← The Prof G Pod with Scott Galloway
The Prof G Pod with Scott Galloway
Sports Betting, Challenges Facing Young Men, and The Fall of Sam Bankman-Fried — with Michael Lewis
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- [00:01]
Scott Galloway
Support for the show comes from ServiceNow, the AI platform for business transformation. You've heard the big hype around AI. The truth is, AI is only as powerful as the platform it's built into. ServiceNow is a platform that puts AI to work for people across your business, removing friction and frustration for your employees, supercharging productivity for your developers, providing intelligent tools for your service agents to make customers happier. All built into a single platform you can use right now. That's why the world works with ServiceNow. Visit ServiceNow.com AI for people to learn more. Support for the show comes from HubSpot how do you begin to describe your job as a marketer? You have to generate leads, create content and gather data. Your spread way too thin. But HubSpot has a better way. With the help of Breeze, HubSpot's collection of AI tools and features like Content Remix, turn one piece of content into a suite of assets, pinpoint the best prospects and level up your campaign's KPIs with the new analytics suite. And most importantly, you'll have a way easier time describing your job at parties. Visit HubSpot.com marketers to learn more. Support for the show comes from Crucible Moments, a podcast from Sequoia Capital. We've all had turning points in our lives where the decisions we make end up having lasting consequences. No one knows this better than the founders of some of today's most influential companies, and Crucible Moments lets listeners in.
- [01:30]
Michael Lewis
On the make or break events that.
- [01:32]
Scott Galloway
Defined major Companies like Dropbox, YouTube, Robinhood and more told by the founders themselves. Tune into season two of crucible moments today. You can listen at cruciblemoments.com or wherever you listen to podcasts. Episode 328, 328 is the country code belonging to Guyana. In 1928, Mickey Mouse first appeared in the Sound cartoon Steamboat Willie. What's the difference between Disney and YouPorn? Disney wants you to hate your stepmother.
- [02:04]
Michael Lewis
Go, Go Go.
- [02:15]
Scott Galloway
Welcome to the 328th episode of the Prop GPOD. In today's episode we speak with Michael Lewis, the host of the podcast against the Rules and New York Times bestselling author of several books including the Fifth Risk, Flash Boys and the Big Short. We discussed with Michael the state of sports betting, the challenges young men face, and the controversy surrounding the book Going Infinite, which explores the rise and fall of Sam Bankman Fried. I really enjoyed this conversation. He's a very simply put, Michael is a great storyteller and has written some of the kind of iconic books of our Time. Okay, what's happening? Home in London before heading to South Africa for the holidays. I'm super excited. I'm taking my sister and her family. My sister is turning 50, which in the Galloway household means she's turning 40 and love hanging out, you know, it's wonderful. So my sister and I never lived in the same household. I was raised by a single immigrant mother. My dad, that was my dad's second wife, as far as we know. Pretty sure there was another one in there that we don't know about. And then he started his third marriage while he was married to my mother. Bad form, bad form. And he married Linda, who is Ashley's. They had a daughter and that was Ashley. And Ashley and I always got along, but part of it was we didn't live together. So we were just kind of, you know, it was 10 years difference between the two of us. And as we got older, we became kind of. It was sort of fun to just sort of wake up and realize you had a sibling that you got along with and you still felt that familial bond with. And we had been close siblings. It's always struck me how many siblings don't get along. And I think that's one of my biggest fears about my boys is they're going to grow up and for whatever reason not be close. But I found that not living with my sibling and then waking up and finding out you had this intelligence, intelligent, interesting, nice person who felt a bond with you was really wonderful. She's also been key in helping take care of my father. Anyways, I am super excited about going to South Africa. I love Africa. This will be my third time. And people say, they say, don't say Africa. That's like saying North America. Every part of Africa I've been to, I've really enjoyed. Anyways, moving on, major shake up in the advertising world. OMNICOM announced a 13 and a quarter billion all stock deal to acquire its rival Interpublic Group. The deal would create the world's largest advertising business, merging the third largest ad buyer, Omnicom, with the fourth largest, Interpublic. According to 2020 figures, the combined entity would generate over 25 billion in annual revenue, surpassing competitors including WPP and Publissy, by the numbers. Let's look at it. WPP registered 19 billion, Publisi 16, Omnicom 15 and IPG 11. This is what happens when there's essentially a tectonic shift away from your sector. And that is the first thing that happens is cost cutting. The second thing that happens is consolidation such so you can bulk up, which is effectively a way of cost cutting, because then you only need one headquarters, one cfo, one admin staff. The modern ad conglomerate was sort of forged by Sir Martin Sorrell, and it was the following. These are good businesses, or at least they used to be the ad agency business or the agency business, where companies would think, all right, we're intel. We're not that creative. We get engineers to come work here. But we're not about making commercials or designing logos or putting on conferences or buying keywords or what have you. So we're going to outsource this part of the company. And we need to find really creative people who see all these types of ideas and played with the wrong toys or the right toys. Were those people that decorated their desk in funky shit, or you went over to their apartment and their apartment just seemed cooler than yours, even though they made less money, those people, and we need to outsource it. And from 1945 to 1995, the algorithm for printing money or creating shareholder value was the following. Mediocre shoe, salty snacker car, and then wrap brand codes, or these amazing brand codes around it of masculinity, maternal love, European elegance, American macho, whatever it might be, to be smart, to be practical, whatever it was. And the thing about brand building was it was the ultimate strategy because the sword around building a brand was so incredibly sharp. It was such valerian steel. And it was specifically not the creative, but the fact that you could consolidate the market and reach people with these pieces of creative that created these intangible associations wrapped around a mediocre product. You could find 80% of all of America in one of three places, NBC, ABC, or CBS for five hours a day. So we could build these brands. So essentially, the ability to find a mediocre product and build amazing associations around it such that it became not $8 of leather and laces, but 140 bucks of being like Mike or not 20 cents of peanut butter paste, but $2 or $3 of matern. Because choosing moms choose Jeff. This was the ultimate way to build shareholder value. And you had General Motors, you had P and G, you had Coca Cola. I think the beginning of the decline of the brand age was when Honda introduced a compact car in the US and said, all right, it's not all about branding. It's just about a better car at a better price. And then the big, big unlock or kind of the last nail or what really took the vampire of ad supported or the brand age down or was sort of the wooden stake in Don Draper's heart was the introduction of Google. And that is you no longer needed to defer to the shorthand of a brand. And a brand is just diligence, right? I used to stay at the Mandarin Oriental. There's Four Seasons wherever I'd go. One, because someone else was paying for it, and two, they always do a good job. Now I want to use my social graph Google AI to find out that the best gym in Europe or in Berlin is at the Sohouse or that I want to stay at. You know, which lodge do I want to stay at in Africa? All of a sudden I'm no longer deferring strictly to the brand, right? I can find. I can do my own homework. And also a big digital unlock. Tesla doesn't need to advertise as much because if you can tune up your electric car over the airwaves, that's amazing. Google Instagram are in fact 10x better products. So digital innovation has made product cool again. Brands are now built by supply chain and innovation and technology that unlocks some sort of product feature that leaves ad agencies, quite frankly, with declining power. And the problem is it hasn't been overnight. It's kind of like the magazine industry. The worst thing that can happen to you is to die slowly. Because the thing about marketing and ad spending is that it's incredibly resilient. It's always been about 1.5% of GDP, but it also doesn't grow a lot as a whole. Google hasn't grown the market. They've just taken tens and now hundreds of billions of dollars out of the ecosystem. It is a bit of a zero sum game, and these guys have been on the wrong end of that. Now, the merger we're talking about here is expected to result in $750 million in annual cost savings. Omnicom CEO John Wren. I met with John Wren liter 25 years ago about potentially selling my brand strategy for Improvito seemed like a very smart guy. He'll lead the new company, which will keep the Omnicom name, the combined company. Interpublic IPG CEO Philip Krakowski will serve as the co Chief operating officer, co officer. That means he's on his way out. Omnicom shareholders will own 60.6% of the combined company, while Interpublic shareholders will command 39.4%. Interpublic shares were up 11% on the news, while Omnicoms fell 6%. Typically, the acquiring company who's on top shares fall because usually people get excited about building a bigger empire and they overpay. Only one in three acquisitions works. Omnicom has tried to do this before. Back in 2013, Omnicom tried a $35 million merger with Publicis, but it fell apart due to regulatory issues. Still, Omnicom CEO John Wren remains optimistic and has said the current regulatory environment is more friendly to business. It's not that they're more friendly to business, John, it's just they realize what trouble you're in and that you need to bulk up or specifically cut costs. The notion that they're going to get in the way of this or they're to have some sort of monopoly power is just insane. Now, I wouldn't put it past the DOJ or FTC because in my mind they do make irrational decisions every once in a while. But for God's sakes, this isn't about monopoly power or controlling the media ecosystem. This is about literally just trying to stay afloat in some if you can't beat big tech, you need to consolidate and get bigger yourself. The deal is expected to close in the second half of 2025. The big question is, will this integration actually succeed? This is the right thing to do. Yeah, you know, IPG's on bottom here. If you're at headquarters in admin in middle management, you're not client facing, you're not ringing the register at ipg, folks. Let's be clear, you're on the green mile. And while John Wren will paint a vision of the future and how there'll be a lot of growth and they don't have an immediate layoffs plan, okay, stick around to get the severance. But be clear. If you're not directly linked to a client or a critical mission critical function and you're making a good living, you're about to be consolidated. We'll be right back for a conversation with Michael Lewis. Support for the show comes from Intuit. If you're marketing to small businesses, then you know that reaching the right companies online can be challenging. Intuit SMB Media Labs is a first of its kind. B2B SMB Ad Network built with first party small business audiences. Now you can connect with the businesses that need your services most. And with Intuit SMB Media Labs, you can reach millions of SMBs effectively and at scale, target by industry size, maturity, location and more across new and existing channels like Social, Programmatic and ctv. Unlock growth opportunities with tailored insights and expand your reach with audiences from Intuit SMB Media Labs. Learn more at medialabs.intuit.com Support for ProfG comes from Miro. If you're a CEO, you understand the challenges of growing a company. One of the issues is balancing the big innovative ideas with actually executing them. Because once you face the challenges of outdated process management tools, context switching, team alignment and constant updates, you begin to lose sight of the big picture and your creative ideas. But now you can take a big step to solving these problems with the Innovation Workspace at Mira. The Innovation Workspace comes loaded with AI enabled tools to help teams get from idea to output faster and it can accelerate you through the full innovation cycle from ideation to execution every step of the way. Plus, the AI summaries can condense documents, stickies and overall board content in seconds and produce retrospective summaries, product briefs, meeting notes and more. It's time to create an intuitive, intelligent innovation workspace that gets everyone on the same page every step of the way with Mira. Whether you work in innovation, product design, engineering, ux, agile or it, bring your team to Miro's revolutionary Innovation Workspace and be faster. From idea to outcome. Go to miro.com to find out how. That's M I R O.com support for the show comes from Skims. Listen, I'm not going to tell you you have to wear underwear. I say live and let live all you commandos out there. But if you're gonna wear underwear then you can't go wrong with the support, durability and comfort you get in a pair of Skims. Skims is creating the next generation of underwear, loungewear and shapewear not just for women, but for every gender, shape, size, you name it. That's because Skims is a solutions oriented company that carefully constructs each garment to fit and even enhance every curve of every body. Our co host Ed tried Skims for himself. I don't really want to hear this, but tell us about your experience with Skims, Ed. Well, they really are in harmony every curve of my body, so I love them. God, really? Really? This is what we do for money. No, let's be very serious. I really love this underwear. I wear them when I work out. I'm a big fan of skims. Yeah, that was a hell of an endorsement and that's why you make the big bucks. Shop skimsmenskims.com let them know we sent you. After you place your order, select podcast in the survey and select our show on the drop down menu. Follow skims.com welcome back. Here's our conversation with Michael Lewis, New York Times bestselling author and host of the podcast against the Rules. Michael, where does this podcast find you?
- [14:36]
Michael Lewis
Smoke Tree Ranch off the side of Palm Springs, which is a gated community created by Walt Disney and some of his pals way back when.
- [14:46]
Scott Galloway
Wow. Let's buzz right into it. In the latest season of your podcast, against the Rules, you investigate sports betting, which we talk a lot about here on the pod, which you refer to as a great social experiment. Walk us through the state of play of this experience and where you think we're headed.
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Michael Lewis
So in 1992, Bill Bradley, then a senator, created essentially a federal ban on sports betting. It exempted Nevada, but basically it was against the law. And the Supreme Court repealed that in 2018. And the new law of the land is states can legalize it if they want to. And 39 states have. And about two thirds of the American population has access to sports betting on their phones. About one third still doesn't. And the industry here is dominated by two companies, FanDuel and DraftKings. They have a little hard to say exactly, but say roughly 70% of the market. And they were before they were sports gambling companies, they were daily fantasy sports companies, which gave. They actually was the perfect thing to be before mobile sports gambling is legalized, is a daily fantasy sports company. You know, all the customers, you have data on all the customers. Sports bets in America have skyrocketed. It's a little, again, a little hard to say because it's hard to know what numbers to trust because there was an illegal market that presumably is not quite as big as it used to be. But it's gone from the legal market, has gone from a few billion to over 100 billion a year. And there's just starting to be some academic research showing the social effects of this. I mean, it's kind of cool. This, the way it's rolled out has created these natural experiments you have because you have states that are side by side. One has legalized it, one has not legalized it. So you can sort of, you can sort of tease out the effects of legalizing it. But bankruptcies are up, savings rates are down. If it follows the path that it followed in the United Kingdom, in Australia, suicide rates will be up. So there's some social costs to it all. But I think like, really early days, I mean, you know, it's only been legal for six years. There were companies that have really only been up and running in most states for just a few years. It's kind of not hard to make some predictions about where it's going, but it's not there yet.
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Scott Galloway
So I'm a glass half empty kind of guy. But you cited some stats. I've seen 20 to 30% increase in bankruptcies and states that legalize it. I see young men with kind of less structure in their lives who are more prone to addiction. I think six out of seven gambling addicts are men. My understanding is gambling has the highest suicide rate because if you're addicted to meth, people figure it out and try and intervene. You can get in way over your skis with gambling and nobody knows and you decide there's only one way out. I'll use an academic error. I think this is a fucking disaster. Your thoughts?
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Michael Lewis
Yeah, I'm totally with you. This is why I was drawn to the subject. I couldn't believe. Well, look, once it's legalized, I'm a little, a little shocked by the insensitivity to the public health crisis it's going to trigger because it's essentially Wild west in how you can get to the customer. And they aren't, you know, the sports gambling companies, they were mistaken for casino companies when that people kind of thought, oh, it's going to be like a casino business. So that they kind of vig what the house takes about roughly 5%. It's always been kind of 5%. It will remain kind of 5%. This number keeps going up with these companies. They're like, it's like at 15%. And effectively what they are doing is mining the entire US population for people willing to make stupid sports bets. And they have a finely honed ability to identify anybody who actually knows what they're doing. Like the sharp gambler, someone who actually might have some edge in a sport and toss them out or limit them to the point where they're effectively tossed out so that their business is built on people who don't know what they're doing. And it's further, in a way that casinos, when you're in a casino, of course, it's manipulating you in all kinds of diabolical ways, but when the casino's in your pocket, it's like your whole life is in the casino kind of thing. And they have an ability to sort of like nudge people into doing stuff that they just wouldn't think to do. It is. And it's making the dumber and dumber bets. When you kind of think about, okay, like, what's the disaster going to look like? It's not just men. It's young men. Young men. Young men are the real target. The Lancet, the medical, British medical Publication just came out with a study that said, I mean, this number is so high that I want to just pause before I say it. But the 26% of young men who are exposed to gambling develop some sort of gambling problem. That seems very high. But even if it's half that, it's like the ncaa, whose new president, Charlie Baker, was just shocked by the gambling activity he was seeing on campuses, commissioned to study to see how many people were doing this. And more than 60% of young men on college campuses are sports gambling. So you do the math. It's just like you got. We're like, it's almost like we're creating a pool of future gambling addicts. And you're right. It's very interesting. You're right about like, when you think about what's going to stop this train, if you compare it to like opioids, like, opioids was able to run for 20 years before anybody really put a stop to it. And 750,000 people die. And it was about as visible an epidemic as you can have. It's invisible. You don't see what's happening to people until. So you wonder if it takes 20 years for the society to get its hands around the opioid industry, how long is it going to take it to get its hands around the gambling industry? So I'm, I, yes, I agree with you. It's like, how on earth do we let this happen? But it's of a piece with other things we have let happen.
- [20:57]
Scott Galloway
I mean, when I think about it, it's not only my fear isn't only about gambling addiction, but when you put kind of an on demand dopa bag in young people's pockets, just as they're kind of hardwiring their brain and learning about life and reward, that we're just setting them up to be just fucking dopam monsters. And if they can't get it from gambling because they run out of money, they're going to find it somewhere else. Have you seen any of. My thesis is we are literally unleashing into the economy, into the world, millions of dopa monsters that are just going to find whatever way they can. Opiates, sex, porn, online shopping. They're just going to be so hungry for that rush because their brains will have been wired to expect that rush, that it's going to have all sorts of ramifications outside of gambling. Am I catastrophizing here?
- [21:52]
Michael Lewis
I mean, it doesn't sound unreasonable to me. My first thought when you started down that little path was it's interesting that sports used to be a place where you learned the slow rewards that come from hard gratification.
- [22:06]
Scott Galloway
Yeah, yeah.
- [22:07]
Michael Lewis
You learned the opposite thing. And that we're turning this mechanism that used to take young men and teach them a certain lesson. Were you taking it to teach a different lesson? So it was disturbing enough to me that I have a 7, my youngest is a 17 year old son. Like I gave him some money and adult supervision so he could learn how to navigate this world. Because it does feel like not only are we creating a world of dopamine addicts but. But the signal you send, especially the young men because they're so susceptible to this is the world actually doesn't give a shit about you, that it's out to get you. When I got into this, when I started working on the story, what motivated me was the book I wrote about stuff I'd learned on the book I'd written about the pandemic. I got interested in it because the US response in the beginning was just so appalling. We had 20% of the world's deaths with 4% of the world's population in the first six months. And I learned in the process that this was that in the few years running leading up to the pandemic, we'd had experienced a decline of life expectancy in three straight years and that had not happened since 1918. And I thought, well, the pandemic's happening in the context of a society that's already not taking care of its people. There's some basic failure is occurring and this feels like part of that. That it's like it's a public health problem and that it's not that hard. Even if you can't do anything about legalizing sports gambling, it's not that hard to do some things to blunt its effects. So here's my solution. I'm trying to work within the constraints of the society. I don't think actually me going off about how diabolical it all is is going to help anything. They're doing something that I think is kind of interesting. The company, the sports gambling companies. They are because they're so good at chucking out of their businesses anybody who knows what they're doing. They're isolating people who don't know what they're doing. So by definition, if you have an account in good standing at FanDuel and DraftKings and you're doing a lot of sports betting, you have signaled to the world you don't know what you're doing. I think that if we get that message out and that if you say like if you're looking for someone to manage your money, the first question you should ask them is they have account in good standing at FanDuel and DraftKings. If they do, you should never give them your money to manage like that. If you make it if you make it a point of shame that you're in good with the industry that you might stigmatize it in a way that makes it less dangerous.
- [24:55]
Scott Galloway
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- [28:28]
Michael Lewis
I didn't write it until after it all collapsed. When I sat down to write the first words, there wasn't much I didn't know had happened. I mean, very little came out in the trial that wasn't already kind of known. But it is true that I was there, a fly on the wall from kind of end of 2021 through the collapse of 2000 in November 2022. And if you'd have said he has the money, the customer's money in Alameda, I would have said, you're insane. There's no way that would be so dumb. So I did poke. Everybody did this. Everybody who saw the structure of the business. He's got his own private hedge fund on the our trading firm on the side of an exchange, and he owns them both. I did ask Lots of questions about conflicts of interest. But what I imagine would be the problem wasn't the problem. I imagine the problem was that his trading firm would have the same sort of privileged access to the exchange that high frequency traders get on the New York Stock Exchange and privileged access to data and so on. So front running, whatever. And that wasn't the case. I did not see that like oh yeah, the money's in the wrong place, so that's true. Did I in retrospect think I should have seen it?
- [29:54]
Scott Galloway
It.
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Michael Lewis
Not really. No one else saw it either. You know, there wasn't the interesting thing. There are many interesting things about the story but one interesting thing is yeah, a lot of people said I wonder if they're shady like ftx. But that's the, in crypto that's easy. Like as a heuristic if you're, if you're a successful crypto business, you're, you know, you're largely unregulated and you're 26 years old and no one's paying that much attention. The specific criticism oh, he's got the customer's money in his hedge fund. No one said zero. People said so. Not even. And he had whatever a hundred and something professional investors who owned a piece of him and they didn't say it. So I don't know. I don't know. That would have been very hard. I don't know how you would have detected that.
- [30:44]
Scott Galloway
Well, a couple follow up questions there. So when I'm sort of follow the story a little bit from an adjacent I actually boss claims against No, I know this.
- [30:52]
Michael Lewis
You bought the claims and if I could have, I would have.
- [30:56]
Scott Galloway
Oh really?
- [30:57]
Michael Lewis
Oh my God. I mean it just seemed pretty obvious that they weren't worth 10 cents on the dollar.
- [31:02]
Scott Galloway
Well, I wasn't that smart. I bought them for 23 cents. But because it's better to be lucky than good because of the surge in crypto they're now probably the payout's going to be somewhere between 120 cents on the dollar and 150 cents other than patting myself on the back for one of the few good investment decisions I've made in the last year if everyone gets their money back. Now granted, he committed fraud. He took customer accounts from people who thought they were investing, putting their money in a deposit, not even investing. And then he used it to take risks they had not signed up for. So that's illegal. But one given that everyone's given their money back, I don't understand the difference between what Sam Bankman Fried did. And what John Corzine did at MF Global, I think it was called.
- [31:45]
Michael Lewis
You're taxing my memory there. But yes, remember that.
- [31:48]
Scott Galloway
Yeah, yeah, do that same thing.
- [31:49]
Michael Lewis
Can I back you up a sec? Because I really wanted to ask you about this. I took a keen interest in the market, in claims on FTX because it seemed really clear to me that what the bankruptcy people were saying are signaling that it's like it's this dumpster fire and there's nothing there and boy, just be incinerated all this money. That that wasn't true. And. And it was amazing to me how cheaply these things traded at first. How did you even think to buy claims?
- [32:24]
Scott Galloway
I'm fascinated by. I've invested across every asset class from angel to venture to growth to public, and by far the best asset class is distress because similar to biology, people don't want to hang around old people. So the best businesses are businesses dealing with old people. And the best asset class is distress. So I look at bankruptcy filings and I was fascinated by this. I got the bankruptcy filing from the court, I read through it and in the bankruptcy claim it listed all their assets, cash, some bitcoin, et cetera. And one of the assets that just popped out to me is they had invested $500 million in Anthropic. Anthropic is the number two AI company, LLM. And I couldn't find for the life of me what the valuation was that they invested at, but I figured it was somewhere between 3 and 5 billion. So I took the most conservative, which meant number, which meant that one of the things that FTX, the bankrupt FTX, had, that would ultimately distributed to the claimants was 10%, I assumed, of anthropic. I valued anthropic at 4, at approximately 40 billion. So I thought the stake is worth 4 billion claimants, total claimants, 9 billion. So just at stake in anthropic, I valued at $0.44 on the dollar. Claims were selling for $0.22. To me, this was the easiest trade I ever made.
- [33:44]
Michael Lewis
And why do you think other people didn't make that trade?
- [33:48]
Scott Galloway
Occasionally you find something. I don't know. This doesn't happen to be very long. I'm like, oh my God, they've missed it. And that is, people didn't see the $500 million number. They could see the $500 million. What they couldn't see was the numerator or the denominator, and that was the valuation that they invested at. And I thought, there's no way they don't own at least 10% of this thing. And then you have to value another unknown. And that is, what is that 10% now? But I thought it's worth probably 40, a minimum 23 cents. So all the crypto, all the cash, everything else was just going to be gravy.
- [34:23]
Michael Lewis
To my bewilderment. People weren't paying attention. I mean, what he did, he didn't take whatever it was $11 billion of customer assets and spend it on blow and hookers and private jets. He put 5 billion of it into venture capital investments, and this was just one of them. And yet there was this pile of stuff. And I keep waiting for someone to come and ask the question, how good a VC was Sam Bankman fried? He was doing it. How well did he perform compared to his peer group? Because he has a piece of. You may not even know this. He has a piece of SpaceX in there. He has it through Michael Kivas. So you don't see it, but he's got pieces of some really valuable stuff, even if crypto goes to zero. And never mind all the crypto businesses he bought. So one last question on this, because I'm curious, because I haven't. Because I knew you made this trade. Someone told me about you being in the market, and I thought, well, that's kind of cool. Did you worry at all that the bankruptcy process itself was going to incinerate your profits? That it was so expensive, it would be so expensive that you wouldn't end up. See, you should have seen the money. But in the end, it would go in the pockets of Sullivan and Cromwell lawyers.
- [35:45]
Scott Galloway
That's a great question. But part of the analysis I did when I put together the spreadsheet was it's the same administrator that handled Enron, and I estimated the cost at about a billion dollars. And I thought, okay, if just the anthropic stake is worth 4 billion, the coins are worth 3. I saw 70 cents on the dollar and then take out a billion. So 60 cents on the dollar and then what it ends up, it looks like the payout and a lot of the stakes we're talking about have already been sold. But it looks to me what they're saying. The court administrator is saying that they now think they're going to get somewhere between 120 and 160 cents on the dollar. A lot of that because crypto has surged. But the lesson I take away from all of this, and this is a larger lesson about investing in life, is the greatest return on invested capital is inversely correlated to how sexy something is. This isn't true of sports, which you know better than me because there's no shortage of billionaires with midlife crises, and it's a regulated monopoly to control supply. But generally speaking, outside of sports, the best asset classes are the least sexy. And this was a really unsexy investment. Everybody thought this thing, it had fraud, it had crypto, which was out of vogue. This thing was supposedly going to zero. And any reasonable diligence said, no, this is all upside.
- [36:59]
Michael Lewis
I didn't really answer your question about what was different from between what he did and what John Corazon did. And you've taxed my memory about what John Corzine did. But I do think. What do I think? I think that there's a kind of misapprehension in the general tenor of the response to Sam Bankman Fried, that the IT people still talk about it as if what he did was intentionally set up a business to steal customer money. Stole the customer money, and the customers don't have any money now. And what he actually did was set up a business that was. I mean, it was jankily set up in the first place, but it was clearly not start. Didn't start as a fraud, was in and of itself a successful business if he'd just not done the idiot things he'd done with his hedge fund and then got himself in a pickle In June of 2022 when crypto lenders asked for the $10 billion they'd lend him back. And instead of just telling them, I don't have it, I put it in VC investments, use the customer money to fill the hole. And that was a really stupid thing to do. It is fraud, but it's different than like evil person sets out to do evil. So how I feel about it, I feel sad about him mainly. And I think that what it is like the vice, the character flaw, if you will, or the pattern, it's more the pattern in his character that leads to this behavior. It was. That was visible in every other aspect of his life. And it was a pattern of foisting risk upon other people without their permission. And he did it. He does. He did it over and over. He did it in his romantic life, he did it in his friendships, and he comes by this vice honestly, I think he himself is sort of numb to risk and kind of thinks he's right all the time anyway. So he didn't actually probably completely grok the risk that he was foisting on others. I thought, this is all going to work out. That was stupid and a crime. But I can understand how he got there. And I do have a problem with 25 years in jail. I think like, okay, jail, that makes some sense. But I don't know how you even measure these things.
- [39:18]
Scott Galloway
But it's like 25 years for a guy like that is almost a death sentence.
- [39:23]
Michael Lewis
Yeah. So I just don't. I think that's excessive and I don't get it. But, but people will argue with me.
- [39:28]
Scott Galloway
But I want to put forward a thesis. Because you're a storyteller and just love the way you think through stuff. I would argue, and I want you to respond to this thesis that the difference between playing golf at Centennial and going to Wimbledon, which I imagine I would be doing if I were John Corzine right now, I don't see a lot of difference in the criminal behavior here. The difference is brand management. And that is what you have with Sam. Bankman Fried is a guy who had this kind of floppy, I just rolled out of bed crypto thing. He purposely set up this organization in the Bahamas which felt sketchy. He was sleeping with and doing drugs with his coworkers. He decided to go on the most ridiculously ill advised apology tour which entirely backfired. Whereas Corzine listened to very smart people who said shut the fuck up. Nobody speaks to anybody but your lawyers. Go quiet. Act like the victim. You didn't know what was going on. Act contrite. You were a terrible fiduciary. You had no idea. As opposed to going and speaking to Andrew Ross Sorkin in cargo shorts. In crypto, the difference between Corzine again going to Wimbledon and Bankman Fried with a life sentence is poor communications and brand strategy. Your thoughts?
- [40:46]
Michael Lewis
Well, you're absolutely right. That's that the way he handled it from the minute it all fell apart was catastrophic. You got to remind me what John Corzine actually did, because I don't remember.
- [41:00]
Scott Galloway
MF Global customer deposits that ends up were being used to make speculative investments in the market. John Corzine, my understanding is thought interest rates were going to head one way. And he claims he did know these deposits were being commingled. It was pretty much the exact same crime. And Corzine got banned from the industry or you know, paid a fee. MF Global, I think, went away. But these things, you know, tomato, tomato, as far as I can tell. And one guy's got a life sentence and the other's at Wimbledon. I don't even know who watches tennis, but to me it Speaks to the notion of public perception.
- [41:34]
Michael Lewis
It also speaks to the moment that there's a frustration with the ability to get our hands around the necks of rich people who do bad things. And when you get a live one now the. The sort of. The speed with which the justice system leaps into action is incredible. Sam was really easy to prosecute. You know, he was just like.
- [41:58]
Scott Galloway
He gave him everything.
- [42:00]
Michael Lewis
He gave him everything. So this is. So think about this. I always thought myself just short of thinking he has a death wish because his behavior kind of suggests it. And he. Even when things were good, he was always extremely vulnerable. Like no bodyguards. No. You know, you could sneak into his office any hour of the day. You could. He really was. He was. He has this sense that, like, he doesn't protect himself almost willfully. And so that just extended into what happened in the legal process.
- [42:34]
Scott Galloway
So, Michael, I love this. And you're a fascinating storyteller. Just a couple questions to wrap up here. I find one of the most fascinating characters in all of us was. Is it Carolyn Ellison? Caroline Ellison.
- [42:46]
Michael Lewis
Caroline Ellison.
- [42:47]
Scott Galloway
Any inside? A lot of people didn't think she ended up being what my description or I think the Southern district called her the ultimate perfect example, quintessential government witness. But they put her in prison. We know a little bit about Sam. We know almost nothing about her. What were your impressions? Or can you provide us some texture on Ellis?
- [43:07]
Michael Lewis
She was a math kid who thought of herself. I think she's kind of. There was a bit of a split personality thing going on with her. She had a lust for a stable and normal life and at the same time thought of herself as someone who would do radical and crazy things. And was she in college joined the effective altruist movement and seemed to be kind of all in on that. And I take she was very susceptible to the charms of Sam Bankman. Fried, here's texture for you. She told a colleague. This didn't even make the book. But she told a colleague that even after she and Sam had broke off their relationship, it was worth her having sex with Sam because it made Sam more efficient. And making Sam more efficient was the best thing she could do for mankind. Because Sam was the person who most likely to save humanity. So that gives you an idea of.
- [44:05]
Scott Galloway
How she ends up. I'm going to try that at a bar. Just this. You owe this to. The world will be a better place if I'm more relaxed tonight. So this will be the last question I promise you. Have I look at. I mean, granted my idols are different than Most people's. But I look at you and I think, I want to be this guy. You're just doing cool shit, telling great stories, writing interesting books, going to movie premieres. I think you make an exceptional living. But by all, at least from an exterior perspective, you're in a great seat. We have a lot of young men and women who listen to this podcast. Can you give us any one or two pieces of advice for someone who looks at you and thinks, you know, I'd like to be in that seat? Were there any things that you wish you'd done more of or less of? What advice would you have to your younger self?
- [44:53]
Michael Lewis
Well, first off, I never thought that way about what seat I wanted to be in. I never thought I want to be that person. I always just wanted to be me. It was like the best me. And there were things that made me feel the best me. And writing was one of them. Writing was the big one. And I just thought, I've got to do this. So not trying to be someone else would be one of the first things I would say. Another thing that led me to, like, lots of the good things that have happened in my life, it's related. It's like not paying attention to what you're supposed to be paying attention to. Like what everybody else is paying attention to. If everybody else is paying attention to it. It doesn't need your attention kind of thing. What needs your attention is the thing that you're interested in that no one's paying attention to and no one encourages you to pay attention to, like your FTX investors. That it's like, oh, there's something here and I really care about it. And if you can find that and nobody else is there, that seems like a lonely place, but it's the golden place. And you gotta like lean into that rather than lean out of it. Like, learn to recognize that moment where, God, I love doing this thing. No one is saying, I should be doing this thing. No one else is doing this thing. But I love it. Go with it. Go with that feeling. It's great for an investor, it's great for a writer, but I think it's great, great beyond that. It's sort of like you're arbitraging your personality against the world that you are finding where you are special in the level of interest you have in something. And that's when I find my subject matters are the most exciting to me, when nobody. The thing that troubled me most about Sam Bankman Fried as a subject matter is I was genuinely interested in him right from the moment I met him. But it worried me that so many other people were. And the only thing kept me going was that I had this privileged view of it. But what I really like with the subject is like the Oakland A's, where nobody gives a shit about them, but I see there's something great there. And that's the stuff. It's like that's when you know you're in the right place. It's like you're there for some genuine reasons because there's no, no ingenuine reasons to be there.
- [47:08]
Scott Galloway
Arbitraging your personality against the rest of the world. I love that. Michael Lewis is the host of the podcast against the Rules. He's also a New York Times bestselling author of several books including the Fifth Risk, Flash Boys and the Big Short. In addition, some of these have been made into great movies. The Big Short, Moneyball and the Blind side All nominated for Academy Awards. Grew up in New Orleans and remains deeply interested and involved in the city, but now lives in Berkeley, California Alma mater Go Bears with his wife Tabitha, Soren and their children. If I could give my kids any skill, Michael, it would be your skill. And that is, you are a fantastic storyteller. Really appreciate your time.
- [47:46]
Michael Lewis
Thanks for having me. Scott.
- [47:59]
Scott Galloway
Out there of happiness say yes. I went shooting this weekend and when I say shooting, I mean out to the British countryside where you dress up in this kind of Guy Ritchie like gear. Stayed in an old kind of interesting castle and then in the morning a bunch of Brits took us out and seemed like a lot of them and a lot of dogs and we murdered birds. This is not something I'm into. Let me be clear. When someone described this to me, it sounded like Chinese water torture. But here's the thing. I have some friends in my life that I really like and are wonderful, interesting people and they love it and they love it and you could just tell they wanted to share the experience. So I said yes. And when I had to get up at o dark hundred hours to put on wellies or whatever they're called, and then figure out a way to go like fire a rifle, which I have no desire to do with animals. Anyways, my point is that these experiences really bond you to people. I know these are good friends, but we feel even closer to them now because we got to share in something that they're really passionate about. On the flip side of that, it's something I didn't do, something I was bad at. I really never developed any hobbies in my 30s and 40s. I like movies, I like drinking, I like travel. That's pretty easy to say, but I never really developed a passion for anything. And the thing about being around people that are passionate about something, even if it's kind of old world Britain and these shoots, it's intoxicating just sharing it with them and seeing how into it they were. The majesty, the detail, the clothes, the technology, the history. Say yes. And if you find something you like, then love it and lean into it. Because at some point you're going to get the chance to share it with people who have no interest in it, but they'll be interested in it because they're interested in you. And your passion will shine through. This episode was produced by Jennifer Sanchez and Caroline Chagrin. Drew Burroughs is our Technical Director. Thank you for listening to the Prop G Pod from the Vox Media Podcast Network. We will catch you on Saturday for no Mercy, no Malice as read by George Hahn. And please follow our Profg Markets pod wherever you get your pods for new episodes every Monday and Thursday.
- [50:06]
Michael Lewis
Amazon Q Business is the Generative AI Assistant from AWS because business can be slow, like wading through the mud. But Amazon Q helps streamline, so tasks like summarizing monthly results can be done in no time. Learn what Amazon Q Business can do for you@aws.com learnmore that's aws.com learnmore.
- [50:36]
Scott Galloway
Successfully.
- [50:37]
Michael Lewis
Reaching the right small businesses can be challenging.
- [50:40]
Scott Galloway
Intuit SMB Media Labs gives you the power to do more by connecting you with the small businesses that need you most. Connect with an audience of 36 million, unlock growth opportunities and expand your reach with tailored insights from Intuit SMB Media Labs. Learn more@medialabs.intuit.com.