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Bloomberg Audio Studios.

Podcasts, radio, news.

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 Greyfeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

Katie, what are we talking about today?

We're going to talk about direct TV, buying dish.

We're going to talk about fan duel and gambling addiction.

And we're also going to talk about Apollo.

Hey, Matt, have you ever gotten a really bad haircut?

I've almost exclusively gotten really bad haircuts.

I feel like I recently...

Yeah, you cut that out.

I've recently moved on to getting better haircuts, but for much of my life, I got bad haircuts.

Your last few haircuts, I've said, you got a haircut.

It looks nice.

Thank you.

That's the highest compliment.

It's really easy to tell with men because you have shorter hair.

Anyway, moving slowly along.

So

DirecTV,

paying $1 for Dish

and $9.75 billion of debt.

Or less than that.

Yeah.

Well, go on.

Tell us why.

They're buying Dish for a slightly negative or

meaningfully negative amount of money.

Or they're trying to.

They are trying to.

They're trying to.

So Dish is a company.

Sort of.

It is an entity, but it is owned by EchoStar, Charlie Ergen's satellite conglomerate.

And so EchoStar wants to to sell it to DirecTV.

DirecTV wants to buy it.

But the value of the company is apparently somewhat less than its debt.

So it has like $9.75 billion of bonds outstanding.

And DirecTV doesn't want to pay all those bonds back.

So it wants to buy it for $1,

you know, a check for $1

to EchoStar.

And also for taking on the debt, but taking on less than all of the debt.

And basically, to get the deal done, the bondholders have to agree to a bad haircut, an unpleasant haircut.

haircut.

Yeah.

So we're talking about $1.6 billion worth of haircutting going on.

Yeah.

So like, you know, the bondholders have to agree.

Like, they can just insist on getting their money back.

But if they agree to take $1.6 billion less, so like a total of like $8.2 billion,

then the deal will go through.

And if they say no, then

technically the deal doesn't have to go through.

Everyone understands that this is just the opening of negotiations.

And so what is happening is that the bondholders have said no.

and the way it works is you kind of get a vote so like you know basically you need to get like two-thirds of each series of bonds to agree and so some bondholders have said that they have accumulated a blocking position which means basically they have enough bonds to prevent the deal from going through and they don't not want the deal to go through this will be a better company that is more likely to pay off its debts if it gets more money in and what they want is just get less of a haircut right there's different series of bonds with different maturities that were trading at different market prices And like the longest dated was trading in like the 50 cents on the dollar area.

And they offered to pay it off at 60 cents on the dollar.

And the bondholders would like more than 60 cents on the dollar.

So that's sort of the state of play is they've said no, but it's like an opening of negotiations.

They would like a slightly less worse haircut, something that doesn't look as bad.

I'm resisting the temptation to just spend the whole time talking about my own history of quests for getting haircuts.

You know, I cut hair.

Do you?

Yeah, I cut men's hair.

Okay.

I cut.

Oh, that's right.

I did know that, actually.

Yeah, I cut my husband's hair during the pandemic.

Your Instagram if you're cutting your husband's hair.

My dad, my brother, and my nephew.

My nephew's gotten like three haircuts in his life, and I've done all of them.

This is going to be like the Money Stuff live event.

Yeah.

Actually, I love cutting hair.

I'm always looking for opportunities.

Anyway,

so yeah, Bloomberg News, that, of course, is according to Bloomberg reporting about that blocking position.

Bloomberg also expanded on that in the Brink newsletter, going through the various contentions that this group of creditors have.

First, they contend that they were being asked to take losses as high as 40% of face value.

That obviously doesn't sound great.

While EchoStar owner Charlie Ergen comes out relatively unscathed in all of this.

Yeah, I don't know the full history of it, but like obviously, you know, they're selling it for $0 of equity value, right?

So like it's respecting seniority in the sense that the equity is getting nothing and like there's apparently so little value here that in addition to the equity getting nothing, the bondholders have to take a haircut in order to sort of sell the asset.

Right.

And the fact that the bonds are trading at 50 something cents on the dollar is just that

people did not think there was a ton of equity value here before this deal was announced.

So yeah, like this is a deal where you look at like the trading prices of the bonds and you're like, oh, if we can get this asset for the valuation implied by these trading prices and also paying a dollar to the equity, then it's a good deal, right?

And then you're like, oh, we'll pay a little premium to the values implied by the trading prices.

And like, that's, you know, that's like normal MA, except that here, you know, the thing is underwater.

And so instead of paying off the shareholders, you're paying off the bondholders.

But, you know, you're not paying them that much of a premium to the trading prices.

And unlike shareholders, they have a contractual right to demand their money back.

So

it's a fight.

Well, to that point, one of the other contentions is that some of them argue, and I'm reading directly from the Brink newsletter, some of them argue that the sale of DirecTV for $1 confirms that the company was already insolvent when it completed a contentious deal in January to strip them of their collateral.

If the company was insolvent at the time, that transaction could be voided and the whole plan could be called off.

Yes, but you have like your legal rights, but you also have like

you know, like if you win those arguments, like what, the company goes into bankruptcy?

We won.

Like, yeah, you like,

there is going to be some intercreditor fighting about, like, you know, who gets the collateral or whatever.

But like, I think in general, you would rather have the company be solvent and get paid a premium to the market value of the bonds than have the company not be solvent and sort of take your chances.

But you want to get paid a premium to the market value of the bonds.

And this premium was a little slim.

It's interesting that this might be what kills the deal because I remember when this was.

This is the whole deal.

I know, but people were talking about regulatory concerns.

While was it going to get blocked?

Because you remember the history of these two companies, DirecTV and Dish, they've been flirting with merging for like two decades and that regulators sued in 2002 to block a previous attempt to combine.

Now they're coming back together.

It's sort of like Jay Lowe and Ben Afflick.

And we know how that ended.

They recently filed for a divorce.

Followed that closely.

I don't know.

The world has changed since 2002.

And

the idea that Dish and DirecTV are monopolists in the provision of television is a lot less compelling than it was 20 years ago, right?

I mean, like, who has Dish or Direct TV?

Like, it's just streaming has overtaken them.

And so it is now like these two somewhat troubled players are trying to merge.

Well, that's the thing.

Like, what are we fighting over?

There's some great Bloomberg Intelligence data that shows that together, Dish and DirecTV have lost 63% of their satellite customers since 2016.

That's according to the companies.

And then Bloomberg Intelligence says that nearly 30% of that loss of their user base or 6 million subscribers has been since the start of 2022.

So, I mean, it's ugly.

Like, this is a tough, tough business.

And you're right.

Things have obviously changed dramatically in the past 22 years.

Right.

It's a tough business.

And I mean, trading for lower than the value of the dude, you know, there's maybe something to be done.

Yeah.

The other thing that's interesting is, like, you know, we say like Direct TV is buying Dish, but like, kind of what's happening here is TPG is buying both of them, right?

Like, Direct TV is like an ATT subsidiary that like ATT saw the writing on the wall and sold the part of it to TPG, the private equity firm.

And now as part of this deal, TPG is buying the rest of it and also putting in cash directly to finance Dish like before the deal closes and also buying Dish, right?

So this is like

going from being a big part of two public companies to being a private equity roll-up that,

you know, it sort of sounds like the classic private equity playbook of like a declining business and like, you know, sort of extracting as much money as they can for as long as they can.

Well, I was kind of wondering about the creditor dynamics here, and you wrote a bit about this.

I was wondering if this is like a beautiful moment of like the creditors banding together to stop themselves from being screwed, but it seems like you're saying that things will get ugly between creditors.

No, they're banding together.

It's nice.

But you can't just be like, oh, we want 100 cents on the dollar because there's some risk there, right?

The other thing that I wrote is that Charlie Ergen clearly has some ability to put on past creditors, you know?

But it is interesting to me that this is a private equity roll-up.

What I wrote was that you could have a model that is like an important skill set of private equity is extracting value from creditors, right?

Like they're repeat players at doing liability management transactions.

And if you get good at that, then like you can make a troubled company worth more than anyone else could because you can

make the creditors take back less money.

And if you own a troubled company, you might be like, well, I got to sell this to private equity because they're the only people who can kind of extract some value from it.

Although, here, you know, the equity owner got one dollar, so it's not that much value for him.

Watch this space.

Unless you have anything else to say.

I like that you end every segment with Watch this.

Watch this space.

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Let's talk about FanDuel and gambling addiction.

I really enjoyed listening to this or reading

from the robot told me all about this.

So there's this guy, Amid Patel.

He worked for the Jacksonville Jaguars, which is a football team.

Yeah.

You might know.

I heard of him.

And

he

stole $22 million from the Jaguars to do a bunch of things.

He was arrested, indicted.

He's in prison right now.

He pleaded guilty.

He did a bunch of things with the $22 million.

And the prosecutors, of course, listed them all.

He like bought some fancy watches.

He like paid for trips on private jets with his friends.

Normal stuff.

He put some of the money towards a retainer with a criminal defense lawyer, which is an amazing thing to do with money that you've stolen, right?

It's like, I know I'm going to get caught.

I'm going to hire my...

my criminal defense lawyer in advance so that when I get caught, at least I'll have a well-paid criminal defense lawyer.

Just amazing, like real indication of his state of mind.

He was not like, oh, great, I'm committing the perfect crime.

He was like, oh, my God, I am stealing all this money and I'm going to prison.

Borrowed time here.

So why did he steal all this money, even though he knew it was a bad idea?

Because he was a gambling addict.

Because most of the money that he stole went not to his lawyers or to watches, but to FanDuel.

I read an article saying that he was known as the biggest loser ever on FanDuel.

Like he lost the most money.

And so that was bad and he went to prison.

And this week, the news is that he is suing FanDuel for letting him do that.

And

I have like a lot of sympathy to him.

i have no way of handicapping like how this lawsuit will go i think there's like a real common reaction of like come on man you stole this money you voluntarily betted on fan duel and now you're suing fan duel for letting you but i kind of think he's got a point what is he suing for does he want his stolen money back he wants money does he want his stolen money back he wants money for like fraud damages and right and like his emotional distress he wants he's suing for more than the 22 million dollars yeah i think the number in the lawsuit is like 250 million dollars But, you know, he's not going to get like, I think he'd be happy with some money.

But yeah, I mean, there's a bunch of theories, but basically they're like, you exploited my gambling addiction.

And even though you had policies to not take money from addicted gamblers, you went around those policies.

So there's things like, you know, he had like a VIP host, right?

That was the craziest part to me.

The VIP host that he was texting with.

Oh, yeah.

A hundred texts a day.

Yeah.

Any casino business, right?

Like if you are a whale, if you're like gambling a lot of money, they will do nice things for you.

Like he got like tickets to sporting events and things, but they also have like a customer service representative whose job is to make you feel special so that you gamble more with them.

There's just so many texts.

Like even in the height of my texting days in like high school, I don't think I was exchanging that many text messages.

Well, I think that a lot of his texts were like.

Gambling orders.

Please give me more credit on FanDuel so I can bet more.

It's just so much.

Yeah.

But like also like the texts were like they moved it from the guy's like work account to like his personal phone for like the reasons that you know I talk about a lot when the SEC goes after you know it's like easier to avoid compliance when you're texting from your personal phone.

And like they were doing dummy texts like they were making sure to text from the guy's work account like a few times a day so that compliance wasn't like why did you stop texting with this guy?

Because if compliance saw that, they would know he was texting somewhere else.

But anyway, so like he had this VIP host and the VIP host was like getting around all of, you know, first of all, he was doing it from his personal phone, but secondly, he was allegedly getting around limitations on how much credit the guy could get.

And there's other claims like he was doing a lot of gambling with just his Jaguar's corporate credit card.

And FanDuel is sort of regulated like a financial institution.

It has anti-money laundering requirements.

And those requirements, you know, they're sort of geared towards you should not be taking stolen money.

And because he was gambling with stolen money, he is now arguing, you should have known, and you probably did know that I was gambling with stolen money because because I was, for instance, using my corporate card to make bets.

And you should have stopped me, and I should get the money back because you didn't do the anti-money laundering and know your customer checks.

Which I think is like a really interesting theory that like traditionally

when a bank fails to do its money laundering checks, it will get in trouble with the government if it like allows a terrorist or a drug trafficker to use its payment systems.

But you never hear about like the drug trafficker saying, well, you should have to give me the money back because you didn't do your KYC checks.

But here it's like, I was doing crimes and you didn't check, so I should get the money back.

It's a good theory.

Okay, so he stole the money from the Jaguars, but he was using his Jaguars' corporate card.

That was the theft.

Like, he would just play his bet on sports cards.

He would play his bets with his corporate card.

I feel like that in and of itself should be a no-no.

That's what he's saying.

No, I know, but like the fact that it's a sports organization, you know, like it's a sports thing.

Oh, right, right.

Separately from it being stolen.

Yes, I agree with that, too.

They were like, oh my God, why are we getting millions of dollars from a sports footman?

Yeah, yeah, you're right.

You're right.

That's also bad.

That's bananas.

I agree with you.

Yeah.

I do wonder, so as you write about, of course, this is good business for FanDuel.

I mean, the biggest ever loser on Fenduel is, you know, like $20 million to Fenduel.

But like, how many of him are there?

I'm wondering.

I wonder how many cases like this, this man there are.

Maybe to a lesser extent, but.

I think it's a really, it's a really dicey business right because like there are clearly people who are billionaires who like a gamble who will lose a million dollars oh yeah in a week and be like yeah that was fun and it's fine and like those are the best customers right like those are the customers who can lose a lot of money and not feel it are great but there's not that many of them right then there are the customers who lose a lot of money and can't really afford to lose a lot of money and like you know all these sports books have policies about safe gambling and you know they're in a regulated business and they don't want to look like they are exploiting addicted gamblers.

But clearly they make money by people losing money and the more money people lose, the more money they make.

And not all of those people can afford to lose the money that they lose.

And I've written about there's a subset of sports gamblers who are advantage gamblers, who win, right?

Who can identify exploitable bets and make money at the expense of sports books.

And those people, their problem is that sports books don't like them and won't let them bet very much.

And so a lot of the business of being a professional sports gambler is not knowing who will win, but it's knowing how to bet a lot of money at a sports book.

And there are stories about how people do it.

And one thing they do is they try to look like addicted gamblers because that's what the sports book wants.

So there's a story of like a guy who has a bot log into his.

sportsbook account every night between 2 and 4 a.m because that just looks desperate.

Yeah.

So if you look desperate, they're like, oh, this guy's an addict.

So we'll give him more credit.

And like, he seems to think that that worked.

So there's like this real tension where

these companies really do not want to look like they are exploiting addicted gamblers, but like that is where the money is.

Reading this and thinking about it kind of made me think about

the conversations around Robinhood when the meme stock era was really in full swing, of course.

Yeah, like what is the responsibility of like Robinhood to make sure people aren't trading more than they can afford to lose?

And there, of course, are tragic stories about that.

Yeah.

And Robinhood will tell you that they are, and I think there's a lot of truth to this, that they are sort of a gateway drug to a sensible 401k investing, right?

Like you come to Robinhood because it's fun, and then like it stops being that fun.

And you're like, I'll just put it in like an SP index fund.

You like graduate up.

You just get bored of like day trading GameStop and you put money into an SP fund.

That seems plausible to me.

Because you're like, man, why does the stock

SPX keep beating me?

Right.

So, like, I think there's some plausibility to that.

At the same time,

like, you look at how Robin Hood makes money.

They make a lot of money on options, right?

Yeah.

Like, a lot of money on options, right?

It's hard to argue that like a lot of retail traders are responsibly saving for retirement by day trading options, but that's where the money is for these firms.

I will say, I wrote about like there's a move to make

more

single stock daily expiry options, which I don't want to say is a pure gambling product because I think you could imagine a hedging use for it for somebody, but it's like it's

pretty much a gambling product.

And

the articles I read about it, you know, there's a lot of

push from some market makers to do that because it's a gusher of money.

But Robinhood has pushed back on it because, you know, if single-stock zero-day XPRY options become a big thing, Robinhood will offer them and robinhood's customers will use them and there will be terrible stories and like robinhood doesn't want that headache right they're like we would make a lot of money doing this but we don't want that that looks like catering to gamblers and uh and they have they have like they don't want it you know yeah well it would give us something to talk about on the money stuff podcast uh zero day single stock options yeah because we just talked about them i know there it is

what was it

i mean yeah it's a gambling pilot it's like they expire at four and so like if you're hedging earnings and earnings come at 4.15, you're like exercising at a stale price.

It's a crazy product.

I'm really glad that that's a sandbox I can't play in because that sounds fun.

What, zero day single-stock options?

If I wasn't here,

I would be the most degenerate day trader.

I would have a great time.

Really?

Yeah.

I didn't know this about you.

I love adrenaline.

You can't tell.

Okay, but like that particular form of adrenaline.

I would not be a day trader.

I find it scary.

Well,

there's two sides to a trade or something.

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Let's talk about Apollo.

A lot of Apollo headlines recently.

Yeah, they did it on Investor Day.

They're like doing some stuff.

Tell me about it.

Well, I was going to turn it over to you.

So, Apollo's Investor Day.

They came out with a big projection, $10 billion of annual earnings in five years.

Before that, they joined forces with Citigroup for this $25 billion private credit push.

It just feels like Apollo has been particularly in the news lately.

Their investor day, they sort of positioned themselves as everyone's retirement fund.

Yep, they certainly did.

CEO Mark Rowan, he said that privates can produce 50 to 60% better outcomes for 401ks.

And you would expect him to say that.

I don't know.

That's it.

Well, of course, I mean, that's the thing.

Like, of course, he would say that.

Do we need privates in 401ks?

I don't know.

I don't know.

I was thinking about this.

Katie, you are ETF, Bill.

You're a big believer in ETF.

You can't even get an ETF in a 401k.

You're a big believer in daily liquidity.

Sure am.

I'm sorry, I just value transparency and intraday liquidity.

But it is possible.

Like, a 401k is really a perfect place to not have those things.

Like, it is.

Yeah, I know, I know.

Like, it is and it isn't, right?

Because, like, you, because it's for small investors, you do want like transparency and low fees and not like, you don't want people to like lock their money away for 30 years and forget about it and have someone stealing it, you know?

Yeah, no, definitely.

It is a place where you can lock your money away for 30 years.

And that does suggest that you don't need daily liquidity, right?

Yeah.

And if it is the case that illiquid things pay a premium, And like, you know, Apollo sort of looks around and it's like, we are in the business of investing in illiquid things, right?

And so, who do we find on the other side?

Like, who will give us the money to invest in illiquid things?

It's like, well, you know, it's pensions and endowments.

And like, oh, let's have a, you know, Athene is like, I always thought of Athene as sort of like a life insurance company, but it's not really.

It's like an annuities company, right?

It's like a, or like, those are kind of two sides of the same thing, but like, it's, you know, they position in the investor day as a, as a retirement services company, which is what it is, right?

And so eventually you sort of get to the point of saying, you know, we need all the money.

And the place where people

have long time horizons and so some ability to take illiquidity is like in their retirement accounts.

Yeah.

It makes a lot of sense to me.

When I think of it that way, it's like a little weird that retail products and like mutual funds have liquidity requirements because it's not exactly addressing the problem of retirement savings, which is why people have annuities and stuff, right?

I mean, that's like the classic way to do this is like Athene sells people an annuity and then Apollo is in charge of figuring out how to invest their money for the next 40 years or whatever.

Yeah.

No, I hear what you're saying and it does make sense.

Like again, you're locking away your money for 30 years.

You don't need that intraday liquidity.

I guess it's just what I like about public markets and public assets is just knowing the performance.

So Cliff Astus has this great blog post from a couple of years ago.

Cliff Astus is like a public markets value investor, right?

One thing he doesn't like is that private equity, which is kind of like, you know, value investing in companies, private equity has what appears to be a much better sharp ratio because it has much better risk-adjusted performance because it has high performance or, you know, has sort of vaguely SP-like performance, but it has much less volatility.

And the reason it has much less volatility is because it doesn't report market prices every day, right?

Like a lot of what happens in the public market is prices go up and down without that much change in fundamental value.

And so it looks like your stocks are very volatile.

Private equity doesn't look volatile because they report marks once a year or whatever, and like they have, you know, they have some flexibility to say, oh, nothing's changed.

And he is like kind of mad about that, but he's also saying,

he says in this piece, you can see why that's actually good.

Because like what happens is if your stocks move around every day, you'll be tempted to sell them at the worst time.

You'll panic, right?

Buying private equity is a way to like discipline yourself and prevent yourself from panicking when market prices move around.

And that story about private equity is traditionally a story about pensions and endowments, right?

Who are maybe prey to political factors and will take their money out if prices go down and can stop that by investing in things that don't report prices.

But it's also equally true of retirement savers, right?

Like

if you're looking at your 401k every day and saying, oh no, stocks went down, you take my money out, maybe it's better to be locked up in something that doesn't have price transparency.

That's a fair point.

I do find it fun that, of course, Apollo is publicly traded.

And it's interesting to consider its market cap.

It's something like

$74 billion.

Their AUM is like $662 billion, somewhere around there.

It's a fun thought exercise to compare that to BlackRock, which has $10 trillion in AUM, and their market cap is like $140 billion.

And this is something that we've talked about a little bit before.

Crushing Square.

Yeah, exactly.

Like how

the stock market values these different asset managers.

I think it is pretty straightforward, right?

Crudely, if you put a 10 times multiple on earnings right like Apollo

can kind of extract kind of 1% in fees I have some numbers right here oh yeah I printed it out

I hope I'm reading this right so if you take a look at Apollo's AUM

the cents earned per $1 of AUM is 0.89 cents yeah so close to 1% yeah and then you compare that to BlackRock and it's like 0.06

cents.

Well, like six basis points.

I think like there's two kinds of asset managers.

There's like expensive asset managers who charge 1%, and there's cheap asset managers who charge like one basis point, right?

And then you put a 10 times multiple on them, and like BlackRock should trade at like 1% of AUM, and Apollo should trade at 10% of AUM, right?

Because they're charging 1% of AUM versus charging 10 basis points of AUM.

And I wrote about this in the context of Bushing Square, where they raised money at a valuation for the management company of something like 50% of AUM, which implies quite insane things about the fees they can charge or about their expected growth.

But that's neither here nor there.

The point is, yeah, like Apollo is in the business of being an expensive asset manager.

And one thing that might happen, one thing you could imagine, is like if all of their pushes to be like mass market and retirement savings and all these things all come true, then like possibly there'll be some fee compression, right?

Possibly you can't charge the same fees for everyone's retirement account that you can charge for like private equity.

I would imagine so.

Also, John Farrell and BTV interviewed Mark Rowan the day after the Investor Day, and he asked the good question, which is that you have rates coming down, the economy is looking pretty good right now, financial conditions are easy.

Why would

people keep going to the private credit markets versus issuing in the public markets?

Which I think is a fair question.

Mark Rowan said something like, you know, we're doing things that the the public markets wouldn't allow.

And then he talked about infrastructure for a while.

But there was also an interesting story on the terminal from Ellen Schneider and Michael Toblin

quoting Bank of America research that said almost $30 billion of private debt has been refinanced through broadly syndicated loans across more than 70 deals so far this year.

So banks reclaiming some ground there from private credit.

Yeah, that makes sense.

As you said, they just did a big partnership with the city, right?

So I think there's a real view that private credit is going to stick around.

You can imagine a story of like a lot of private credit funds raised a lot of money because it's very hot.

And then, like,

in a year, they need to deploy that money and they are possibly giving better terms than the public markets, right?

I think a lot of the story of private credit in recent years has been like when public markets seized up, private credit seized a lot of share.

But

you can imagine a story of just like there's so much money in private credit, it's going to be cheap.

And watch the space, goodbye.

Watch the space, bye-bye.

And that was the Money Stuff Podcast.

I'm Matt Levian.

And I'm Katie Greifeld.

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