The Saturday - 4/24/21 Edition
Volume 2, Issue 15
Morning!
Every now and again we get right into the weekend’s stories and I get an angry text from my mother, who prefers when I start off with a joke.
Well…
Grab your phone, Mom. We’re jumping right in.
It’s Saturday April 24, 2021.
Pastrami
This one’s a couple weeks old, but I couldn’t resist.
It’s been a difficult year for restaurants and I love a good deli, so let’s talk about the greatest success story in today’s restaurant industry: Hometown International Inc., a Nevada company that owns a single deli (Hometown Deli) in Paulsboro, New Jersey.
At first glance, Hometown doesn’t seem like an all too impressive operation: over the last two years, the deli’s total sales barely exceeded $35,000 and its management team consists of a CEO who doubles as the adjacent high school’s principal and wrestling coach, and of a vice-president who moonlights as a math teacher.
Typical New Jersey stuff, I guess. Nothing to see here.
Hometown is different than other independent delis in two ways though: first, it trades publicly (as an OTC pink sheet, of course) and second, in contrast to most restaurants who struggled in the last year, Hometown’s stock has had a banner year.
How good, you ask?
Well, in the last twelve months, $HWIN skyrocketed a staggering 165%, giving the pastrami shop a staggering… $100M valuation, if you do a quick back of the envelope Shares Outstanding x Share Price calculation.
It gets better though.
As Bloomberg’s Matt Levine points out, the deli also issued 155,940,080 fully exercisable warrants to its management team and some Macau shareholders so, on a fully diluted basis, the company is actually worth… $2B!
Truly amazing stuff and proof that great executives come from all backgrounds!
Or that these guys actually run the business:
I don’t know.
Hertz
When we discussed Hertz last year, the company was more of a punch-line than a legitimate business: the Vatican had recently scored a multi-million Euro payout on Hertz credit default swaps and the SEC shot down the company’s mid-bankruptcy plans to issue $500M in fresh and self-admittedly worthless stock to a hoard of Robinhood traders.
If memory serves us well - it does - we even likened Hertz to Cheech & Chong.
That was then.
This is now. From FT:
Ten months later, shares of the car rental company have become one of the hottest plays for hedge funds wizards. A fully fledged Chapter 11 bidding war for Hertz broke out last week capturing the hype around a post-pandemic US economy as well as the ebullience for risk capital.
Hertz in early March had accepted an offer from an investment group that valued it in aggregate at $4.8bn. Two bids later, the most recent arriving late on Thursday, the value of Hertz including net debt has shot up remarkably to $6.2bn.
Most intriguing, this latest offer pays off all creditors in full and in cash while allowing current shareholders, once left for dead, to buy into the new Hertz. […]
Junior Hertz bonds, once trading at about 10 cents on the dollar at the outset of the bankruptcy, now trade at 100 cents.
Turns out that retail traders were on to something! Unfortunately for them, however, few remain in the stock.
On October 29, 2020, Hertz traded at $1.78. On the next day though, the NYSE delisted the stock, sending it crashing down to $0.70.
Because Robinhood does not allow users to purchase OTC stocks, the delisting gave its clients - more than 160,000 of whom had owned Hertz stock - their first exposure to the brokerage’s Sell Only “feature” that GameStop would make infamous months later.
With the stock no longer supported by the app, most of Robinhood’s clients (presumably) sold at a significant loss.
Yesterday, Hertz closed the week at… $1.80. So much for protecting the little guys.
Elsewhere in the car rental industry, Avis finished at an all-time high of $83.25/share, good for a year-to-date gain of 134.90%. The reopening trade is on.
That Ended
Regardless of which side of the pond you live on, football’s a big deal: kids dream of winning championships, pro players are deified, and fans build their identities around their team. It’s sacrosanct.
That’s where the similarities between North American and European football end, though.
Beyond the obvious differences in rules, ball shape, and geographies, American football and soccer have completely different league structures and business plans.
Professional football west of the Atlantic was structured to maximize league revenues; the NFL is a centralized, national organization with exclusive and fixed membership, that enforces strict rules against its own owners, and leverages its quasi-monopoly power to negotiate collective bargaining agreements with players and to extract exorbitant broadcast deals from media companies.
Soccer, in contrast, is a largely decentralized, regional sport that emphasizes local competition across many different leagues, each with their own, variable membership, and mostly free to operate as they please.
While European soccer also has a central administrative body (the UEFA), its power and influence is more subtle than the NFL’s… kind of like the President of the European Commission vs. the President of the United States. Our sports are reflective of our societies…
Given the two sports’ different histories and cultures, it’s difficult to argue whether one system is “better” than the other, but we do know that American football vastly outperforms European football in one category: profitability.
In 2020, with most stadiums shut down, each NFL team pulled in roughly $250M from TV rights alone, while their salary cap was $198M. This offseason, the NFL inked new TV deals totaling $110B over an 11 year period; that’s over $300M of revenue per team, per year, before any tickets, jerseys, or concessions are sold.
This translates into big valuations for NFL teams; according to Forbes, the Cincinnati Bengals are worth $2B… good for 32nd and dead last in the league.
Things are different in Europe.
Outside of England - home to the US-style Premier League - European soccer leagues are country-specific free-for-alls, with no salary cap, no meaningful inter-league player transfer rules, inconsistent membership, and splintered negotiating power resulting in lower TV deals.
So COVID was harder on soccer: in Spain, FC Barcelona is now $1B in debt. In Italy, Juventus, the most valuable team in the country and the 11th most valuable in the world, is valued at $2B. Tied with the Bengals.
On Sunday, things (almost) changed with the bombshell revelation that twelve of the top European soccer clubs would do away with the UEFA and create their own super league, fittingly called… the Super League.
The Super League’s objective was to create an exclusive league, with constant marquee matchups to boost the profits and valuations of Europe’s most venerated clubs. Most significantly and unlike the current structure - where any European club can technically rise to (or fall from) the sport’s highest echelons - the Super League would also have fixed, permanent membership.
Perhaps unsurprisingly, four of the twelve sponsors were American-owned:
Manchester United (the Glazer family, who owns the reigning Super Bowl champion Tampa Bay Bucs), Arsenal (Stan Kroenke, who owns the LA Rams, Colorado Avalanche, and Denver Nuggets), Liverpool (John Henry, who owns the Boston Red Sox), and AC Milan (Elliott Management, Paul Singer’s investment management firm, who foreclosed on the team when its prior owner defaulted).
JP Morgan also agreed to provide the Super League with a $4B debt facility to help get it off the ground.
As it turns out, however, soccer fans weren’t exactly thrilled at the prospect of a league that would upend the sport’s historical make-up and further concentrate revenues among a smaller group of teams.
Protests broke out outside stadiums across Europe and UK Prime Minister Boris Johnson personally intervened, vowing to drop a “legislative bomb” by reclassifying the teams as protected institutions, instead of regular businesses.
The Super League took three years of covert planning to organize and culminated in the teams signing a 23-year commitment.
48 hours after the announcement, the project was dead.
Netflix Abroad
Subscripturation - i.e. subscription saturation, as termed by our friends over at Robinhood Snacks - is a real thing. From the WSJ:
More than 80% of American consumers subscribe to at least one paid streaming service while the average subscriber pays for four services.
Those figures are surprisingly high, but I’ll take the WSJ and Deloitte’s word for it. Plus, to be fair… guilty as charged.
With the US market particularly saturated, streaming companies are now shifting their sights on overseas markets and aggressively ramping up local productions in foreign languages.
So far, it’s working.
According to the WSJ, international streaming subscriptions are up nearly 3x in the last four years, going from 400 million to 1.1 billion subscribers.
Netflix was an early mover in this international push and the strategy is paying off. Last quarter, 89% of the company’s new customers came from outside the US and its most watched new series was Lupin, a Netflix-produced series shot in France and in french.
Growing up in a French-Canadian household, I vividly remember watching American movies dubbed over in French. It’s awkward and awful; there’s no reason why Marlon Brando and Gene Wilder should be voiced-over by the same guy.
Netflix is now in 190 countries, has 200 million international subscribers, and 38% of its content is now in a non-English language.
On behalf of all those who were oppressed by bad dubbing… thank you!
Have a great weekend!