American Dream: EDR, BIS, PILOT

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What if Matt and I talked super fast, but then you slowed it down to make the podcast longer?

You could pitch me down so I sounded like this.

God.

Wouldn't that be good?

You sound like a fancy man.

I am a fancy man.

Wow.

Hello, and welcome to the Money Stuff Podcast, your weekly podcast where we talk about stuff related to money.

I'm Matt Levine, and I write the Money Stuff column for Bloomberg Opinion.

And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

What are we talking about today, Katie?

We're going to talk about wrestling.

And fighting.

And fighting.

And we're going to talk about private credit ETF liquidity, a frequently visited topic on this podcast.

And then we're going to talk about the Mirage of the American Dream.

Yes, exactly.

So let's get right into it.

This is complicated.

We're talking about Endeavor.

We're talking about TKO.

We're talking about Silverlake.

Can you explain, first of all, the ownership structure of what we're talking about?

Okay, so Endeavor is like a talent agency slash media behemoth.

It's like Ari Emmanuel's talent agency that became a giant thing.

And one reason it's a giant thing is that it owned WWE World Wrestling Entertainment, which then merged with UFC, the Ultimate Fighting Championship, to form a giant fighting complex.

And that fighting complex is called TKO, is the name of the company.

And it's now a public company.

And Endeavor owns a little more than half of it.

And so Endeavour is a company that owns a little bit more than half of another company.

They're both public.

Endeavor is public.

TKO is public.

Endeavour is like 70% owned by Silverlake, the private equity firm.

Right.

Silverlake has decided it wants to take Endeavor private.

It wants to buy the shares that it doesn't already own.

And it negotiated a merger with the board of directors and it agreed to pay $2,750 per share for the remainder of Endeavor.

That happened like a year ago.

They're working to get closing.

And what has happened in the interim is that the stock price of TKO has gone way up.

So what that means is that Endeavor owns more than half of TKO.

TKO has become a lot more valuable.

That means that Endeavour has become a lot more valuable, or you would think that would be the case.

And so all the shareholders of Endeavour, who are not Silverlake, say, well, you agreed to pay $2,750 a year ago.

The company is more valuable now.

We want more money.

Silverlake has said, no, we agreed to the deal of $27.50, and that's what we're doing.

And the shareholders are revolting.

They're saying they're going to demand appraisal, which is like in Delaware, if you don't like a merger price, you can go to a judge and say, this was an unfair, too low price.

I'd like more.

And the judge can say, yes, here you go.

In recent years, it has been tough to win appraisal cases because usually the judges are like, no, for complicated reasons we can get into.

But here, it's an unusually easy case because they're like, look, most of this company's assets are this public company.

The shares have gone up.

So we know it's worth more than the agreed deal.

So you should give us more money.

I have two questions here.

One is that, I mean, you write and you just said that it used to be easier to win appraisal cases.

You wrote that it changed in 2017, which seems, I can't, like, I can't think of a catalyst.

Like, why did it change in 2017?

There's kind of two points here.

So, one is like, Delaware judges are experts in corporate law and banking and mergers and see themselves as being expert in knowing how companies work.

And so, it used to be you'd go to a Delaware judge and say, This company is worth more than the acquirer paid for it.

And you'd present like your discounted cash flow model, and the acquirer would present their model, and there would be an argument, and the judge would think about all this and be like, You're right, it's worth more.

And people got kind of annoyed with that and said, why should a judge get to decide what the company is worth?

And what happened is that like 2017 is like the turning point that people point to because it's a big case, the Dell by Michael Dell Bob Dell.

A judge said, no, he underpaid for it and he awarded more money.

And then the Delaware Supreme Court reversed that on appeal and said, basically, like you should give more weight to

objective facts like the company ran a merger process and the highest bid was what it got, right?

the company's stock trades in the market and you can sort of look at the stock price and say that's a pretty good indicator of what the company is worth and so basically since Dell

there's been less of an emphasis on Delaware judges listening to arguments about what a company is worth and like making their own decision and more of an emphasis on like

what the market says the company is worth is like most of the time pretty good evidence.

So it's not like you can never have appraisal anymore.

It's like it's just like a little bit like a higher bar to prove that the company is worth something other than what the market says it's worth or what the merger says it's worth.

And that's what makes this case unusual because here the disgruntled shareholders aren't saying, oh, we want you to take our evidence of value rather than the market's evidence of value.

They're saying, no, no, like the market price says this company is worth more than Silver Lake is paying for it.

And Silverlake is the one saying, no, the market price is fake.

Don't look at it.

Well, do you say that this is a pretty straightforward case of appraisal, but couldn't you make the case that Silverlake just made a good deal here?

That they saw that this company is...

That doesn't matter.

That doesn't matter.

Like, yes, absolutely.

In the ordinary course of things, like, they agreed this deal a year ago.

If you're like, okay, you agreed on a deal a year ago, and since then the market has gone up, you should get the benefit of this.

Yeah.

And like, right.

As a matter of like merger practice, Endeavor shouldn't be able to back out of the deal now because the market went up, right?

Yeah.

But that's not how appraisal works.

Like appraisal is just like a thing in the law.

And the thing says, you know, the shareholders are entitled to the fair value of the company at the time of the closing of the merger.

So, like, technically, they're entitled to this.

Okay.

It's just like, this is like a weird element of law that people tend not to think that much about the difference between signing and closing.

But here, the company has gone up a lot between signing and closing.

Actually, it's gone up so much that I did some reporting for this podcast.

Usually, I just show up, but in this case, I asked

Keith Orangannathan of Bloomberg Intelligence basically why have TKO shares gone up so much since Endeavour agreed to that deal with Silver Lake?

It was in April 2024.

Her answer was they have a big UFC media rights deal with Disney that is expiring at the end of 2025.

There's reports that are suggesting that they're asking for a doubling of yearly fees to a billion dollars, which would be substantial.

There's also a little bit of a Trump effect, not taking

UFC, you know, seems like the sort of thing that would thrive.

Yeah, he's shown up at wrestling matches.

I thought that was a little bit interesting because there's no one closer to Donald Trump right now than Elon Musk.

And Elon Musk obviously has had the opposite experience in the public markets, at least with Tesla.

Yeah.

Right.

It's interesting.

Like, you think about the stereotypical Tesla buyer from three years ago and how they would feel about Elon Musk ties to Elon Musk.

Then you think about the stereotypical wrestling festival.

Yeah.

It's like a slightly different demographic.

That's true.

It's totally different markets.

I was thinking about that too.

We had Carson Block on Bloomberg Television.

This is a non-Secuador.

We had him on television this week, and I asked him, Would you bet against Tesla?

It's gone down a ton.

You said a month ago that you wouldn't.

And he said, Is he doing irreparable damage to the Tesla brand?

I mean, maybe, but again, this guy for years and years and years has done nothing but pull rabbits out of the hat.

So we'll see how long this Tesla drawdown continues.

I would never assure Nelon Musk.

Suicide.

But not invest, not advise.

So how does this end up, this Endeavor Silver Lake deal?

You wrote that it closes in the next two weeks or so.

Has an appraisal case actually materialized yet?

No, no, no.

You have to wait until it closes.

Okay.

There's a lot of technical requirements.

One of which is that in this case, you need to have held your shares continuously from February 4th.

So a weird thing is that Endeavor is now trading like more than a dollar above the deal price.

And if you're buying the stock now, hoping to get more money in appraisal, that won't work.

You have to have owned the stock.

Well, I wish you would have told me that an hour ago.

So I didn't really know why the stock is trading that high.

I think one answer is there is some expectation that possibly Silver Lake will raise the deal price, but they've said they won't.

And they've said, not only have they said they won't raise the deal price, they've said if you demand appraisal, and like I read one estimate that like two-thirds of shares are going to demand appraisal.

They say, if you demand appraisal,

we will not pay you anything at closing.

We'll wait until years later when the appraisal case is finished.

And that's a little unusual.

It used to be that that was the norm.

If you demanded appraisal, you didn't get any money when the deal closed.

You waited until you went through your appraisal case.

But one thing that happened is that when you brought an appraisal case, years later, the judge might say, okay, the deal price was actually fair.

You only get the deal price.

You get in this case $2,750.

But you also get interest.

And the interest is at a very high rate.

Like it's at 500 basis points over Fed funds.

And so people would do appraisal cases thinking, well, if I win, I get more money than the deal price.

And even if I lose, I get the deal price plus like extremely high interest.

So it's great for me.

That became annoying enough that it's now become kind of the norm for buyers to just give you the deal price day one and say,

we won't pay you interest on that.

If you later win the case, we'll give you the extra money.

But like day one, you get the deal price.

And Silverlake has said they won't do that in this case, which I think people perceive as like trying to smoke out weak hands, because if you're like a arbitrageure and you have to finance the position for years, you might be like, Yeah, never mind.

Yeah.

But here they're kind of insisting they're not going to raise the deal price.

They're going to fight the appraisal case.

They say that the price of TKO is artificial and like it has to do with arbitrage activity and it's not like a real price, which not a lot of evidence for.

And

Endeavor has itself been buying TKO shares.

So there's some

reason to think it's not a completely artificial price and it has to do more with like TKO's business has been doing well.

Fundamentals, perhaps.

Fundamentals.

I don't know.

I find myself sympathetic to this private equity company.

Oh, yeah, me too.

It's weird that

it's weird that you don't get the benefit of that, right?

Yeah.

And like, right.

And again, like, like in the context of like, if like Endeavor was trying to back out of the deal, you'd be like, no, you, like, you signed a deal.

Like, had like TKO gone down, Silverlake couldn't get out of the deal.

TKO went up, you can't get out of the deal.

It's totally like a reasonable thing for Silverlake to be like, look, we want, we got the benefit of our bargain, but it's not how appraisal works.

I feel like we're going to be talking about this again.

Yeah, I don't know.

I mean,

one possibility is they will bump the deal price a little bit, but there's kind of a big gap between what the arbitragers think this company is worth and what Silverlake wanted to pay.

So they may just fight it for years.

Years of content.

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Well, let's return to something that we have already talked about.

Sure.

And that is private credit liquidity, specifically in ETFs.

I feel like I spent years writing people who are worried about bond market liquidity and making a big joke of it.

And now I feel like I've spent one year of this podcast talking every week about people being worried about private credit liquidity.

And here we are talking about private credit liquidity.

That's true.

Well, the BIS, Bank of International Settlements, is worried about it.

Official worries.

Yeah.

They're coming out with a lot of concerns, basically, about exactly that.

Liquidity, you have this rush for retail cash among just the asset management world, and they're worried that that's going to create vulnerabilities.

I feel like we've talked about this on the podcast before, but I keep wanting to ask you.

Yeah.

Okay.

Retail private credit vehicles have have been a thing for years.

Right.

Uncontroversially.

There is a thing that's called the business development company or BDC.

Yeah.

It is a retail private credit vehicle.

There are lots of them.

They trade on the stock exchange.

They have tickers.

They're effectively a closed-down fund for like direct lending, often middle market, like direct lending.

And so you can buy a retail private credit fund in your brokerage account.

And that's not a liquidity worry.

I mean, it is a little bit like the BI is a little bit worried about BDCs because they're levered.

But fundamentally, a BDC is a closed-down fund, right?

Like, you can put money in, you can't take money out, you can trade shares on the stock exchange, but you can't go to the BDC and say, I want my money back.

And so, the liquidity worry people have is like investors in liquid exchange-traded private credit funds will go to the private credit fund and say, I want my money back.

And the private credit fund will have, will say, we have all these illiquid loans.

We can't give you your money back.

They're all tied up in loans.

Yeah.

And then, like, the world will come crashing down.

But BDCs just don't have that problem.

Yeah.

Go on.

The BIS is worried because there's one ETF.

There's one ETF.

The ETF, you can go to the issuer and say, I want my money back.

My question for you is,

why do we need the ETF?

I understand that in your world, the best of all things is the ETF.

Yeah, for sure.

And I understand.

It's obviously a marketing benefit.

But if you're a private credit issuer, you're like, okay,

the right funding model is a permanent capital closed-end fund funding model.

That technology exists.

We have billions of dollars in it.

Why do we we need to go to the ETF?

You also have interval funds.

You have had ways for retail to access private markets.

Like interval funds, you might be a little worried about liquidity, but it's like a fully closed fund, but you're right.

You have a lot of things that are not ETFs.

Yeah.

You do have ETFs.

Does the world need private credit ETFs?

I don't know.

I'm not qualified to answer that question, but it just speaks to the...

desire among a lot of these issuers and a lot of these private market folks wanting to tap into this new source of demand.

I mean, I know, but like, why is that a new source of demand?

Like, to me, it speaks to the desire of retail investors to have specifically an ETF and not a BDC, right?

I guess I get the ETF technology is a little nicer, but it's like I think it's this is just one woman's suspicion.

I think that's the driving force is that the muscle memory is there.

People know how to get their hands on ETFs.

That muscle memory might not exist or be developed when it comes to BDCs.

Which is just a stock.

It's just the same thing.

I know, but it's just, it's not.

There's a lot of stuff that's like more bespoke.

There's like publicly tradable.

Well, I talk to a lot of asset managers and a lot of asset C-suites at asset management firms, and they always tell me we're wrapper agnostic.

We will pick the product that fits best with the asset class that we're talking about.

And I have the suspicion that for a lot of retail investors or folks who started investing in the last five years or so, basically the post-pandemic period, it's single stocks or it's ETFs.

Like people know how to do that.

They know how to go to Robinhood or Fidelity or whatever platform they use and buy an ETF.

It's simple.

It's just as simple to buy a BDC.

I know, but I feel like the familiarity isn't there.

If you have an ETF that says, I am a private credit ETF, give me a name of a BDC.

It doesn't read as cleanly.

There's so many examples.

Is it true that the words BDC make it sound like something other than a closed-down private equity fund?

Exactly.

So, right.

You could be confused by that.

Yeah.

There's so many examples of tickers that tend to outperform, even though there's a fund that offers the same exposure and it's priced lower, but it's just this fund has a nicer name and it has a more intuitive ticker.

And that's why it tends to get a lot of money.

Because if you launch a private credit ETF, then like...

People write articles about like, oh, the first private credit ETF where it's likely bad.

And the SEC might write a letter basically saying how upset it is that this private credit ETF that they allowed to launch actually launched.

Right.

Or the BIS might write a report.

Something that I thought was interesting in the BIS report is that it's talking about, basically, it's worried that you're going, if you introduce retail into this marketplace, that you're going to one day see this exodus and then you see the illiquidity doom loop that people like to talk about.

And retail.

Redeemable retail, right?

Yeah.

You have locked up retail, but right.

Yeah, I think that maybe they're worrying about the wrong cohort of investors because I don't know.

I think about products that are really popular with retail.

And I think about the average Vanguard investor, for example.

That sort of self-directed mom and pop sort of set or people who are working with financial advisors, there's a lot of sticky retail cash out there.

It's more these ETFs that are used as like trading vehicles or liquidity sleeves, what have you.

That's where you tend to see more panicky outflows than you do with ETFs that are straight up retail products.

Yeah, I think like in general that people are worried about whatever liquidity worries are always like a little bit overblown, particularly when it comes to retail.

Now, ETFs are not a purely retail product, right?

And you can imagine if private credit ETFs became a bigger thing, like some more institutional people allocating money to them for whatever reason is like, you know, index-y private credit exposure and then taking money out in a downturn.

You can also just imagine retail panicking.

Like, I agree with you that like it's often stickier than like the worries that people have, but like it's still a possibility.

To me, like the solution to this worry

is

like, the reason I was never that worried about bond market liquidity is because, like, yeah, you can trade your bonds.

Like, the price will go down.

It's not a big deal.

That's not really true in private credit, or it's not as true, right?

Because you kind of can't trade your private credit.

But, like, one thing we've talked about a lot on this podcast is like, that's going to change.

There's going to be a private credit market.

You'll be able to trade your private credit.

And so there'll be some

outlet for it where if everyone does take their money out of the ETF, there's some way to monetize the underlying holdings so that the system doesn't freeze.

Won't it be fun to find out, though?

Oh, yeah.

It'll be very fun to watch the development of private credit trading platforms.

I was speaking to Mark Lipschultz of Blue Owl a couple of weeks ago at Bloomberg Invest, and I kind of like...

his stance.

I mean, you have the Apollos of the world saying that the private markets are going to become the new public markets, and that's a theme you've written about a lot.

His stance is more private markets should be private markets.

They're not trying to build out a trading desk like Apollo.

I believe that they filed for an interval fund for private assets, but they're not on board with this.

You know, private should be out in the public.

Aaron Powell, Jr.: It is true that

one attraction of private credit to a lot of borrowers is you will have a relationship with a small defined group of lenders rather than like, who knows who owns your debt today, right?

Like that's an appeal to borrowers, and that's undermined if you sort of pull out a trading desk and want private credit to be super liquid.

So it sort of makes sense that a lot of people would not want that.

Yeah.

But I sort of bet on everything becoming traded over time.

Yeah, that does seem to be the future that we are marching towards.

Just a note on the State Street Apollo ETF, there has been a ton of drama over it.

Again, the SEC sent a strongly worded letter, which was fun and unusual.

It really hasn't attracted too many inflows just yet, which

waiting to see if it's illegal.

Yeah, well, not at all.

That private credit.

Well, that's true.

I think it was CFRI to buy a BDC.

It's all private credit.

Jeez, Louise, I get it.

You run a BDC.

Who is paying you?

CFRI did an analysis early in March, so it wasn't quite fair because it hadn't been alive for that long.

But they found that like 5% of its portfolio was private credit.

But it says it can go up to 35%.

We'll see.

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the american dream is a mall in new jersey we barely have anything to talk about but we both love i mean malls in new jersey and so we simultaneously have not that much to say but also a lot to talk about have you been to the american dream mall no

no which is crazy So I drive to New Jersey all the time to go horseback riding.

So I pass the American Dream Mall

probably four to six times a week.

And I always just look at it and I can't believe it exists.

I can't believe it exists.

And it

so many times.

Arguably it doesn't exist for dance purposes.

Well, bring us on in to

this.

American Dream.

It's a mall.

It's so much more than a mall.

We'll get to that.

But it's a mall in New Jersey.

And it took a very long time to develop and its development was filled with drama, some of which I was involved in as a young lawyer.

Yeah, I want to get into that too.

But so as part of like the development, they like got some land from the state and like they agreed to make payments in lieu of taxes, just kind of like taxes to the local government.

And basically the way it works is you develop the mall and you're not making payments because it's like, you know, you're spending all your money developing the mall.

And then you're like, you're running the mall, you're making money, and you start making the payments in lieu of taxes.

And

that was the deal.

And

the company has been running the mall for some number of years now.

It opened in 2019.

Which is an amazing time to open a mall.

It's such a good mall.

And they have not been making the payments and the taxes because they said, no, we're not officially open to the public for business.

Like, sure, some stores are open.

The ski slope, the water park,

some other things.

There's a roller coaster.

There's a roller coaster.

There's Ferris wheel.

But we're not at 100% occupancy, which like no mall is ever at 100% occupancy.

We're not at 100% occupancy, so we're not technically open to the general public, and so we don't have to make the payments yet.

And the local government sued and this past week, the mall lost, and the judge was like, come on, you're open for business.

And so they have to make all the payments.

I want to believe that the judge specifically went to the mall just to check it out, you know?

If you went to this mall.

Which you have.

Which I have.

You would think it's open for business.

It's like a little bit of a weird mall because it's so big.

Yeah.

It's like you kind of feel like there must be thousands of people elsewhere and not here.

But no, I've been to this mall a couple of times and walked through it on the way to the giant indoor water park that is at the mall.

Amazing.

It's so good.

You've shown me photos of this water park and it looks like you're on a cruise ship.

Like it is so

good.

I've also recently saw an Instagram video from a friend of mine who

took her kids skiing at the American Dream Mall.

So did Kim Kardashian.

Yeah, big indoor ski slope.

Big

being relative sure i don't have a great sample size right it's not like aspen

true yeah it's bigger than the indoor ski slope at my house yeah

probably bigger than the ski slope at most indoor malls yes yeah i don't know the world record for i feel like it's in dubai or something Oh yeah, I think there is a big indoor ski slope in Dubai.

Anyway, it's a big one for a mall.

It's a big mall, and it's very much in operation.

You know, it's so in operation that it's open on Sundays, which violates like the local blue laws.

And like there's some reporting that the city of Paramus or somebody is going to sue to make them close on Sundays.

I love that the American dream is not paying taxes and also it's open on Sundays.

It just, and it's in New Jersey.

It just feels all of its

stitches together so deliciously.

And I'm just talking.

I'm just so grateful that it exists.

I haven't been, so I drive past it all the time, and usually I'm alone.

I'm not going to go by myself.

I don't have my horse.

I don't have my husband.

Your horse would like the mall.

Probably.

I mean, he'd probably have a horse.

He probably has like a

paddock.

I mean, hopefully, someone is listening and getting ideas of how to build out the mall further.

I can't believe it exists.

You have your horse on the Paris.

I'm worried though, it'll be too crowded.

Every time I drive past and think about going in, I'm worried that, you know, it just wouldn't even be fun because there's going to be lines for the indoor ski slope.

I don't know.

I've only been on weekdays during school breaks and it's not that crowded.

The water park gets busy.

Yeah, I'm sure it's popping.

Yeah.

But like the mall feels like, you know, it's like a mall.

Why did they change the name from Xanadu, though?

Xanadu is such a cool name.

I don't know, actually, but like when I was a young lawyer, I worked in the sale of this troubled company that, among other things, owned Meadowlands Xanadu, as it was then called.

This was like 15 years before the mall actually opened.

The mall opened in 2019.

This was like, I was like doing it in

2005 or something.

And it became

it became so famously troubled that it's like there's a picture of it on the wikipedia page for the word boondoggle incredible

so i think maybe they were like this is cursed we need to change the name so like people will we need to make people forget yeah yeah if you like went to like a retailer and were like hey would you like to open our store in our mall they're like what mall and you're like metal and sanitizer like ah no right so you have to change the name i think that might be it yeah also just like you know it's like different companies took it over, and like, you want to put your own branding on it.

Yeah, yeah, fair enough.

Xanadu is a pretty good name for them all.

Yeah, pretty good.

I don't know.

Maybe I'll name a child Xanadu.

But also, part of the reason I can't believe it exists is because I've been traveling the well-worn path between Manhattan and New Jersey for my entire life.

And for a lot of my life, this thing was just on the side of the highway, not open.

Famous boondogle.

Under construction.

Amazing.

Yeah.

So I feel like, in a way, like

I'm not sure it exists.

Right, right.

Like, do I truly believe it?

You sort of get the benefit of the doubt being like, oh, our mall isn't open because it's like, it wasn't open for 20 years.

Who would believe it open?

It's only been open for five to six years, right?

Instead of its like 25-year history.

Exactly.

So, I don't know.

Maybe in another couple of decades, I'll believe it truly that it's open.

The largest indoor skiing resort is in Shanghai, our producer tells us.

Wow.

I knew it wasn't here in New Jersey.

Also, thank you to everyone who's been emailing into into the Money Stuff mailbag.

Next week, we're going to be doing a mailbag episode.

So Katie will be off

skiing.

At an indoor ski slope.

Yeah, at an undisclosed location.

Outdoors.

Yeah, an indoor, outdoor ski slope.

And that was the Money Stuff Podcast.

I'm Matt Levian.

And I'm Katie Greifeld.

You can find my work by subscribing to the Money Stuff newsletter on Bloomberg.com.

And you can find me on Bloomberg TV every day on Open Interest between 9 to 11 a.m.

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The Money Stuff Podcast is produced by Anna Mazarakis and Moses Andam.

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And Sage Bauman is Bloomberg's head of podcasts.

Thanks for listening to the Money Stuff Podcast.

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