

[D]

Exactly.

[C]

I'm looking for the six. For the six.

[D]

No, no, we're good with five.

[B]

Six is, six is the trow.

[D]

Yeah, come on.

[B]

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[D]

That was almost a song.

[B]

Okay, that was almost a song. So basically I'm going to rewind a bit here. I think we might have mentioned this on a previous episode of slate money. But Starwood, this major hotel group which owns Sheraton and Westin and people like that, agreed to be bought by Marriott, which is a much bigger hotel group. And then they heard this noise and bang, they had this and bang. And Bang is a highly opaque but enormous Chinese insurance company with $219 billion in assets, and they've already bought the Waldorf Astoria in New York for $2 billion. And they are on something of an acquisition spree. And an Bang went and said, hey, rather than just take a bunch of worthless. Well, not worthless. Rather than take a bunch of risky Marriott equity, why not just take a large check from us and we will give you a better deal all in cash than you got than you're getting from Marriott. And Starwood said, okay, that sounds good. And basically this was the end, we have now discovered, of a long series of negotiations. And Bang's been eyeing Starwood for a long time. And they kept on coming up to Starwood and saying, we want to buy you. And Starwood would go, yeah, okay, but can you show us that you have the money first? And they would like, yeah, yeah, give me a minute. And then they'd run off and then they'd not come out. And then they'd come back and say, we want to buy you. And Starwood would say, that's great. Can you show us that you have the money? And they'd say, yeah. And it would go on like this for a while.

[D]

This is like called financing is in place, right? And they did it for the first offer.

[B]

So no, they didn't do it for the first couple of offers and they never went anywhere. And then finally for the one where they outbid, because what happened was that the Marriott deal was announced, right? And then Anbang said, oh, we really need to buy this now, otherwise we're never going to get the opportunity to buy it. So then they went along to these big western financiers, Chris Flowers, Prima Vera, and they put a bid together with actual money, which was lined up.

[C]

But then. But then there's a twist end to all this.

[B]

But then. And Starwood said, okay, great, we'll take your actual money, right? And then. And then Marriott came back with a counteroffer and said, we will outbid your cash bid with even with. With more cash and more stock. And so then Starwood was going to marry it again. And then Anbank said, no, we will outbid the outbid. There was this whole bidding war going on. And Starwood said, great, this looks good. And can we get A little bit more money from you. And Anb said, okay, fine. And they offered a little bit more money. But that last little push for the umpteenth offer that Anbang made, the financing that, yeah, we have the money bit was a little bit vaguer than it had been in previous offers. And Star was like, okay, we're totally going to accept this offer just the minute that you show that the money is all lined up and you can pay what you're offering. And Anbang said, I'm picking up my ball and going home.

[D]

So weird. I mean, why would they do that? Why would they ever make an offer that they couldn't follow through?

[C]

So there's so much going on with the story. There's the weird financing angle, there's the what the hell is happening in China right now angle, which, yeah, I think you need some context for this. This.

[B]

So the context is the Anbang is Chinese. And, and there's a known issue with anyone who gets bought by a Chinese acquirer, which is that Chinese acquirers can sign any old piece of paper they like and then if they don't come through with the money once they've bought whatever they've bought, it's all over. And the people who are meant to be paid, the former owners can, you know, try and sue in court or try and get their money back in the Chinese court. And it's going to take years and they probably won't succeed. So one of the prime examples is Forbes magazine. Actually Forbes magazine was sold by the Forbes or the whole Forbes company was sold by the Forbes family to. You're going to love this. Integrated Whale was the name of the company which bought Forbes and it's a Chinese company. And Integrated Whale agreed, had a cut and dried contract saying we're going to pay this month this much money on these dates. And then they just didn't. And now the Force family is like, you owe us the money. And they're like. And then they don't have it. So being bought by Chinese acquirers without recourse to a known court system in the US is a dangerous thing. And so when your Starwood's board of directors and very shadowy insurer comes along and no one really knows who owns Anbang, there's this whole series of like 37 companies which are shareholders and no one really knows who owns them and it's all. And then there's the whole Chinese regulatory apparatus which, which may or may not have had issues with Anbang putting so many eggs in one basket. And there is so many questions that Star, quite reasonably, just wanted to be absolutely sure that they were going to get all of the cash.

[D]

And.

[B]

And when push came to shove, it turned out that Anbang couldn't quite follow through. I'm quite sure that the CEO of Anbang really wanted to buy Starwood, but could he manage to get everyone lined up behind him? It seems not.

[C]

And I feel like we're probably going to see more stories similar to this or issues like this come up, because right now, Chinese companies are sort of on a buying spree in the US or attempting to go on a buying spree in the US and the reason for that is pretty simple. They have a lot of money, and right now, the Chinese economy is in trouble. The yuan has been kind of falling, and everyone's worried that there will eventually be a major devaluation. So these companies want to get their cash out of the country, and the best place to do that, as far as they're concerned, is to go to the US and buy things. There's. So you've had this wave of Chinese acquisitions or attempted Chinese acquisitions. This was going to be the biggest. And so you have all these.

[B]

But this is going to be bigger than, like, when Lenovo bought the IBM computers. Yeah, right.

[C]

Yeah, this was going to be huge. And so it got all of this attention. It was also starting to become a political issue. And that's sort of a separate discussion we can get into.

[B]

But, oh, my God, every time there's a Chinese acquirer, like this time it was, well, Starwood owns this big hotel which is quite close to the White House. And maybe the Americans are not going to want that hotel near the White House to be owned by the Chinese.

[D]

So is that the idea that, like, they're going to, like, make a tunnel through the basement?

[C]

Here's the thing. I don't think from the perspective of the people trying to make this deal happen, that was a crazy concern that Congress would start digging into that. You got to remember, we're in an election year. The committee that is responsible for approving this kind of stuff is tasked with looking into national security issues. And the thing about Angbang, as you said, is no one actually knows who owns them. It's 37 interlocking holding companies. Some of them seem to have some association with the former leader, Deng. Deng Xiaoping, the former leader of China, like the former premier. And so, you know, there is this weird kind of government connection to this massive insurer that, for context, a lot of people are comparing it to almost kind of a Berkshire Hathaway thing. It's an insurer that's now expanding into other businesses and making a giant fortune for its CEO.

[D]

I guess it's true that if every single hotel around D.C. was owned by China, then by some Chinese company then you might imagine spying going on at the hotel room.

[C]

Well, it's just like even if there wasn't really a concern about that, Congress would totally grandstand on it. And then that leaves open the possibility that they're going to try and pry into this company. They're going to say we want to know more about your ownership structure. Where's your money actually coming from? What are your government ties?

[B]

There were definitely US regulatory regulatory issues and there were definitely Chinese regulatory issues as well. It was not at all clear that the Chinese regulators were entirely happy with Anbang paying this much money for a company which runs hotels more than actually owns them. Most of them are actually owned by some other company.

[D]

Right. It's a franchising model.

[C]

Yeah. I mean I think that the fear of Chinese companies buy, I mean Chinese companies buying US assets is a little bit crazy. It's not always crazy. I mean I think for some of the technology companies that they're saying, okay, there are some national security concerns. Do we really want this, you know, do we want this tech firm in the hands of a state owned Chinese company giving them ip? Is that a good idea? I mean, I don't think it's nuts to be to bring up those questions. Even if in general the US probably shouldn't be in the business of pushing out foreign investment.

[B]

And yet there were millions of Americans who were really, really cheering on the idea that Anbang was going to buy Starwood.

[D]

Why?

[B]

Because they're the millions of elite Starwood preferred guests. Oh yeah, these guys who are terrified about what's going to happen to their amazing elite status once they get absorbed into the Marriott Borg and they saw Anbang as this great white savior who would prevent this from happening?

[C]

I like that that it's like we don't really, we're not worried about Chinese spying, national security, whatever.

[B]

We just want late checkout and free wifi.

[D]

Aren't there even more Marriott like special customers who are excited about the Starwood?

[B]

No, there aren't. Because the Marriott elite program isn't nearly as generous as the Starwood one. It has many more members, but they're not nearly as loyal.

[D]

So does it look like the Marriott thing is going to happen?

[B]

Yes, because now, now Star was like, okay, back to plan A. Okay, enough of an bang we're going to move on to the numbers round, but first I need to talk about a new sponsor. Are you ready for this?

[D]

I'm ready.

[B]

Ring. Do you know what ring is?

[C]

Nope.

[B]

Nope. Jordan?

[C]

I have no idea.

[B]

Ring is actually a security system for your house cleverly disguised as an Internet connected doorbell, which is kind of genius in its own way. It's a, it's a doorbell and you ring the doorbell and it works just like a doorbell, but it also has a video in there, right? And the video will activate whenever it senses an emotion or heat. So anytime anyone walks up to your door, if it's a nefarious burglar or if it's your kids or anyone, the video will activate and you'll start getting video of that person and they will ring the doorbell and they will, and then you will talk to them just like through an intercom from your phone. And you could be on your phone in the living room or in the kitchen, or you could be on your phone in Kuala Lumpur. And the person at the front door has no idea whether you're inside the house or not. So you answer the doorbell and they're like, oh, hi. And then because this is what burglars do, is they ring your doorbell to see if you're home and then if you're not home then they're like, oh, cool, I can burglarize you. Got it. But if you answer the phone, that's.

[C]

Not how I remember Home Alone working.

[B]

But this is, this is how it works. And so it's a security device which prevents burglars from burglarizing you because they'll ring the doorbell and think that you're home or you'll have their photo and you'll have their video and they don't want to burgle you because they know that you have their photo and their video. But then on top of that, it's just this incredibly convenient sort of remote doorman type thing. So if it's not a burglar, if it's just the UPS guy, you can talk to the UPS that is really useful and say, hey, just leave it round the back or something like that. And, and, or if you, I mean, people are using this in crazy ways which Ring hadn't even intended. For instance, there's the kids who like leave little sort of 30 second funny videos every time they leave for school in the morning. There's a bunch of different things which you can do with it. But it essentially is a doorman for your house which is just on Your phone. And it prevents. It's a security device first and foremost, but it does a whole bunch of other stuff as well. And it allows you to be at home even when you're not at home. It's kind of awesome. And you can get one, not just free shipping, but free, expedited FedEx shipping. Because we want this, want you to have this. Like, right now, if you go to Ring.com Money, it will come flying to your home. It's amazing. Ring.com Money. Get this. Ring video doorbell and try it out.

[C]

Don't get burgled.

[B]

Don't get burgled. Okay, so finally, numbers round.

[D]

Kathy, I have a number.

[B]

What's your number?

[D]

40%.

[B]

What's your 40% number?

[D]

So it's about the U.S. soccer teams. The women are making about 40% of what the men are making, and they're suing.

[B]

So this is. I actually wrote about this this week, and this was my number. I had a slightly different number because the complaint that the women came out with was a little bit short on. Well, the complaint that the women came out with was all about the way that the women are paid. And what they do is they get this $72,000 salary because a lot of them don't have, like, massively lucrative contracts with football clubs like all the men do. The men get paid on a sort of gig basis. They don't get a salary. They just get paid $5,000 here and $10,000 there for certain games.

[D]

And.

[B]

And it adds up to more altogether. But they don't need that monthly salary because they're all getting paid so much money from their clubs. And it's one way that it causes the women to get paid less. There are lots of other things here, but my number just to sort of come in here. Yeah. Was $3,232,481, which is. Have you any idea what that is?

[D]

I'm going to say TV revenue from soccer.

[B]

That is the amount that Jurgen Klinsman, the US Men's national team soccer coach, was paid last year.

[D]

Wow.

[C]

Can we just give that all to the women?

[B]

So. So the fascinating thing is you can go back through the Form 990s and you can look at how much the women's soccer coach was paid. It was like 200,000, 290,000, that kind of thing last year. We don't know how much the U.S. women's National Team coach was paid because she was paid too little to appear on the list of the top paid people at the U.S. soccer Federation. She is literally making a rounding error on Jurgen Klinsman's $3 million salary. That like 0.2 million, that 0.2 million that he's getting over and above the 3 million is her salary.

[D]

I mean, ironically, like, soccer is such a big deal for girls in this country, it is such a big deal. And for boys, it's, you know, not.

[C]

As big a deal.

[D]

So you just. It's really kind of. Kind of crazy.

[B]

It is. You remember the ticker tape parade when they won the World cup and everyone went completely crazy.

[D]

Exciting.

[B]

Why is Jurgen Klinsmann coaching the men's national team, which keeps on crashing out in the second round of the World cup to countries like Ghana and Belgium, when he could be coaching the women's national team, which is the best team in the world?

[C]

Well, he also. The question is, why would we want him coaching the women's team right now, given his results? But I think also one wrinkle in this story that I've seen is that actually, on a per game basis, the women's team generates as much revenue as the men, apparently. So it's not even as if that's not the only consideration here.

[B]

If you look at TV ratings for the women's national team soccer matches, they're higher than for the men's national team. So it's not like the women are just being paid less because they have lower revenue.

[C]

I mean, they are more. The women seems more beloved, is more popular. Way more. If it was purely just them as it. If the only consideration was just their ability to be sold as a team, they would absolutely should be making more. But then it gets more complicated again.

[D]

With, well, I'm glad they made the lawsuit. We'll see what happens.

[C]

Yeah. My number is 600,000.

[B]

What's that?

[C]

It's a sideways into one of my favorite subjects, $15 minimum wage. So this week I knew you would be. Yeah, yeah. So this week, huge, huge victory for labor activists. Two victories they. California passed a $15 statewide minimum wage.

[D]

Yeah.

[C]

New York passed a variation of it. That will bring it up to $15 in New York City within three years. Surrounding counties within suburbs, within about four upstate. It goes up to 1250 and then could possibly rise up to 15 depending on some conditions. This is just a massive win for the labor movement. But I've on the show and elsewhere talked about some of my skepticism around what the economic effects of this will be. And one number I'm really interested in is the 600,000 figure. That's how many, roughly manufacturing jobs There are or manufacturing workers there are in California right now who make less than three $15 an hour. And so I think some people are really going to be curious what happens to those jobs because they're tradable, because they are in industries like textiles that, you know, you know, American Apparel, still manufacturers out there, for instance, what's going to happen to those sorts of jobs? Are those going to disappear and will that even matter if those jobs.

[B]

Is this an overnight thing?

[C]

No, it's not. No.

[D]

No.

[C]

California is going up to $15 an hour by 2022. If you do, if you make a basic, if you assume 2% inflation a year, it's going to be worth about 1330 in today's dollars. It's still a large increase. Almost any way you frame it, it is a big jump and it's going to be indexed to inflation after then.

[B]

But the fact is that because it's five, six years between now and 2022, and any number of things can happen over that period of time, it's not going to be obvious to see whether the manufacturing jobs, I mean, assuming that they fall because they nearly always fall, whether they're falling because of the minimum wage or because of some other.

[D]

That's.

[C]

Yeah, that is a really good point. Naturally, it gets that one of my.

[D]

Over the border of California, that'd be one thing. But if they moved to Mexico, then.

[B]

That is a border of California.

[D]

Okay. Yes, I meant to a different state.

[C]

Yeah, I mean, there's. That's a really good point. And it does get at this kind of larger issue that I've been worrying about privately in my darker wonk moments, which is a lot of people have been talking about how these minimum wage increases are going to be great experiments and they're going to tell us about how well this model actually works. The problem is that if you get really deep into the minimum wage literature, the findings are so, so, so sensitive to small methodological choices that the economists make when they're doing these studies. I mean, I don't want to get too far into it, but I mean.

[B]

It'S tiny stuff, the lightning numbers round.

[C]

Yeah, I know, but. So it's tiny stuff like how you.

[B]

Control just a quick number. It takes 20 seconds.

[D]

Jordan, you should have said this is a topic.

[C]

I know, but I'm going to finish this here. So, I mean, like, you're. My major point is I don't think we're ever, we're kind of fooling ourselves if we think we're ever going to have a consensus on whether or not these, quote, worked from the economics profession. I think this is just going to be a war that goes on forever in academia. And then people are just going to end up looking at California and saying, is there widespread youth unemployment? Roughly how do we feel about how California's doing? And that's going to be how people judge, which is fine. I think in the end, basically, if California doesn't fall into the ocean economically, you know, people are probably going to think it's a good idea to imitate it. But that, that's, that's my feeling about this right now. And that is the end of my super quick spiel on 15, very, very quick minimum wage.

[B]

All right, so now that we've gone about 37 minutes over the allotted time, we are going to wrap this episode of Slate Money up for the week. We're going to come back next week with a super special guest from Australia by way of Portland. It's going to be a really good one next week, but for now, thank you for listening to Slate Money. Do subscribe to the show so you get the show with the super special guest next week. You can find us by searching for Slate Money in the itunes store. Leave us a review there. Write to us. Our email address is slatemoneylate.com the producer is Audrey Quinn. The executive producers are Steve Lichti and Andy Bowers. And the whole Panoply roster of podcasts can be [e-mail] panoply so we'll talk to you next week on Sleep Money.