Dec 5, 2019

Axios Capital

By Felix Salmon
Felix Salmon

Situational awareness: Italian artist-prankster Maurizio Cattelan duct-taped a banana to the wall of a booth at Art Basel Miami Beach this week, and promptly sold two of the limited edition for $120,000 apiece. The price of a third, destined for a museum, has now been raised to $150,000.

  • When it comes to bananas, “If you don’t sell the work," gallery owner Emmanuel Perrotin told Sarah Cascone of Artnet News, "it’s not a work of art.”

In this week's issue of Axios Edge (sign up here): Subaltern CEOs, the economics of Manchester City Football Club, the problem with Honey, the dynamics of Giving Tuesday, the market in counterfeits, and much more. Total word count is 1,625, which should take you about 6 minutes to read.

1 big thing: The CEO's boss

Illustration: Aïda Amer/Axios. Photos: Justin Sullivan/Getty and Saul Loe/Getty

Being a CEO used to mean something very clear: You were the top dog, answerable only to the collective will of a board of directors. Today's CEOs, by contrast, are often deep down in the org chart, fireable by a boss who in turn is fireable by an even higher-up boss.

  • Regional heads, heads of subsidiaries, heads of business lines — all of them now lay claim to the CEO title. Mark O’Donovan, for instance, is the CEO of Chase Auto, a subsidiary of Chase Manhattan Bank that is itself a subsidiary of JPMorgan Chase.
  • I once reported to a CEO (of Gizmodo Media Group), who reported to another CEO (of Fusion Media Group), who reported to the chief content officer of Univision, who reported to the CEO of Univision.

Driving the news: Aside from the high-profile shakeup at Alphabet this week (more on that in a second), Expedia CEO Mark Okerstrom was fired by his boss, Barry Diller, who really runs the company.

  • Kelly Loeffler, the incoming U.S. senator of Georgia, is currently the CEO of Bakkt, a Bitcoin/cryptocurrency company. She'll give up that job upon taking public office.
  • Bakkt is majority-owned by ICE, which runs huge stock and futures exchanges. Loeffler's current job was really just another in a long line of executive roles she has had at the company.

Alphabet, until this week, had one clear top-dog CEO, Larry Page, and many subsidiary CEOs. Page's direct report Sundar Pichai, the CEO of Google, was himself the boss of Susan Wojcicki, the CEO of YouTube.

  • Pichai is now taking over as CEO of Alphabet, while remaining CEO of Google. But Page and his co-founder Sergey Brin retain control of the board through their super-voting shares.
  • Page's $51.8 billion in Alphabet shares carry an average of 5 votes per share. Pichai's $103 million in Alphabet shares, by contrast, carry an average of 0.07 votes per share. (Employees like Pichai generally get paid in non-voting Class C stock.)
  • When Google employees walked out on their jobs last year to protest the handling of sexual harassment at the company, one of their demands was the appointment of an employee representative to the board. Pichai couldn't deliver on that when he was merely the CEO of Google rather than Alphabet. And it's not clear whether he'd be able to deliver on that even now.

The bottom line: Increasingly, today's CEO is merely an executive hired by the person who is really in control.

  • Pichai will have to face the techlash head-on. Page, meanwhile, will get to bask in his billions without any accountability at all.
2. When a sports team is a media investment

Illustration: Rebecca Zisser/Axios

Sports teams have historically been a bauble for billionaires, traded infrequently between each other for stratospheric valuations that often make little economic sense.

  • Exhibit A: Hedge fund manager Steve Cohen is looking to spend $2 billion of his personal cash to buy a controlling stake in the New York Mets.
  • Cohen wrote a letter to his investors about how “it has always been a dream of mine to be a majority owner of a Major League Baseball franchise.”
  • The $2.6 billion valuation he's buying in at is 75% higher than the $1.5 billion at which the team was valued earlier this year, when a non-controlling 12% stake changed hands.

Meanwhile, English soccer team Manchester City is much more valuable, and a very rare example of a franchise being valued on economic fundamentals rather than sentiment and ego.

Driving the news: Silver Lake, a Silicon Valley private equity fund, has just invested $500 million into the team's parent company as part of a huge secular bet on the future of technology, media and entertainment.

  • Silver Lake's investment values City Football Group — which also owns teams in New York, Melbourne, and five other cities — at $4.8 billion.
  • The thesis is that Manchester City's on-pitch success can be replicated across the world, scaling everything from its manager's tactics to its expertise in sports medicine and its well-respected player development schemes.
  • Egon Durban, the man who orchestrated the deal, was rewarded by being appointed co-CEO of Silver Lake. Expect more media deals from a group that has already invested in mixed martial arts behemoth UFC and talent agency Endeavor, which bought the Miss Universe pageant from Donald Trump in 2015.

Our thought bubble, from Axios Sports editor Kendall Baker: "CFG is at the apex of what it means to be a 21st century sports business — a mixture of sports, entertainment, media and digital technology."

  • "It is for this reason that Silver Lake has invested a half-billion dollars in what was once a soccer club with historic roots in the working class communities of east Manchester, but is now a global entertainment business."
  • Read Kendall's full story here and sign up for his daily Axios Sports newsletter here.
3. When a tech startup is a media menace

Illustration: Sarah Grillo/Axios

One of the few financial bright spots in the media industry has been the rise of commerce as an important component of media-company revenues.

  • Trustworthy media outlets can monetize that trust by recommending products to buy, and being paid a small commission (or "affiliate fee") whenever a reader makes a purchase.
  • The New York Times paid $30 million for The Wirecutter, while Vox Media recently acquired the Strategist as part of its merger with New York Media.
  • Food52 is worth more than $100 million, thanks almost entirely to its strength in e-commerce and the trust it enjoys from readers to sell and recommend high-quality products.

Driving the news: Tech startup Honey was recently acquired by PayPal for $4 billion, even though it doesn't build trust in the same organic way.

  • Honey's main product is a browser extension that will find the best promo code to drop into your online checkout process. Almost by definition, that makes Honey the last third-party website that you visit before buying the product. Honey's rivals include RetailMeNot.

The catch: Though Honey doesn't drive consumers to products, it claims credit for the sale through the mechanism known as "last-click attribution." Merchants generally pay their affiliate commission to the last website visited, and for people who use Honey, that's always going to be Honey.

The bottom line: Affiliate fees can create millions of dollars of value for media companies — but those revenues are being snatched at the point-of-purchase by tech companies that end up being worth billions while doing much less consumer-facing legwork.

4. The season of philanthropy
Expand chart
Data: Giving Tuesday; Chart: Axios Visuals

I am not a philanthropist. As I wrote in Axios' Philanthropy Deep Dive on Saturday, philanthropists are big-picture strategic thinkers who generally want to use their money to influence government. By their nature, they're generally unaccountable and undemocratic forces in society.

The big picture: Giving Tuesday is a countervailing force to the prevailing philanthropic winds. It serves no strategic purpose; it merely encourages ordinary citizens to give money to charity on the Tuesday after Thanksgiving. (The bigger long-term trend is that household donations to charity are declining, rather than rising.)

The news headlines, however, went to the New York Philharmonic, which is attempting to raise $550 million to refurbish its current home.

  • That project involves removing more than 500 seats from the auditorium and disappearing Richard Lippold's glistening "Orpheus and Apollo" sculpture.
  • The exterior of the orchestra's home will not be touched, which has helped keep the budget below the previous $900 million estimate. Still, $15 million has already been spent paying the family of Avery Fisher to allow his eponymous hall to be renamed in honor of David Geffen.
5. Fakes news
Expand chart
Data: Sapio Research poll for Incopro conducted in Oct. 2019, among 1,059 U.S. consumers in all 50 states. Margin of error ±2.2%; Chart: Lazaro Gamio/Axios

Giving Tuesday was explicitly designed as an antidote to the shopping frenzy of Black Friday, Cyber Monday, and all the other temptations of the holiday season. (This year, Black Friday spending rose an astonishing 20%; even Thanksgiving Day, when most brick-and-mortar stores are closed, was a retail extravaganza, seeing $4.2 billion spent online.)

The big picture: As shopping goes digital, it's easier than ever to find yourself buying fakes — either deliberately or by mistake.

  • By the numbers: A new survey from Sapio Research, commissioned by the U.K. brand-reputation consultancy Incopro, finds that 26% of American consumers bought an item in the past year believing it to be real, only to find out later that the thing they bought was a fake.
  • The other side: That subset of consumers — call them the Dupes — are also much more likely to deliberately seek out and buy counterfeit goods (as seen in the bottom set of bars in the chart). Some 68% of the Dupes also bought counterfeits on purpose, whereas less than 6% of everybody else did.

What they're saying: Web psychologist Nathalie Nahai says that "when consumers are seeking out items at a specific cost, their desire to meet that price point may well override their desire for authentic products, which can result in a higher likelihood of purchasing counterfeit goods."

The bottom line: Sometimes counterfeits are bought deliberately, and sometimes inadvertently — but it does seem likely that the people buying fakes tend to be the most price-sensitive consumers.

6. Coming up: The Fed returns to pause mode

Illustration: Sarah Grillo/Axios

The Federal Reserve is expected to keep interest rates on hold Wednesday at its final policy meeting of the year, Axios' Courtenay Brown writes.

Why it matters: After three consecutive rate cuts, the Fed will end 2019 where it started — in pause mode.

  • The pause will seemingly mark the end of Fed chair Jerome Powell's "midcycle adjustment" — though the market and some economists still bet the Fed is more likely to cut rates next year than raise them.
  • Meanwhile, the trade war uncertainty and muted inflation — which the Fed said prompted the cuts — remain.
7. 1 street art thing

Street art via @captain_eyeliner on Houston St, NYC. Photo: Felix Salmon/Axios

It's rare for the chair of the U.S. House Committee on Financial Services to become a street-art meme, but Maxine Waters has managed it, and is currently being flyposted across New York.

8. Building of the week: Tokyo Olympic stadium

Photo: Charly Triballeau/AFP via Getty Images

Japanese architect Kengo Kuma's brand-new Olympic stadium has now officially opened, nestled in bustling downtown Tokyo.

  • It will seat 68,000 people for the 2020 Olympics, and closer to 80,000 when it is subsequently converted into a stadium for the national soccer team.
  • The stadium is largely built of wood rather than concrete, with more than 70,000 cubic feet of larch and cedar coming "from nearly all of Japan’s 47 prefectures."
  • The budget: $1.4 billion, which would barely get you a brand-new concert hall in New York City.
Felix Salmon

Editor's note: The intro was corrected to show Maurizio Cattelan is Italian (not Spanish).