Ted Audio Collective
Hello, after-hours listeners Felix here after hours is still on a break
But we wanted to bring back an episode from the archives. We think you'll still find relevant
Let us know what you think and as always thank you for listening. Okay Felix you've been following this
hesitancy around tiktok but now actually some outright bands of tiktok in India and for people who use the US government phones
What are your thoughts on what's happening with tiktok and why is this struck you as an especially interesting story to start 2023?
Well, of course, if I'm totally honest, I will say I'm mostly worried about myself because I'm such an enthusiastic user of
tiktok, but then of course it poses really all kinds of interesting
Issues the first one has to do with sharing data across
National borders you might remember this was such a big issue when EU privacy
legislation first came along companies had to adopt in all kinds of ways to make sure that they were in compliance and
then more lately there's sort of this
security twist
Any data that China can touch now seem very problematic to a group of lawmakers
Just a week ago, Brendan Carr the leading Republican representative on the FCC
He said that India created the blueprint you just cannot allow
Apps like tiktok to operate and the argument is basically that one way or another the Chinese government will be able to get access to
US data will be able to observe what US users do on the app and that is at least in some circles deemed irresponsible
deemed dangerous and as a result we need a tiktok ban and
I'm curious what do you make of it Sarah? Is it gonna work? Is it real will it happen?
I think it's very interesting as part of a larger trend
Tiktok is the most successful example of an app that really takes off with users that then later regulators and other people come along and say
Oh, wait a minute. There are some securities concerns there
So one example from a few years ago was an app called face app
Which turned out to be a Russian app where you would upload photos and they would age them so you could get an early look at what you looked like as an old person
There were other apps like this two more recently last month. There was just lens AI
Which was another app that altered your facial appearance and after these images of people with the face of an astronaut or the face of a
Woodland fairy had sort of gone viral
people said wait a minute in an era where your face is often a
Password to get into your phone. Maybe you don't want to have this data
Just be shared in the cloud and you can't really ever be sure that it's fully deleted
I think in the case of tiktok there is this extra layer of the Chinese government and how the US relationship with the Chinese government has evolved over the last few years
Yeah, I think that sounds exactly right and India is leading the way in that respect also
They're a little more than 300 apps now that are banned in India. It happened right after the military clashes between Chinese and Indian forces
All of this takes place in a geopolitical context
What strikes me as particularly interesting is
When people talk about the security concerns
It's always
Incredibly vague. It's like oh somehow we have data and somehow the Chinese know
Something about US users
It's worth drilling down a little bit. What is it actually that you give away when you use apps like tiktok?
So the most obvious is what you watch how long you watch who you follow in tiktok's case
Maybe not such a big deal because the main mode of using the app is not that you actually follow people
But that the apps algorithms figures out what you really like and then as a result
We serve you lots and lots of content that is close to what you like and as I look through the data
The only one where I can imagine that there is some real concern is probably geolocation
So imagine a situation where someone's close to an abortion clinic where someone is close to an embassy
Actually knowing in real time where people are is more of a problem than many of us had spent a lot of time thinking about
I think what you're also seeing is just a sort of increasing paranoia that is not necessarily
Tied any specific use of data or articulated use of data
But that's coming from a sense that we can't always trust that these apps are just what they say that they are
Can we definitely know that there's not some kind of spyware or keystroke tracking or
Microphone manipulating or camera manipulating aspect of these different apps
We always say trust but verify and I feel like the challenge here is with verifying how these things work
We're sort of entering I think a different phase of the internet. I used to think it was crazy that people put tape over the cameras of their computer
And then I saw a photo of Mark Zuckerberg with tape over the camera of his computer and I was like apparently I'm a champ if he's doing it
They're two interesting aspects to me from a company perspective
You don't want to give away the secret sauce the way tiktok serves the videos and the way they use user information
That is part of what has made the app so enjoyable and what has invited all the creativity and the memes
What helps me is to always think about
Say national security concerns is the data that a particular app has?
How unique is it to say China at some point in time really decided that using
Geolocation of US users is something that they wanted to look into maybe to have some sort of influence over people
That I think is often the scariest story that people will tell about the likely use of the data and then
When you think about it for two minutes, there is a huge marketplace for geo information
We know that the US government buys geolocation data from private users
Mm-hmm a little while back there were two apps Muslim pro and
Muslim mingle that sold app to a data broker called X-Mode
X-Mode sold it to defense contractors and from these defense contractors
He then went to the government and the military
So the very fear that we have that we don't want our government and other governments to know
There is a huge marketplace for this kind of information in the first place and so I
Feel the current conversation about the ban of TikTok is one of these
Performative acts in politics. It has nothing to do or almost nothing to do with a keeping us safe
It has almost nothing to do with really being concerned for anyone's welfare. It's just you want to be known as the politician
Who stood up to China you want to be known as the politician who's really tough on social media?
It creates a kind of superficial
Conversation that you look at it and none of this really makes any sense
But of course it serves political purposes first and foremost. Yeah
I totally agree with politics. There's always an element of performance
You're always playing to the crowd
It's impossible to really separate the geopolitical context from
This debate because we do feel like we're in a very different time
You know, I was remembering 10 15 years ago. There was all this hype about the bricks
Yeah, how these emerging markets were like such a great opportunity
It's right firms from wealthy countries to sell products and services to you and now
Russia and China have a very different relationship with the US. We're in a more paranoid time generally
There's grandstanding, but I'm also aware that there might also be real stakes here too
To me what's so interesting about this change that you allude to
Bricks is a great example
If you went to Washington and you were really critical of China you'd be all by yourself
Now you go to Washington you say anything positive about the China US relationship and you are all by yourself
And many people will look at you with great skepticism and when you think about their relationship
Not that much has changed and many things have actually gotten much better over time
Think about the likelihood of enforcing IP rights in China. Oh my god
We have made so much progress in a relatively short period of time
China has recognized IP rights now not in a perfect way
I think no one would say that but it's made much more progress in a much shorter time period than many
Countries have historically including the US where it took forever to recognize say for instance copyright the foreign authors
What worries me the most is it sometimes feels a little bit like an air-ok moment where we're talked into a paranoia
That serves mostly domestic political purposes on both sides. It's all tangled up together
And I think it's something that I'm relieved is not my job to figure out
I think what I would find much better than the way we're doing it right now is that we had clear rules of what companies can and cannot do
so for instance if you said
Geolocation data is just not something that should be available to government and we have rules in the US and those same rules
We apply to any foreign government and that would then imply that you shut down the market for geolocation information
It is no longer legal to sell geolocation information
Because today when every government can easily buy all the geolocation information you want on the open market
It's just not very credible to say we're shutting down that one way you might be able to get it
So be really sincere and be really open in what the rules are what you can and what you cannot do and
Then let the market play out within a set of guidelines that old companies have to follow
The moment it's directed at particular companies from particular countries that we happen not to be so enamored with at this moment in time
Things just get very murky and I have a little more difficult to believe that it's really motivated by well for considerations for everyone
That's a fair point
I feel sort of
obligated to also point out China has blocked a number of US technology companies
And has the sort of great firewall of China limiting what you can have access to when you're in the country
Yeah, and we in the US view that as also a terrible thing. Yeah, exactly
That's a fabulous point and I think it should mean that's exactly not something that we're going to do
We'll figure out the better way to regulate these companies
Maybe we'll see with some of the tech layoffs that have been happening in the US tech sector
Maybe some of those really smart people can go help the government understand how all this technology really works
Because sometimes you have these congress people standing up and railing about the new app or that this or that phone thing and I'm thinking you probably don't really know much about
Yeah, spend a little time on TikTok. I think that might be good advice for policymakers and for the rest of humanity
Well, I am a little bit less afraid than when we started
That is huge progress in just 50 minutes
So Lane college sports and making money as an amateur what's going on?
It's a brave new world out there as of 2021 athletes can sign endorsement deals that started off with a slow trickle of seeing offensive linemen strike deals with barbecue restaurants where they would get like $200 worth of meat
deals like that and as the space is matured we've seen the player signing with Nike or a bigger brand
But the biggest trend to come out of it is the redirection of money from boosters to colleges
Right boosters are just anyone that's giving money to an athletic department as of July 1st 2021 the NCAA
Changes rules to allow athletes to make money off of their name image and likeness and we'll just call that NIO to add to the sports abbreviations
Which are so rare?
We absolutely have to add up the ad of the board all right NIO
Yes, and I know that often means that someone who might have a $10,000 donation to the school that they might previously have given to the athletic department which the athletic department can then designate at their will
Might be giving it directly and lining the pocket of a quarterback because they want a good recruit and the thinking goes the more money you have coming in
The better recruits you're going to get the better recruits you get the better you are at the sport
Mm-hmm you look at a school like Alabama and Clemson the way that their football teams having success on the national stage and
That increased donations to the school it increased out of state applications it increased enrollment. Yeah, so that's one thing
I'm curious about are we going to see football teams better? Are we going to see other sports marginalized?
Yeah, I think this is completely fascinating lane and as you laid out
It's a shift in the balance of power away from universities and Torah athletes athletes historically were getting nothing out of this game
Which was minting money for the institutions? I confess it's hard not to feel good about all that
But the second dynamic that you're highlighting I think is the shift of power towards donors
Donors now can target things in ways they couldn't target things before the swimming team was getting some of the
football revenue and
The left guard was getting some benefits that the quarterback would otherwise get and all of that
Sharing is under pressure the rewards go to the most visible the most celebrated the superstars
I don't know if he looks what do you make of it?
So I completely agree the fairness argument is just super strong and frankly that implies that some sports
completely disappear or get much smaller
In my view, that's not really terrible. We just see the market forces operating
It's just like the rest of the economy if there isn't really much demand if there isn't really much enthusiasm
Why keep it up?
That's spot on but the reason why there's pressure on keeping this fringe sports is the Olympics
Because those are such a cash cow for NBC
But also the US and other countries take some pride in topping the metal table
And you're not going to do that unless you have some pretty good fensors and because the US is unique in the way
It's amateur sports system is set up pretty much every other country in the world has a state funded
Development program for athletes in the US that doesn't exist. That's college sports. I've never really thought about that
But it makes sense which is the US is unique in that we basically use college athletics to become a breeding ground for
Everything yeah in one hand
I guess I think that's better if it were outside of the college athletic system
That we are including fencing or swimming for the purposes of building Olympic strength
Seems like a contortion. It's interesting to think about how the Olympics might change in a world where college sport doesn't
Train athletes for the rest of the world. So I would predict sports at the margin
Maybe we don't quite see the performance that we would have seen in the olden days
And does that really matter so much what I love about the Olympics is I've watched all these sports that I
Know what it's all about and frankly is my enjoyment going to be impacted by stellar performances or performances that are 85% of what's possible
I don't really think so yeah, I want to just return to one thing you asked at the beginning lane
You have athletes who are conceitably going to get distracted by the amount of dollars that they're going to be coming in
So the interesting outcome might also be that these supposedly winning sports football basketball at the collegiate level
Will they get better or might they actually get worse?
There's an interesting case study that I think is still unfolding and that's Texas A&M
Jimbo Fisher is one of the highest paid coaches in college football and Texas A&M as an alumni base is also one of the most well-endowed in terms of
Money and also willingness to throw money at football
I'll put it that way and
They had a recruiting class that was the top in the nation
Which is the first time that the top school in a recruiting class has not been Alabama or Georgia in something like two decades
and
What was interesting is Texas A&M famously this year was quite bad at football. They did not even make a bowl game
That's just an abomination by Aggie standards and additionally
They also had the largest percentage of their class
Transfer out of anyone in the country and I would have to think that some of that has to do with maybe the reason why you went to a school
Is because of an NIL deal that was lured your way and you get there and you don't like it or maybe you realize
This isn't the right place for me and obviously kids pick schools for a silly and different reasons money being one of them
But it's hard to turn down a million dollars when you're 17
And I got to think that that's
That's true. Yes, this was a really great topic particularly because
Felix is in the middle of negotiating his own NIL deal right now
I understand
Yes, maybe not worth a conversation with the president there you go
So me here you wanted to talk about the valuation of sports teams
Obviously finance professor has got to talk about valuation. Yeah, so let me just first ask you both
Okay, infinite resources. What team do you buy? Oh gosh? Oh
I think you could look at a team that you know is going to appreciate and value
I would do a women's sport neither women's soccer because of the global appeal or women's basketball in the US
Yeah, or if you're trying to buy a team that's already has incredible brand reach and
Recognition around the globe. I might do the Yankees. I'd like the Yankees more than the Metz. I thought I liked you lane as a co-host
But I'm questioning that right now, but anyway go ahead Felix who would you buy?
Yeah
Well, of course since I teach at a business school my decisions are completely determined by nostalgia
I would buy the Philadelphia Eagles
Because I have such fun memories of moving to Philadelphia
seeing American football for the first time life and
I think somehow it's maybe like your undergrad experience
You will never forget that first life encounter that you have with an institution or with a sports team
So go Eagles. Wow. I thought I liked you too, but
How about you be here? I was gonna go the Ryan Reynolds route by some third class
Premier League team like the Rexim team and build it
Yeah, but the reason I ask all this is because the valuation of sports teams has just been amazing
So up until about 20 years ago the joke was
What's the easiest way to become a millionaire was you start a multi-millionaire and then you buy a sports team and you lose your money
And of course last 25 years have been the exact opposite which is what's the easiest way to become a billionaire
Which is you start a multi-millionaire and you buy sports teams and we have never seen such rapid returns
Teams that have changed hands include Chelsea and Denver Broncos and the Phoenix Suns
And they're all changing hands at
For five billion dollars. That's remarkably high by most objective kinds of financial metrics
Just to give you one example Chelsea when it was owned by Ramovich a million dollars of losses per week
We're being funded by the owner
There are lots of theories about why valuations have exploded TV rights have just grown so massively and importance
That they are getting remarkable amounts of revenue streams from that
Alternatively it's quasi monopolistic. There's like huge barriers to coming in
Or the other view of the world is it's just a lot of crazy billionaires
When around being little boys buying their favorite sports teams
I'm curious what do you make of those explanations and of these valuations
My sense is that it's mostly a vanity play
Everyone has a private jet everyone has yachts that cost hundreds of millions of dollars
And then how else are you going to stand out and what's really attractive about sports teams is the flip of the anti-trust angle that you brought up me here
We know the number of teams is in all likelihood
Completely fixed or if it should ever expand it's not going to expand so radically if you're in a position to buy one of these teams
You'll know you have something that not many other people will have
for me really the big question is
Are there downsides to that kind of competition among super rich people right is it somehow true that say
Take a price is go up or is it somehow true that cities are forced into
Transactions where they build really expensive stadiums if there's no downsides. It's competition among the super wealthy and
I'm not going to be part of it and I don't know that I care all that much right what do you make of it lean it does strike me a little bit as like
Your image of two kids arguing on the playground why have a million dollars why have a billion dollars why have a trillion
Everyone just assumes that this is an asset that will always appreciate as we're in this era of
Cord cutting
Live sports is one of the only draws that reliably does get viewers and NFL's king of ratings
However, is there a tipping point with that? I don't know if this means that someone like Stan cranky that owns a zillion franchises is ever going to sell
But you'd have to think that at some point there's diminishing returns. What's your take me here?
I think it's conceivable that these are vanity purchases and yet really smart opportunities as well. I usually think both of those things are possible
so the first piece is obviously in the premier league we see
The sovereign nations coming in and with large amounts of capital
And they make any billionaire look small and they are willing to pay because they're not getting the boyish
Victory of like oh, I own the team. I rooted for they're getting credibility on world stages and that's worth a lot
And then I think the deepest point is your point Felix, which is
These folks are economic actors and they will find ways to get returns on their investment
And that could involve lots of different things
It's of course true that TV rights play a big role in the economic calculation
But why is it that these TV rights are so much more valuable if you look at Pile's lifetime income
And then you look at Ronaldo's lifetime income
Fascinating comparison is on a per television basis. They're almost making the same amount of money
So my sense is the media rights are so much more valuable now because it's a global audience
Yeah, where do people watch premier league?
Well, we're paying so much attention to what happens in the stadium
But really we should look to Malaysia in Indonesia all of Asia
The TV rights have become so valuable because we have a really global audience for a subset of sports
And that I think by and large has played out
I don't believe the underlying forces will make teams ever more valuable
I'm going to take the opposite side
Okay, I don't think the globalization thing has played out
I don't think the premier league is deeply penetrated in the US
I mean, there's a lot of room to run on that
But we'll see and I will alert the NFL that you folks are no longer interested and I'll have to go
And we will talk to your banker to see if we can get that three and a half billion dollar credit line
Yeah, there we go
Felix you had mentioned earlier that you were interested in the economics of tennis and how it's kind of skewed towards the top of the top
Yes, it's so interesting and surprising to me also because tennis comes across as this really glamorous sport
And you associated with all of these luxury goods and the big deals
The reality of tennis for most professional tennis players is that it's basically unsustainable
If you're outside the top 200 there is no way you can even cover the cost of being a professional tennis player
So many of these tennis players struggle to hire a professional coach
And that is remarkably different from other sports
If you take the NHL for instance, there's 700 players
There's a minimum salary of
$700,000 and the reality is that most players make more than a million
So the split between overall revenues and how much goes to the individual players is just radically different
When you look at what fraction of that total pool goes to the top players
Unless you think you're going to break into
The top 50 or the top 40 any sort of business logic would say you should stay away from tennis
And I'm curious to think through
What's good about the state of affairs in tennis?
What's problematic and then in particular
What could we do in order to create a better situation for those professional tennis players
One thing that tennis does really well and almost better than any other sport is gender equity
Because of the efforts of Billie Jean King and her peers
Years ago we have a point where the women's prize money is almost on the same foot as the men's
But there's been such dominance at the top by the big three on the men's side
And by Serena Williams on the women's side that I think that is contributed to this effective concentrating the wealth in fewer hands
Maybe if there was more parity there would be a little bit more money distributed
But that's probably still only amongst like the top 10 15 players
To your point about 50 to 200 that's a whole different issue
And it's hard to think about
How you would go about changing this because there's not a union in which they bargain these guarantees because it is an individual sport
And it also makes me wonder when you have someone like Jessica Pagula nothing against her athleticism
She's obviously a great tennis player
But she also is a sion of very wealthy people
And I wonder how much that's contributed to her ability to rise to that level
What do you think to me here? Yeah, that's fascinating
Lane I mean I'm the hard-killing back Felix to our conversation about unpaid labor a little bit about who gets to
succeed in some of these markets
Yeah, but you know to me it feels okay. I confess. I don't really see a problem in the following sense
First off, it feels like just inherently the nature of individual sports as opposed to team sports and it kind of harkens back to our
NIL conversation which is part of what happens is you share the rents in these team sports
So like Tom Brady is great and the left tackle gets paid a little bit more because Tom Brady is part of the team
And that feels like something that happens in team sports
I can't imagine the dynamic that would allow that to persist into individual sports
So tennis to me feels like golf
Which I think I would imagine would have a very similar distribution of
Outcomes, you know again being the 75th player on the golf surface. I think it's hard. Yeah, so I don't see it as a problem
And if anything I think of tennis as a great success story over the last 30 years for reasons you mentioned
Laying about gender equity, but maybe because of the power of the talent
Because of who Serena is and Roger better and all these really remarkable people
I think of tennis as a success. Is it a hard situation for the folks who are 75th on the circuit?
Yeah, maybe, but I don't know if that's a problem. I don't know. What do you think Felix?
I do think there's an interesting organizational angle to the story
So if you look at the ATP the main
Representative body for players
One of the really big issues is that it's split between the tournaments and the players who are both represented by the same organization
And that of course is a conflict of interest right there because the tournaments obviously have every interest to keep the player share small
And have most of the benefits go to the very top players because that's what creates the excitement the audience the
high ticket prices
That strikes me as not a natural outcome and actually not having really to do with the fact that
Penis is an invisible sport
It does strike me that there is a lot of untangling of conflicts of interest that there could be done in tennis and whether that's through some sort of organization of players or just some
Intermediate body that's deciding not the ITA but something that's deciding okay US open
This is the cut for operations
This is the cut for players and not the operating body that does seem like that should be
Healthy, I don't know how you go about convincing the US open to relinquish that
Because who wants to give up power and money when they have it? Yeah
One element that strikes me we're thinking about is what this means for young people who think about a potential career in sports
About 2% of college athletes make it into the pro leagues
The probabilities are really really low you shouldn't really think by playing college football you have a reasonable chance
And what's troubling about this is that
The expectations when you look at surveys of young people are completely misguided
It's worst in basketball and in ice hockey
Verse 75% of college players say it's somewhat likely that they will have a pro career
and of course spreading money around and making it easier to sustain some sort of a professional life
Would only further misguide the kids to think that this is an actual career and that this would actually be a way to make a living
It's not yeah, that's fascinating
I got to say the final piece of this story that I love is that
Bill Ackman head fund icon has decided to take on the cause of
Organizing the players and has started I think it's going to be a for-profit winners alliance or something like that
And just the irony of a hedge fund titan going to the streets and saying workers of the world unite is I think pretty fantastic
You
