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Playboy going public: Porn, Gambling, and Cannabis
NEW INFO 5 Results from share redemption are posted. Less than .2% redeemed. Very bullish as investors are showing extreme confidence in the future of PLBY. https://finance.yahoo.com/news/playboy-mountain-crest-acquisition-corp-120000721.html NEW INFO 4 Definitive Agreement to purchase 100% of Lovers brand stores announced 2/1. https://www.streetinsider.com/Corporate+News/Playboy+%28MCAC%29+Confirms+Deal+to+Acquire+Lovers/17892359.html NEW INFO 3 I bought more on the dip today. 5081 total. Price rose AH to $12.38 (2.15%) NEW INFO 2 Here is the full webinar. https://icrinc.zoom.us/rec/play/9GWKdmOYumjWfZuufW3QXpe_FW_g--qeNbg6PnTjTMbnNTgLmCbWjeRFpQga1iPc-elpGap8dnDv8Zww.yD7DjUwuPmapeEdP?continueMode=true&tk=lEYc4F_FkKlgsmCIs6w0gtGHT2kbgVGbUju3cIRBSjk.DQIAAAAV8NK49xZWdldRM2xNSFNQcTBmcE00UzM3bXh3AAAAAAAAAAAAAAAAAAAAAAAAAAAA&uuid=WN_GKWqbHkeSyuWetJmLFkj4g&_x_zm_rtaid=kR45-uuqRE-L65AxLjpbQw.1611967079119.2c054e3d3f8d8e63339273d9175939ed&_x_zm_rhtaid=866 NEW INFO 1 Live merger webinar with PLBY and MCAC on Friday January 29, 2021 at 12:00 NOON EST link below https://mcacquisition.com/investor-relations/press-release-details/2021/Playboy-Enterprises-Inc.-and-Mountain-Crest-Acquisition-Corp-Participate-in-SPACInsider-ICR-Webinar-on-January-29th-at-12pm-ET/default.aspx Playboy going public: Porn, Gambling, and Cannabis !!!WARNING READING AHEAD!!! TL;DR at the end. It will take some time to sort through all the links and read/watch everything, but you should. In the next couple weeks, Mountain Crest Acquisition Corp is taking Playboy public. The existing ticker MCAC will become PLBY. Special purpose acquisition companies have taken private companies public in recent months with great success. I believe this will be no exception. Notably, Playboy is profitable and has skyrocketing revenue going into a transformational growth phase. Porn - First and foremost, let's talk about porn. I know what you guys are thinking. “Porno mags are dead. Why would I want to invest in something like that? I can get porn for free online.” Guess what? You are absolutely right. And that’s exactly why Playboy doesn’t do that anymore. That’s right, they eliminated their print division. And yet they somehow STILL make money from porn that people (see: boomers) pay for on their website through PlayboyTV, Playboy Plus, and iPlayboy. Here’s the thing: Playboy has international, multi-generational name recognition from porn. They have content available in 180 countries. It will be the only publicly traded adult entertainment (porn) company. But that is not where this company is going. It will help support them along the way. You can see every Playboy magazine through iPlayboy if you’re interested. NSFW links below: https://www.playboy.com/ https://www.playboytv.com/ https://www.playboyplus.com/ https://www.iplayboy.com/ Gambling - Some of you might recognize the Playboy brand from gambling trips to places like Las Vegas, Atlantic City, Cancun, London or Macau. They’ve been in the gambling biz for decades through their casinos, clubs, and licensed gaming products. They see the writing on the wall. COVID is accelerating the transition to digital, application based GAMBLING. That’s right. What we are doing on Robinhood with risky options is gambling, and the only reason regulators might give a shit anymore is because we are making too much money. There may be some restrictions put in place, but gambling from your phone on your couch is not going anywhere. More and more states are allowing things like Draftkings, poker, state ‘lottery” apps, hell - even political betting. Michigan and Virginia just ok’d gambling apps. They won’t be the last. This is all from your couch and any 18 year old with a cracked iphone can access it. Wouldn’t it be cool if Playboy was going to do something like that? They’re already working on it. As per CEO Ben Kohn who we will get to later, “...the company’s casino-style digital gaming products with Scientific Games and Microgaming continue to see significant global growth.” Honestly, I stopped researching Scientific Games' sports betting segment when I saw the word ‘omni-channel’. That told me all I needed to know about it’s success. “Our SG Sports™ platform is an enhanced, omni-channel solution for online, self-service and retail fixed odds sports betting – from soccer to tennis, basketball, football, baseball, hockey, motor sports, racing and more.” https://www.scientificgames.com/ https://www.microgaming.co.uk/ “This latter segment has become increasingly enticing for Playboy, and it said last week that it is considering new tie-ups that could include gaming operators like PointsBet and 888Holdings.” https://calvinayre.com/2020/10/05/business/playboys-gaming-ops-could-get-a-boost-from-spac-purchase/ As per their SEC filing: “Significant consumer engagement and spend with Playboy-branded gaming properties around the world, including with leading partners such as Microgaming, Scientific Games, and Caesar’s Entertainment, steers our investment in digital gaming, sports betting and other digital offerings to further support our commercial strategy to expand consumer spend with minimal marginal cost, and gain consumer data to inform go-to-market plans across categories.” https://www.sec.gov/Archives/edgadata/1803914/000110465921005986/tm2034213-12_defm14a.htm#tMDAA1 They are expanding into more areas of gaming/gambling, working with international players in the digital gaming/gambling arena, and a Playboy sportsbook is on the horizon. https://www.playboy.com/read/the-pleasure-of-playing-with-yourself-mobile-gaming-in-the-covid-era Cannabis - If you’ve ever read through a Playboy magazine, you know they’ve had a positive relationship with cannabis for many years. As of September 2020, Playboy has made a major shift into the cannabis space. Too good to be true you say? Check their website. Playboy currently sells a range of CBD products. This is a good sign. Federal hemp products, which these most likely are, can be mailed across state lines and most importantly for a company like Playboy, can operate through a traditional banking institution. CBD products are usually the first step towards the cannabis space for large companies. Playboy didn’t make these products themselves meaning they are working with a processor in the cannabis industry. Another good sign for future expansion. What else do they have for sale? Pipes, grinders, ashtrays, rolling trays, joint holders. Hmm. Ok. So it looks like they want to sell some shit. They probably don’t have an active interest in cannabis right? Think again: https://www.forbes.com/sites/javierhasse/2020/09/24/playboy-gets-serious-about-cannabis-law-reform-advocacy-with-new-partnership-grants/?sh=62f044a65cea “Taking yet another step into the cannabis space, Playboy will be announcing later on Thursday (September, 2020) that it is launching a cannabis law reform and advocacy campaign in partnership with National Organization for the Reform of Marijuana Laws (NORML), Last Prisoner Project, Marijuana Policy Project, the Veterans Cannabis Project, and the Eaze Momentum Program.” “According to information procured exclusively, the three-pronged campaign will focus on calling for federal legalization. The program also includes the creation of a mentorship plan, through which the Playboy Foundation will support entrepreneurs from groups that are underrepresented in the industry.” Remember that CEO Kohn from earlier? He wrote this recently: https://medium.com/naked-open-letters-from-playboy/congress-must-pass-the-more-act-c867c35239ae Seems like he really wants weed to be legal? Hmm wonder why? The writing's on the wall my friends. Playboy wants into the cannabis industry, they are making steps towards this end, and we have favorable conditions for legislative progress. Don’t think branding your own cannabis line is profitable or worthwhile? Tell me why these 41 celebrity millionaires and billionaires are dummies. I’ll wait. https://www.celebstoner.com/news/celebstoner-news/2019/07/12/top-celebrity-cannabis-brands/ Confirmation: I hear you. “This all seems pretty speculative. It would be wildly profitable if they pull this shift off. But how do we really know?” Watch this whole video: https://finance.yahoo.com/video/playboy-ceo-telling-story-female-154907068.html Man - this interview just gets my juices flowing. And highlights one of my favorite reasons for this play. They have so many different business avenues from which a catalyst could appear. I think paying attention, holding shares, and options on these staggered announcements over the next year is the way I am going to go about it. "There's definitely been a shift to direct-to-consumer," he (Kohn) said. "About 50 percent of our revenue today is direct-to-consumer, and that will continue to grow going forward.” “Kohn touted Playboy's portfolio of both digital and consumer products, with casino-style gaming, in particular, serving a crucial role under the company's new business model. Playboy also has its sights on the emerging cannabis market, from CBD products to marijuana products geared toward sexual health and pleasure.” "If THC does become legal in the United States, we have developed certain strains to enhance your sex life that we will launch," Kohn said. https://cheddar.com/media/playboy-goes-public-health-gaming-lifestyle-focus Oh? The CEO actually said it? Ok then. “We have developed certain strains…” They’re already working with growers on strains and genetics? Ok. There are several legal cannabis markets for those products right now, international and stateside. I expect Playboy licensed hemp and THC pre-rolls by EOY. Something like this: https://www.etsy.com/listing/842996758/10-playboy-pre-roll-tubes-limited?ga_order=most_relevant&ga_search_type=all&ga_view_type=gallery&ga_search_query=pre+roll+playboy&ref=sr_gallery-1-2&organic_search_click=1 Maintaining cannabis operations can be costly and a regulatory headache. Playboy’s licensing strategy allows them to pick successful, established partners and sidestep traditional barriers to entry. You know what I like about these new markets? They’re expanding. Worldwide. And they are going to be a bigger deal than they already are with or without Playboy. Who thinks weed and gambling are going away? Too many people like that stuff. These are easy markets. And Playboy is early enough to carve out their spot in each. Fuck it, read this too: https://www.forbes.com/sites/jimosman/2020/10/20/playboy-could-be-the-king-of-spacs-here-are-three-picks/?sh=2e13dcaa3e05 Numbers: You want numbers? I got numbers. As per the company’s most recent SEC filing: “For the year ended December 31, 2019, and the nine months ended September 30, 2020, Playboy’s historical consolidated revenue was $78.1 million and $101.3 million, respectively, historical consolidated net income (loss) was $(23.6) million and $(4.8) million, respectively, and Adjusted EBITDA was $13.1 million and $21.8 million, respectively.” “In the nine months ended September 30, 2020, Playboy’s Licensing segment contributed $44.2 million in revenue and $31.1 million in net income.” “In the ninth months ended September 30, 2020, Playboy’s Direct-to-Consumer segment contributed $40.2 million in revenue and net income of $0.1 million.” “In the nine months ended September 30, 2020, Playboy’s Digital Subscriptions and Content segment contributed $15.4 million in revenue and net income of $7.4 million.” They are profitable across all three of their current business segments. “Playboy’s return to the public markets presents a transformed, streamlined and high-growth business. The Company has over $400 million in cash flows contracted through 2029, sexual wellness products available for sale online and in over 10,000 major retail stores in the US, and a growing variety of clothing and branded lifestyle and digital gaming products.” https://www.sec.gov/Archives/edgadata/1803914/000110465921005986/tm2034213-12_defm14a.htm#tSHCF Growth: Playboy has massive growth in China and massive growth potential in India. “In China, where Playboy has spent more than 25 years building its business, our licensees have an enormous footprint of nearly 2,500 brick and mortar stores and 1,000 ecommerce stores selling high quality, Playboy-branded men’s casual wear, shoes/footwear, sleepwear, swimwear, formal suits, leather & non-leather goods, sweaters, active wear, and accessories. We have achieved significant growth in China licensing revenues over the past several years in partnership with strong licensees and high-quality manufacturers, and we are planning for increased growth through updates to our men’s fashion lines and expansion into adjacent categories in men’s skincare and grooming, sexual wellness, and women’s fashion, a category where recent launches have been well received.” The men’s market in China is about the same size as the entire population of the United States and European Union combined. Playboy is a leading brand in this market. They are expanding into the women’s market too. Did you know CBD toothpaste is huge in China? China loves CBD products and has hemp fields that dwarf those in the US. If Playboy expands their CBD line China it will be huge. Did you know the gambling money in Macau absolutely puts Las Vegas to shame? Technically, it's illegal on the mainland, but in reality, there is a lot of gambling going on in China. https://www.forbes.com/sites/javierhasse/2020/10/19/magic-johnson-and-uncle-buds-cbd-brand-enter-china-via-tmall-partnership/?sh=271776ca411e “In India, Playboy today has a presence through select apparel licensees and hospitality establishments. Consumer research suggests significant growth opportunities in the territory with Playboy’s brand and categories of focus.” “Playboy Enterprises has announced the expansion of its global consumer products business into India as part of a partnership with Jay Jay Iconic Brands, a leading fashion and lifestyle Company in India.” “The Indian market today is dominated by consumers under the age of 35, who represent more than 65 percent of the country’s total population and are driving India’s significant online shopping growth. The Playboy brand’s core values of playfulness and exploration resonate strongly with the expressed desires of today’s younger millennial consumers. For us, Playboy was the perfect fit.” “The Playboy international portfolio has been flourishing for more than 25 years in several South Asian markets such as China and Japan. In particular, it has strategically targeted the millennial and gen-Z audiences across categories such as apparel, footwear, home textiles, eyewear and watches.” https://www.licenseglobal.com/industry-news/playboy-expands-global-footprint-india It looks like they gave COVID the heisman in terms of net damage sustained: “Although Playboy has not suffered any material adverse consequences to date from the COVID-19 pandemic, the business has been impacted both negatively and positively. The remote working and stay-at-home orders resulted in the closure of the London Playboy Club and retail stores of Playboy’s licensees, decreasing licensing revenues in the second quarter, as well as causing supply chain disruption and less efficient product development thereby slowing the launch of new products. However, these negative impacts were offset by an increase in Yandy’s direct-to-consumer sales, which have benefited in part from overall increases in online retail sales so far during the pandemic.” Looks like the positives are long term (Yandy acquisition) and the negatives are temporary (stay-at-home orders). https://www.sec.gov/Archives/edgadata/1803914/000110465921006093/tm213766-1_defa14a.htm This speaks to their ability to maintain a financially solvent company throughout the transition phase to the aforementioned areas. They’d say some fancy shit like “expanded business model to encompass four key revenue streams: Sexual Wellness, Style & Apparel, Gaming & Lifestyle, and Beauty & Grooming.” I hear “we’re just biding our time with these trinkets until those dollar dollar bill y’all markets are fully up and running.” But the truth is these existing revenue streams are profitable, scalable, and rapidly expanding Playboy’s e-commerce segment around the world. "Even in the face of COVID this year, we've been able to grow EBITDA over 100 percent and revenue over 68 percent, and I expect that to accelerate going into 2021," he said. “Playboy is accelerating its growth in company-owned and branded consumer products in attractive and expanding markets in which it has a proven history of brand affinity and consumer spend.” Also in the SEC filing, the Time Frame: “As we detailed in the definitive proxy statement, the SPAC stockholder meeting to vote on the transaction has been set for February 9th, and, subject to stockholder approval and satisfaction of the other closing conditions, we expect to complete the merger and begin trading on NASDAQ under ticker PLBY shortly thereafter,” concluded Kohn. The Players: Suhail “The Whale” Rizvi (HMFIC), Ben “The Bridge” Kohn (CEO), “lil” Suying Liu & “Big” Dong Liu (Young-gun China gang). I encourage you to look these folks up. The real OG here is Suhail Rizvi. He’s from India originally and Chairman of the Board for the new PLBY company. He was an early investor in Twitter, Square, Facebook and others. His firm, Rizvi Traverse, currently invests in Instacart, Pinterest, Snapchat, Playboy, and SpaceX. Maybe you’ve heard of them. “Rizvi, who owns a sprawling three-home compound in Greenwich, Connecticut, and a 1.65-acre estate in Palm Beach, Florida, near Bill Gates and Michael Bloomberg, moved to Iowa Falls when he was five. His father was a professor of psychology at Iowa. Along with his older brother Ashraf, a hedge fund manager, Rizvi graduated from Wharton business school.” “Suhail Rizvi: the 47-year-old 'unsocial' social media baron: When Twitter goes public in the coming weeks (2013), one of the biggest winners will be a 47-year-old financier who guards his secrecy so zealously that he employs a person to take down his Wikipedia entry and scrub his photos from the internet. In IPO, Twitter seeks to be 'anti-FB'” “Prince Alwaleed bin Talal of Saudi Arabia looks like a big Twitter winner. So do the moneyed clients of Jamie Dimon. But as you’ve-got-to-be-joking wealth washed over Twitter on Thursday — a company that didn’t exist eight years ago was worth $31.7 billion after its first day on the stock market — the non-boldface name of the moment is Suhail R. Rizvi. Mr. Rizvi, 47, runs a private investment company that is the largest outside investor in Twitter with a 15.6 percent stake worth $3.8 billion at the end of trading on Thursday (November, 2013). Using a web of connections in the tech industry and in finance, as well as a hearty dose of good timing, he brought many prominent names in at the ground floor, including the Saudi prince and some of JPMorgan’s wealthiest clients.” https://www.nytimes.com/2013/11/08/technology/at-twitter-working-behind-the-scenes-toward-a-billion-dollar-payday.html Y’all like that Arab money? How about a dude that can call up Saudi Princes and convince them to spend? Funniest shit about I read about him: “Rizvi was able to buy only $100 million in Facebook shortly before its IPO, thus limiting his returns, according to people with knowledge of the matter.” Poor guy :( He should be fine with the 16 million PLBY shares he's going to have though :) Shuhail also has experience in the entertainment industry. He’s invested in companies like SESAC, ICM, and Summit Entertainment. He’s got Hollywood connections to blast this stuff post-merger. And he’s at least partially responsible for that whole Twilight thing. I’m team Edward btw. I really like what Suhail has done so far. He’s lurked in the shadows while Kohn is consolidating the company, trimming the fat, making Playboy profitable, and aiming the ship at modern growing markets. https://www.reuters.com/article/us-twitter-ipo-rizvi-insight/insight-little-known-hollywood-investor-poised-to-score-with-twitter-ipo-idUSBRE9920VW20131003 Ben “The Bridge” Kohn is an interesting guy. He’s the connection between Rizvi Traverse and Playboy. He’s both CEO of Playboy and was previously Managing Partner at Rizvi Traverse. Ben seems to be the voice of the Playboy-Rizvi partnership, which makes sense with Suhail’s privacy concerns. Kohn said this: “Today is a very big day for all of us at Playboy and for all our partners globally. I stepped into the CEO role at Playboy in 2017 because I saw the biggest opportunity of my career. Playboy is a brand and platform that could not be replicated today. It has massive global reach, with more than $3B of global consumer spend and products sold in over 180 countries. Our mission – to create a culture where all people can pursue pleasure – is rooted in our 67-year history and creates a clear focus for our business and role we play in people’s lives, providing them with the products, services and experiences that create a lifestyle of pleasure. We are taking this step into the public markets because the committed capital will enable us to accelerate our product development and go-to-market strategies and to more rapidly build our direct to consumer capabilities,” said Ben Kohn, CEO of Playboy. “Playboy today is a highly profitable commerce business with a total addressable market projected in the trillions of dollars,” Mr. Kohn continued, “We are actively selling into the Sexual Wellness consumer category, projected to be approximately $400 billion in size by 2024, where our recently launched intimacy products have rolled out to more than 10,000 stores at major US retailers in the United States. Combined with our owned & operated ecommerce Sexual Wellness initiatives, the category will contribute more than 40% of our revenue this year. In our Apparel and Beauty categories, our collaborations with high-end fashion brands including Missguided and PacSun are projected to achieve over $50M in retail sales across the US and UK this year, our leading men’s apparel lines in China expanded to nearly 2500 brick and mortar stores and almost 1000 digital stores, and our new men’s and women’s fragrance line recently launched in Europe. In Gaming, our casino-style digital gaming products with Scientific Games and Microgaming continue to see significant global growth. Our product strategy is informed by years of consumer data as we actively expand from a purely licensing model into owning and operating key high-growth product lines focused on driving profitability and consumer lifetime value. We are thrilled about the future of Playboy. Our foundation has been set to drive further growth and margin, and with the committed capital from this transaction and our more than $180M in NOLs, we will take advantage of the opportunity in front of us, building to our goal of $100M of adjusted EBITDA in 2025.” https://www.businesswire.com/news/home/20201001005404/en/Playboy-to-Become-a-Public-Company Also, according to their Form 4s, “Big” Dong Liu and “lil” Suying Liu just loaded up with shares last week. These guys are brothers and seem like the Chinese market connection. They are only 32 & 35 years old. I don’t even know what that means, but it's provocative. https://www.secform4.com/insider-trading/1832415.htm https://finance.yahoo.com/news/mountain-crest-acquisition-corp-ii-002600994.html Y’all like that China money? “Mr. Liu has been the Chief Financial Officer of Dongguan Zhishang Photoelectric Technology Co., Ltd., a regional designer, manufacturer and distributor of LED lights serving commercial customers throughout Southern China since November 2016, at which time he led a syndicate of investments into the firm. Mr. Liu has since overseen the financials of Dongguan Zhishang as well as provided strategic guidance to its board of directors, advising on operational efficiency and cash flow performance. From March 2010 to October 2016, Mr. Liu was the Head of Finance at Feidiao Electrical Group Co., Ltd., a leading Chinese manufacturer of electrical outlets headquartered in Shanghai and with businesses in the greater China region as well as Europe.” Dr. Suying Liu, Chairman and Chief Executive Officer of Mountain Crest Acquisition Corp., commented, “Playboy is a unique and compelling investment opportunity, with one of the world’s largest and most recognized brands, its proven consumer affinity and spend, and its enormous future growth potential in its four product segments and new and existing geographic regions. I am thrilled to be partnering with Ben and his exceptional team to bring his vision to fruition.” https://www.businesswire.com/news/home/20201001005404/en/Playboy-to-Become-a-Public-Company These guys are good. They have a proven track record of success across multiple industries. Connections and money run deep with all of these guys. I don’t think they’re in the game to lose. I was going to write a couple more paragraphs about why you should have a look at this but really the best thing you can do is read this SEC filing from a couple days ago. It explains the situation in far better detail. Specifically, look to page 137 and read through their strategy. Also, look at their ownership percentages and compensation plans including the stock options and their prices. The financials look great, revenue is up 90% Q3, and it looks like a bright future. https://www.sec.gov/Archives/edgadata/1803914/000110465921005986/tm2034213-12_defm14a.htm#tSHCF I’m hesitant to attach this because his position seems short term, but I’m going to with a warning because he does hit on some good points (two are below his link) and he’s got a sizable position in this thing (500k+ on margin, I think). I don’t know this guy but he did look at the same publicly available info and make roughly the same prediction, albeit without the in depth gambling or cannabis mention. You can also search reddit for ‘MCAC’ and very few relevant results come up and none of them even come close to really looking at this thing. https://docs.google.com/document/d/1gOvAd6lebs452hFlWWbxVjQ3VMsjGBkbJeXRwDwIJfM/edit?usp=sharing “Also, before you people start making claims that Playboy is a “boomer” company, STOP RIGHT THERE. This is not a good argument. Simply put. The only thing that matters is Playboy’s name recognition, not their archaic business model which doesn’t even exist anymore as they have completely repurposed their business.” “Imagine not buying $MCAC at a 400M valuation lol. Streetwear department is worth 1B alone imo.” Considering the ridiculous Chinese growth as a lifestyle brand, he’s not wrong. Current Cultural Significance and Meme Value: A year ago I wouldn’t have included this section but the events from the last several weeks (even going back to tsla) have proven that a company’s ability to meme and/or gain social network popularity can have an effect. Tik-tok, Snapchat, Twitch, Reddit, Youtube, Facebook, Twitter. They all have Playboy stuff on them. Kids in middle and highschool know what Playboy is but will likely never see or touch one of the magazines in person. They’ll have a Playboy hoodie though. Crazy huh? A lot like GME, PLBY would hugely benefit from meme-value stock interest to drive engagement towards their new business model while also building strategic coffers. This interest may not directly and/or significantly move the stock price but can generate significant interest from larger players who will. Bull Case: The year is 2025. Playboy is now the world leader pleasure brand. They began by offering Playboy licensed gaming products, including gambling products, direct to consumers through existing names. By 2022, demand has skyrocketed and Playboy has designed and released their own gambling platforms. In 2025, they are also a leading cannabis brand in the United States and Canada with proprietary strains and products geared towards sexual wellness. Cannabis was legalized in the US in 2023 when President Biden got glaucoma but had success with cannabis treatment. He personally pushes for cannabis legalization as he steps out of office after his first term. Playboy has also grown their brand in China and India to multi-billion per year markets. The stock goes up from 11ish to 100ish and everyone makes big gains buying somewhere along the way. Bear Case: The United States does a complete 180 on marijuana and gambling. President Biden overdoses on marijuana in the Lincoln bedroom when his FDs go tits up and he loses a ton of money in his sports book app after the Fighting Blue Hens narrowly lose the National Championship to Bama. Playboy is unable to expand their cannabis and gambling brands but still does well with their worldwide lifestyle brand. They gain and lose some interest in China and India but the markets are too large to ignore them completely. The stock goes up from 11ish to 13ish and everyone makes 15-20% gains. TL;DR: Successful technology/e-commerce investment firm took over Playboy to turn it into a porn, online gambling/gaming, sports book, cannabis company, worldwide lifestyle brand that promotes sexual wellness, vetern access, women-ownership, minority-ownership, and “pleasure for all”. Does a successful online team reinventing an antiquated physical copy giant sound familiar? No options yet, shares only for now. $11.38 per share at time of writing. My guess? $20 by the end of February. $50 by EOY. This is not financial advice. I am not qualified to give financial advice. I’m just sayin’ I would personally use a Playboy sports book app while smoking a Playboy strain specific joint and it would be cool if they did that. Do your own research. You’d probably want to start here: WARNING - POTENTIALLY NSFW - SEXY MODELS AHEAD - no actual nudity though https://s26.q4cdn.com/895475556/files/doc_presentations/Playboy-Craig-Hallum-Conference-Investor-Presentation-11_17_20-compressed.pdf Or here: https://www.mcacquisition.com/investor-relations/default.aspx Jimmy Chill: “Get into any SPAC at $10 or $11 and you are going to make money.” STL;DR: Buy MCAC. MCAC > PLBY couple weeks. Rocketship. Moon. Position: 5000 shares. I will buy short, medium, and long-dated calls once available.
Lost in the Sauce: Rules finalized to take away LQBTQ rights, cement border wall, sell oil rights
Welcome to Lost in the Sauce, keeping you caught up on political and legal news that often gets buried in distractions and theater… or a global health crisis. I am doing a separate post for the insurrection and related events. I think it is important to make sure the news in this post doesn't get overlooked. Housekeeping:
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Russia
A new report by the Office of the Director of National Intelligence (ODNI) found that Trump political appointees politicized intelligence around foreign election interference in 2020, resulting in significant errors. ODNI analytic ombudsman Barry Zulauf delivered the report to Congress on Thursday: “Analysis on foreign election interference was delayed, distorted or obstructed out of concern over policymaker reactions or for political reasons.” The biggest misrepresentation of intel involved diminishing the threat posed by Russia and overstating the risk of interference from China.
“Russia analysts assessed that there was clear and credible evidence of Russian election influence activities. They said IC management slowing down or not wanting to take their analysis to customers, claiming that it was not well received, frustrated them. Analysts saw this as suppression of intelligence, bordering on politicization of intelligence from above.”
WaPo: Zulauf, a career official, also found an “egregious” example of attempted politicization of the Russian interference issue in March talking points on foreign election threats, prepared “presumably by ODNI staff” and “shaped by” then-Director of National Intelligence Richard Grenell.
The Justice Department and the federal judiciary revealed that the Russian Solar Winds hack also compromised their computer systems. 3% of the DOJ’s Microsoft Office 365 were potentially affected; it does not appear that classified material was accessed. The impact on the judiciary seems much more significant, jeopardizing “highly sensitive confidential documents filed with the courts.”
The sealed court files, if indeed breached, could hold information about national security, trade secrets and wiretap transcripts, along with financial data from bankruptcy cases and the names of confidential informants in criminal cases...
Appointees
D.C. Attorney General Karl Racine has accused U.S. Agency for Global Media Director Michael Pack of funneling $4 million in nonprofit funds to his own for-profit company. In a civil lawsuit filed last week, Racine states that for over 12 years, Pack used a nonprofit company he owned to direct money to his private documentary company, enabling “Pack to line his company’s coffers with a stream of tax-exempt dollars without...a competitive bidding process, public scrutiny, or accounting requirements regarding its spending.” Employees at Voice of America have filed a whistleblower complaint accusing Pack of using the agency “to disseminate political propaganda in the waning days of the Trump administration. The staffers take issue with a planned speech by Secretary of State Mike Pompeo to be broadcast from VOA headquarters. The event, to be attended by a live audience, “is a specific danger to public health and safety” in the middle of a pandemic. Finally, the whistleblowers say the event is “ a gross misuse of government resources,” costing at least $4,000 in taxpayer funds to date and using 18 employees who would otherwise be producing VOA content. Acting Defense Secretary Chris Miller has announced his appointees to the panel set to rename confederate military bases and plan the removal of confederate symbols/monuments. Most controversially, Miller named White House liaison Joshua Whitehouse, who oversaw the purge of the Defense Policy Board and the Defense Business Board last month. The other three Miller-appointees are former acting Army general counsel Earl Matthews, acting assistant secretary of Defense Ann Johnston, and White House official Sean McLean. The remaining four members will be appointed by the Senate and House Armed Services Committees.
The 10 Army posts named in honor of Confederate generals are Camp Beauregard and Fort Polk in Louisiana, Fort Benning and Fort Gordon in Georgia, Fort Bragg in North Carolina, Fort A.P. Hill, Fort Lee and Fort Pickett in Virginia, Fort Rucker in Alabama, and Fort Hood in Texas.
Trump
The Trump Inaugural Committee, a nonprofit, improperly paid a $49,000 hotel bill that should have been picked up by Trump’s for-profit business. D.C. Attorney General Karl Racine revealed the allegation in an existing lawsuit against the committee, which already accuses Trump’s hotel of illegally pocketing about $1 million of donors’ money. “The Trump Organization was liable for the invoiced charges...The [Committee’s] payment of the invoice was unfair, unreasonable and unjustified and ultimately conferred improper private benefit to the Trump Organization.” The Professional Golfer’s Association voted last night to move the 2022 PGA Championship from Trump’s Bedminster course. Jim Richerson, PGA of America president, said in a statement that “it has become clear that conducting” the championship at Trump’s property would “be detrimental to the PGA of America brand” and put the organization's ability to function "at risk." Amid speculation that Trump may spend inauguration day at his Scottish golf course, Scotland First Minister Nicola Sturgeon warned him that even presidents can’t break the country’s pandemic restrictions. “We are not allowing people to come into Scotland now without an essential purpose, which would apply to him, just as it applies to everybody else. Coming to play golf is not what I would consider an essential purpose,” she said. Trump is on a Presidential Medal of Freedom spree, giving out the award to sports figures and Republican allies. Last Monday, Trump awarded the medal to Rep. Devin Nunes for his work undermining the FBI’s investigation of Russia’s election interference. “Devin Nunes’ courageous actions helped thwart a plot to take down a sitting United States president,” the White House press release states. Likewise, Trump gave the medal to Rep. Jim Jordan (R-OH) for his “effort to confront the impeachment witch hunt” and “exposing the fraudulent origins of the Russia collusion lie.”
The day after Trump supporters rampaged through the Capitol, Trump awarded the medal to retired professional golfers Annika Sorenstam and Gary Player. The president planned on giving New England Patriots coach Bill Belichick the medal on Thursday, but he declined the offer, saying that “the tragic events of last week occurred and the decision has been made not to move forward with the award.”
Courts
Dominion Voting Systems filed suit against pro-Trump lawyer Sidney Powell for defamation. Powell falsely claimed that Dominion had rigged the election, that Dominion was created in Venezuela to rig elections for Hugo Chávez, and that Dominion bribed Georgia officials for a no-bid contract,” the lawsuit states. Citing millions spent on security for employees, damage control to its reputation, and future losses, Dominion requests damages of more than $1.3 billion.
Dominion's lawyer told reporters last week the lawsuit against Powell “is just the first in a series of legal steps.” Ari Cohn, a free speech and defamation lawyer, told WaPo: “If I had to guess I would say that [Poulos] wants a very public vindication with a ruling establishing that Sidney Powell defamed them and that her statements were baseless...That's not something you generally get in a settlement agreement.”
Just last week, Trump again said at a rally that Dominion machines allowed “fraudulent ballots” to be counted during the 2020 election (clip).
The Supreme Court declined to fast track eight Trump-related cases related to the 2020 election, ensuring they won’t be taken up before Biden’s inauguration. The cases include one brought by attorney Lin Wood against Georgia’s Secretary of State, the so-called “Kraken” cases, and three brought by Trump’s campaign. It is possible the lawsuits will be declared moot after Biden is sworn in. The Supreme Court has agreed to hear two cases alleging that the Treasury Dept. incorrectly distributed Coronavirus aid meant for tribal governments. The Lower 48 Tribes argue that Alaska Native Corporations (ANCs) are not eligible for CARES Act funding, while the Trump administration wants to divvy up the money between tribes and ANCs.
Immigration
A federal judge blocked the Trump administration’s final attempt to restrict U.S. asylum laws. District Judge James Donato (Obama appointee) ruled in favor of advocacy groups who argued that acting Homeland Security secretary Chad Wolf lacked authority to impose the new rules, which would have resulted in the denial of most asylum applications.
“The government has recycled exactly the same legal and factual claims made in the prior cases, as if they had not been soundly rejected in well-reasoned opinions by several courts,” Donato wrote. “This is a troubling litigation strategy. In effect, the government keeps crashing the same car into a gate, hoping that someday it might break through.”
On Monday, acting Homeland Security secretary Chad Wolf submitted his resignation, citing the recent court ruling that he is not a valid appointee to the position. His resignation letter does not cite the Capitol riots or Trump’s language inciting the insurrection. FEMA Administrator Pete Gaynor will be the new acting secretary.
"Unfortunately, this action is warranted by recent events, including the ongoing and meritless court rulings regarding the validity of my authority as Acting Secretary. These events and concerns increasingly serve to divert attention and resources away from the important work of the Department in this critical time of a transition of power," Wolf added.
A new Immigration and Customs Enforcement policy will make it harder for immigrant minors to obtain asylum in the U.S. The change was made at the end of last month by then-acting agency leader Tony Pham, who served in the position for less than five months.
Beginning Dec. 29, ICE officers were told that they must review whether an immigrant child is still “unaccompanied” each time they encounter the minor… The memo indicates that the evaluation by ICE officers can come at any time, including when an officer is reviewing immigration court records of a child, and if it’s determined that an immigrant is no longer unaccompanied, they will move to change their status. Such a change could lead to making some children ineligible to have their asylum claims initially heard and processed… “If implemented aggressively, this policy could significantly decrease the number of children who ultimately receive asylum in the United States,” said Sarah Pierce, an analyst at the Migration Policy Institute. “They are really putting the onus on ICE officers to do everything they can as frequently as they can to remove these designations.”
The Trump administration is still awarding border wall contracts, even in areas where private land has not yet been acquired. The move will make it more difficult for Biden to stop construction of the border wall.
Attempts to halt construction completely, as Biden promised, will prove difficult, particularly if contracts continue to be struck -- a challenge [acting Customs and Border Protection Commissioner Mark] Morgan acknowledged Tuesday. "They could terminate those contracts if they want to, but that's going to be a very lengthy, messy process," Morgan said. "We're going to have to go into settlement agreements with each individual contractor," Morgan added, noting, that payments will have to be made for what they've already done, as well as for materials produced. He estimated the process could cost billions.
Trump is set to visit Alamo, Texas, today to celebrate the completion of more than 400 miles of the border wall. You can watch the event on YouTube at 3:00 pm eastern.
Miscellaneous
Stories that didn’t fit in the above categories... The Trump administration auctioned off leases to drill oil in Alaska's Arctic National Wildlife Refuge last week. Only two private companies bid, each winning large tracts of land. Knik Arm Services, from Alaska, paid $1.6 million for a 50,000-acre tract along the Arctic Ocean. A subsidiary of Australian company 88 Energy paid $800,000 to win the smallest tract. One of the Health and Human Services Department’s final acts under Trump was finalizing the removal of Obama-era regulations barring discrimination among HHS grantees. The change will allow recipients of federal grant money - like adoption and foster agencies - to discriminate against LGBTQ people and those of a different religion.
Human Rights Campaign: “Statistics suggest that an estimated two million LGBTQ adults in the U.S. are interested in adoption… Further, research consistently shows that LGBTQ youth are overrepresented in the foster care system, as many have been rejected by their families of origin because of their LGBTQ status, and are especially vulnerable to discrimination and mistreatment while in foster care. This regulation would only exacerbate these challenges faced by LGBTQ young people.
This was given an 11 price target (closed over that today) but I think this will be a good long term hold and here is why. The CEO/founder has been involved with online gambling since 1996(!!!). Also, their CIOJohn Brackens was an Activision Blizzard networks manager. They've been in purchase mode recently and bought ggCircuit, a B2B cloud-based management for LAN centers, a tournament platform, and integrated wallet/point-of-sale solutions for enterprise customers. ggCircuit has over 1,000 connected locations and has worked with enterprises such as GameStop, Dell, Best Buy and Lenovo as well as universities such as Ohio State, Syracuse and North Carolina. Their ggLeap product has over 60 million hours of usage by over two million unique gamers on tens of thousands of public gaming screens inside centers worldwide. Also, they bought Helix esports. Helix eSports owns five esports centers, including two of the five largest centers in the US, where they deliver world-class customer service, esports programming and gaming infrastructure. ALSO, they bought Esports Gaming League (EGL). HAS OVER 350K registered gamers. "EGL is a great addition to our growing operations and further strengthens our ability to execute on our three-pillar strategy," commented Grant Johnson, CEO of Esports Entertainment Group. "EGL technology underpins the esports programs for some of the world's best-known sports franchises, including the LA Kings, Philadelphia Eagles, and Arsenal Football Club. We plan to build on this strong foundation moving forward, driving near-term revenue growth and long-term shareholder value improvement." You see the trend, and there is more companies than I listed purchased in the past twelve months. Another thing to consider: -$4.3 Billion in Bets Placed on Super Bowl LV Online bets skyrocketing up by 63% with no signs of slowing -36 million more Americans can now legally bet compared to one year ago, with the addition of Colorado, Illinois, Michigan, Montana, Tennessee, Virginia and Washington, DC. How does this translate to this company? People are showing a willingness to bet and it's available to a wider audience than ever before. Here is what I posted before: Business: egaming platform for gambling and tournaments. They also have other gambling functions, I believe egames you can gamble on is something they just bought (lucky dino). They also partnered with the Philadelphia eagles to provide esport tournaments, last month I believe, first partnership with a professional team and an egaming gambling site(this was prior to SKLZ). More partnerships could lead to growth as no other professional franchises have a partnership yet for tournaments. Financials: heavy dilution this past year, just started generating revenue in Q3, negative net income. The company they just bought is internet gambling site they just bought had 21M in revenue last year, est 28M for 2021. Company has very low debt, biggest liability is warrant liability of a few million. 8M of cash on hand, could get through at least 2 quarters without any additional positive cash flow (potentially some more dilution i would imagine). Small institutional ownership (1%) but large insider ownership (35%) Financials drop Feb 20th, so some DD on this let me know what you think. This company is worth around 150M(on 2/8), for comparison draftkings is over 46B and cathie wood also entered this sector buying draftkings so this could be on her list also.
Hi there. So, my MIL has been neglecting my FIL following his massive stroke this summer. My SO and myself aren't too sure what options we entirely have. This is going to be quite long but where my FIL is a year away from being considered elderly, it irks me even more. My two childhood through teenage best friends (I'm 28) were my Grandfather and his long time friend and neighbor. They would both be over 100 if still alive today, 110 and 101, respectively. I always have felt very strongly about respecting those that have lived a full life. The background of MIL and FIL: MIL has an addiction to pills (anxiety and opiates) and also a severe gambling habit which is funded by stealing, begging from family, and pawning FIL vast firearms collection. MIL has been manipulative, emotionally and physically abusive towards her LOs including my SO (from childhood and into 30s including after our marriage). MIL is a highly tactical conartist. FIL is polar opposite of MIL. He is a deep-rooted traditional Appalachian man. Myself and SO care greatly about FIL. FIL suffered massive stroke in late spring which has altered him into a somewhat impaired state all around. FILs memory comes and goes. Tends to be dementia-like where FIL functions quite well, overall, during the core part of the day but his memory will begin to slide by the end of the day and he becomes a very different person. Forgetful, lapses in judgment, highly irritable, etc. FIL also has speech and some physical issues resulting from stroke including very little grip strength and also occasional incontinence. The issue: MIL has been so high up on pills and used all their money gambling over the last couple of years that the house is in disrepair, should be condemned. Kitchen is beyond unsanitary with rotten food and meat all over the counters, in the sink, in scattered pots and on plates. Maggots and flies everywhere. Additionally there are plumbing issues such as a bucket under sinks as MIL scrapped some of the visible copper piping. FIL is at the point with his condition post stroke that MIL controls most of his beliefs and thoughts. FIL is a stubborn man, stuck in his ways with a need for independence. Most of us know the type. MIL has made zero changes with his diet and habits. FIL still smokes 1 to 2 packs of cigarettes a day, lives largely off of fast food (Big Macs, cheeseburgers, and pizza) drinks a lot of soda and coffee. FIL is also diabetic, insulin dependent. MIL encourages the behavior and 10000% enables it. MIL also allows complete access to his firearms (just to be clear, I am a big time 2A supporter personally, but FIL nor MIL are in any mental capacity to possess firearms). MIL let's FIL take the car out at any hour of the day and doesn't care where FIL drives (this is very very deep in Appalachia, if you know what a holler is, you understand the types of roads I am talking about). Today, FIL was trying to open a package with a knife and cut himself on the finger. MIL calls SO while we were eating dinner at a restaurant and said "[FIL] is hurt and not responding, waiting for ambulance now". MIL would not elaborate or answer return calls. Since myself and SO were dining out, we were close, about 6 miles upstream. SO and I just drove straight to FIL/MIL house and the paramedics were on site already. FIL was conscious, had a bad cut on finger, and was arguing with the medics refusing to go to the hospital. I was able to convince FIL to go when he realized who I was. MIL said FIL lost consciousness in the hallway after the cut. A 13 year old family member was also present and the sorry was corroborated. Later, my FILs 88 year old mother, retired nurse, called SO and I and told us she believed he had actually had another stroke or perhaps a TIA but that she called the doctor and the doctor also believed that to be the case but FIL checked himself out, AMA, before they could get the proper testing done. The entire family believes that MIL is being grossly neglectful towards the care and the overall interest of FIL. Since this is our first time having to face this sort of an issue, we aren't sure what, if any, legal steps that can be taken. FIL is still considered independent and does not have any sort of legal caregiver or anything like that, regardless of our belief that FIL needs a guardian. This is a complex situation, along with covid being the sole concern to most at this time, and the fact that for better or worse this is West Virginia where some things are great but plenty, including out state system, are grossly mismanaged, understaffed, and underfunded. Any actual advise aside from the obvious like "Get FIL out now" would be so greatly appreciated. God bless.
Crosspost from wsb Hi everyone, I have started doing weekly valuations and daily market debriefs. What makes me qualified to do this? I work in buyside and get paid to do this. For this week I look at DraftKings, let me know what names you would like me to do next week as well as your feedback. Here is my non-investment advice on DraftKings. What’s new: DKNG reported Quarterly adjusted revenues of $133mn (+42% year-over-year (y/y)), which was at the high-end of the pre-announced $131mn-$133mn range. (link) DKNG also reported adjusted EBITDA of -$197mn, better than Wall St. Consensus expectation of -$203mn. Also with the earnings release, management increased revenue guidance to $540mn to $560mn, and introduced 2021 revenue guidance of $750mn-$850mn (+45% y/y at the midpoint), the consensus estimate was $776mn. This range doesn’t include contributions from Michigan or Virginia, which could both launch online sports betting late this year or early next. Management’s guidance assumes that they continue to operate in all states where they are currently live and announced sport calendars aren’t disrupted. Valuation Methodology: I continue from my initial valuation of DKNG last week – What’s clear is that more states will legalize betting and more Americans will be exposed to sports betting and online gambling avenues and the market will grow overall. What is less clear, however, is how fast this market will grow. I approach this valuation by starting high level, focusing on the growth of online betting markets, and then following with DKNG’s market share of the future betting markets. I believe DKNG is simply a beneficiary of overall online betting market growth, not some standalone idiosyncratic tech pioneer, therefore I believe starting with Total Available Market (TAM) is the best approach for a valuation here. From Deutsche Bank in their updated Note on DKNG ‘Limited Changes to Forecasts’ “We expect the market to continue to trade shares around TAM and growth trajectory views, much of which will be dictated by the pace of legalization and investors garnering a better understanding of how [that] ultimately flows to net revenue and, down the road, EBITDA.” We use 2025 EBITDA as anything beyond five years is simply impossible to predict. Feel free to disagree with me in the comments and tell me why you disagree. I try to keep this analysis high level so we can plug and play growth figures for both the market and DKNG’s share of that future market because analyzing line items or on modelling on revenue multiples, is a pointless exercise for growth companies because appreciating from $500M to $5B is way more likely than $100B to $1trn. This is a rapidly changing company in a disruptive industry and it’s stock price reflects expectations of the future of American online gambling and DraftKings’ ability to capture an increasing share of that market growth. How is the Street valuing DKNG?: Goldman is Neutral rated with a 12-month price target of $53 based on equal parts 2030 EV/EBITDA (discounted), 21.3X 2024 Sales, and a Discounted Cash Flow model. Morgan Stanley is in-line and equal-weighted with a price target of $37 valuing DKNG on a 18.5x 2025 EBITDA model. 18.5X is a comparable tech multiple. Deutsche Bank models DKNG at a price target of $48 on a multiples of 25x 2027 EBITDA, discounted at 5% for 5 years. They note that every 10% move in EBITDA from their current forecast is worth ~$4 to their Price Target and every multiple point is ~$2. Our Model: I start off with management’s 45% y/y growth figure for 2021. I credit DKNG with this growth next year, then crucially, I decrease the growth rate by 5% every year forward, so 40% growth in 22, 35% in 23, etc. because DKNG is starting from a smaller revenue base so 45% will be easier to achieve in 21 than it will be from a higher base in 23. If the online sports betting and gambling markets grow at these rates from 2020-2025 (about a 35% annual growth rate), and DKNG is able to capture a 23% blended total market share of these markets, at a 30% EBITDA margin and 18.5x EBITDA multiplier (we borrow this from MS), I get a valuation of around $39, implying ~9% downside. Let’s look closer: I start off by estimating the online sports betting and gambling market size below. I go off the estimated 2020 figure of around $3.14bn – $1.33bn from sports gambling, $1.5bn from iGaming, and $286mm from Daily Fantasy. Next I grow them by the CAGR’s in the previous paragraph and you see the results. For purposes of this valuation I designate this growth profile as my Base case. I don’t want you to stay fixated on the ~35% CAGR but rather to see the effects of the rate on overall market size come 2025. We can argue all day about the numbers, but trying to estimate the growth of the market to the decimal for 5 years out is not an efficient exercise. This is still a nascent market experiencing a lot of disruption with no clear predecessor case studies. We get a TAM of over $14bn in 2025 with our estimates. Is this a reasonable TAM: Deutsche Bank is a noted Bear on this sort of sports betting TAM Share argument in the 20bn to 25bn range for sports betting. They say in their “A Lot of Unfounded “Expectations” at a Lofty Price; Remain Sell” Note on Penn National, “Said simply, in the period from March 2019 through February 2020, prior to the pandemic, the per adult spend on sports betting (GGNJ adult population) was $51. Given there are 240 mm adults in the US, to arrive at even a $20bn TAM, implied that not only does every state legalize and all 240 mm adults can bet sports on their mobile phones, but that … the adult spend grows by ~65% from this $51 level”. I look at the idea of full legalization and spend per adult in the table below. To get to our $20bn TAM, indeed every US adult would need to be spending $84 a year on sports betting and online gambling. This ties out with DB’s 65% figure. Next I estimate the DraftKings’ EBITDA based on the market size and their share of this future market. An important point is DKNG’s promotions and how much it subtracts from top-line revenue. We use 20% here, but management has stated in the past that promotions are generally in the high 20%’s. We give DKNG credit for being able to continue to decrease promotional activity in the future, so for our 2025 EBITDA analysis we settle on 20%. Just for reference, promotions were ~26% in Q1 and Q2 of this year. I use a healthy 30% EBITDA margin across all levels of market share and market size. As you can see, our Base Case is $785 mm in EBITDA for 2025. Not bad for a company expected to have over negative $400mm in EBITDA for 2020. Finally, given the current stock price of $42.84 at close on 11/13, what is the implied 2025E EBITDA multiple for all these scenarios? Every additional turn in the EBITDA multiple adds ~$2 to our price and every additional $100 mm in 2025 EBITDA adds ~$5. If the market grows by only 15%/ year with lower market share and EBITDA margins in our Bear Case, we get a valuation of $14. Likewise, if the market grows at 45%/year with higher market share and EBITDA margins in our Bull Case, we get a $75 valuation. Upside Risks to Valuation:
Stronger than expected performance in 2021, which could accelerate growth in TAM realizations
Better-than expected margin performance, especially less promotion activity that eats into top-line revenue
DKNG is able to take outsized market share
Favorable regulatory events and large states making progress toward sports betting
Downside Risks to Valuation:
Considerable stock unloaded coming off management lockup agreements from the IPO
TAM expectations becoming more muted, leaving far-out forecasts like the 2025 EBITDA we use being especially vulnerable
Promotional activity could last longer than we think and be a drag on revenue
Greater impact from competitors, leading to decreased market share and/or further necessitated promotional spend
Hello degens, I have started doing weekly valuations and daily market debriefs. What makes me qualified to do this? I work in buyside and am semi-literate. Here is my non-investment advice on DraftKings. What’s new: DKNG reported Quarterly adjusted revenues of $133mn (+42% year-over-year (y/y)), which was at the high-end of the pre-announced $131mn-$133mn range. (link) DKNG also reported adjusted EBITDA of -$197mn, better than Wall St. Consensus expectation of -$203mn. Also with the earnings release, management increased revenue guidance to $540mn to $560mn, and introduced 2021 revenue guidance of $750mn-$850mn (+45% y/y at the midpoint), the consensus estimate was $776mn. This range doesn’t include contributions from Michigan or Virginia, which could both launch online sports betting late this year or early next. Management’s guidance assumes that they continue to operate in all states where they are currently live and announced sport calendars aren’t disrupted. Valuation Methodology: I continue from my initial valuation of DKNG last week – What’s clear is that more states will legalize betting and more Americans will be exposed to sports betting and online gambling avenues and the market will grow overall. What is less clear, however, is how fast this market will grow. I approach this valuation by starting high level, focusing on the growth of online betting markets, and then following with DKNG’s market share of the future betting markets. I believe DKNG is simply a beneficiary of overall online betting market growth, not some standalone idiosyncratic tech pioneer, therefore I believe starting with Total Available Market (TAM) is the best approach for a valuation here. From Deutsche Bank in their updated Note on DKNG ‘Limited Changes to Forecasts’ “We expect the market to continue to trade shares around TAM and growth trajectory views, much of which will be dictated by the pace of legalization and investors garnering a better understanding of how [that] ultimately flows to net revenue and, down the road, EBITDA.” We use 2025 EBITDA as anything beyond five years is simply impossible to predict. Feel free to disagree with me in the comments and tell me why you disagree. I try to keep this analysis high level so we can plug and play growth figures for both the market and DKNG’s share of that future market because analyzing line items or on modelling on revenue multiples, is a pointless exercise for growth companies because appreciating from $500M to $5B is way more likely than $100B to $1trn. This is a rapidly changing company in a disruptive industry and it’s stock price reflects expectations of the future of American online gambling and DraftKings’ ability to capture an increasing share of that market growth. How is the Street valuing DKNG?: Goldman is Neutral rated with a 12-month price target of $53 based on equal parts 2030 EV/EBITDA (discounted), 21.3X 2024 Sales, and a Discounted Cash Flow model. Morgan Stanley is in-line and equal-weighted with a price target of $37 valuing DKNG on a 18.5x 2025 EBITDA model. 18.5X is a comparable tech multiple. Deutsche Bank models DKNG at a price target of $48 on a multiples of 25x 2027 EBITDA, discounted at 5% for 5 years. They note that every 10% move in EBITDA from their current forecast is worth ~$4 to their Price Target and every multiple point is ~$2. Our Model: I start off with management’s 45% y/y growth figure for 2021. I credit DKNG with this growth next year, then crucially, I decrease the growth rate by 5% every year forward, so 40% growth in 22, 35% in 23, etc. because DKNG is starting from a smaller revenue base so 45% will be easier to achieve in 21 than it will be from a higher base in 23. If the online sports betting and gambling markets grow at these rates from 2020-2025 (about a 35% annual growth rate), and DKNG is able to capture a 23% blended total market share of these markets, at a 30% EBITDA margin and 18.5x EBITDA multiplier (we borrow this from MS), I get a valuation of around $39, implying ~9% downside. Let’s look closer: I start off by estimating the online sports betting and gambling market size below. I go off the estimated 2020 figure of around $3.14bn – $1.33bn from sports gambling, $1.5bn from iGaming, and $286mm from Daily Fantasy. Next I grow them by the CAGR’s in the previous paragraph and you see the results. For purposes of this valuation I designate this growth profile as my Base case. I don’t want you to stay fixated on the ~35% CAGR but rather to see the effects of the rate on overall market size come 2025. We can argue all day about the numbers, but trying to estimate the growth of the market to the decimal for 5 years out is not an efficient exercise. This is still a nascent market experiencing a lot of disruption with no clear predecessor case studies. we get a TAM of over $14bn in 2025 with our estimates Is this a reasonable TAM: Deutsche Bank is a noted Bear on this sort of sports betting TAM Share argument in the 20bn to 25bn range for sports betting. They say in their “A Lot of Unfounded “Expectations” at a Lofty Price; Remain Sell” Note on Penn National, “Said simply, in the period from March 2019 through February 2020, prior to the pandemic, the per adult spend on sports betting (GGNJ adult population) was $51. Given there are 240 mm adults in the US, to arrive at even a $20bn TAM, implied that not only does every state legalize and all 240 mm adults can bet sports on their mobile phones, but that … the adult spend grows by ~65% from this $51 level”. I look at the idea of full legalization and spend per adult in the table below. my estimates To get to our $20bn TAM, indeed every US adult would need to be spending $84 a year on sports betting and online gambling. This ties out with DB’s 65% figure. Next I estimate the DraftKings’ EBITDA based on the market size and their share of this future market. An important point is DKNG’s promotions and how much it subtracts from top-line revenue. We use 20% here, but management has stated in the past that promotions are generally in the high 20%’s. We give DKNG credit for being able to continue to decrease promotional activity in the future, so for our 2025 EBITDA analysis we settle on 20%. Just for reference, promotions were ~26% in Q1 and Q2 of this year. I use a healthy 30% EBITDA margin across all levels of market share and market size. As you can see, our Base Case is $785 mm in EBITDA for 2025. Not bad for a company expected to have over negative $400mm in EBITDA for 2020. my estimates Finally, given the current stock price of $42.84 at close on 11/13, what is the implied 2025E EBITDA multiple for all these scenarios? Here’s a table summarizing that below: At the close of 11/13 DKNG is valued at 20.38x our 2025 estimated EBITDA based on our model assumptions and estimates Every additional turn in the EBITDA multiple adds ~$2 to our price and every additional $100 mm in 2025 EBITDA adds ~$5. If the market grows by only 15%/ year with lower market share and EBITDA margins in our Bear Case, we get a valuation of $14. Likewise, if the market grows at 45%/year with higher market share and EBITDA margins in our Bull Case, we get a $75 valuation. I layout some clearer BeaBase/Bull Case scenarios at the bottom as well in more detail: https://preview.redd.it/00glviwy0qz51.png?width=888&format=png&auto=webp&s=79caa9668938824c4a72a08756fc7112f9e68b77 https://preview.redd.it/vnw9yn8x0qz51.png?width=883&format=png&auto=webp&s=6d70a6abf1c30558d116063886e5fb5678d749de Upside Risks to Valuation:
Stronger than expected performance in 2021, which could accelerate growth in TAM realizations
Better-than expected margin performance, especially less promotion activity that eats into top-line revenue
DKNG is able to take outsized market share
Favorable regulatory events and large states making progress toward sports betting
Downside Risks to Valuation:
Considerable stock unloaded coming off management lockup agreements from the IPO
TAM expectations becoming more muted, leaving far-out forecasts like the 2025 EBITDA we use being especially vulnerable
Promotional activity could last longer than we think and be a drag on revenue
Greater impact from competitors, leading to decreased market share and/or further necessitated promotional spend
Negative legislative outcomes
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I spent the whole of last week reading up on the AS Roma takeover by the Friedkin Group. What follows is a brief essay I wrote up over the weekend. What do you think?
In 1969, Thomas Hoyt Friedkin, signed a franchise deal with Toyota to distribute their automobile vehicles and parts in the Houston area of Texas. The company was called the Gulf States Toyota Distributors. Three years later, in 1972, the company employed 35 associates and had sold over 5000 Toyota cars and trucks through 14 dealerships. Since then, it has accounted for over 13% of all Toyota sales in the United States across the five states of Arkansas, Louisiana, Mississippi, Oklahoma, and Texas. The Gulf States Toyota Distributors is now a wholly-owned subsidiary of the Friedkin Group, which is now led by Thomas Friedkin’s son, Daniel. The Friedkin Group now encompasses a consortium of companies across many industries - automotive, hospitality, entertainment, and sports. On 17th August 2020, Italian football club AS Roma announced that it had been acquired in a €591million deal with the Friedkin Group. This takeover brought an end to the 8-year reign of the former Boston-based club owner James Pallotta, who took over the club in August of 2012. The investment was made via a Special Purpose Vehicle (SPV) - Romulus and Remus Investments LLC - a company incorporated under the laws of the state of Delaware in the United States. This takeover meant that the Friedkin Group now owned 86.6% of the club owning a total of 544,468,535 at the price of €0.1165 per share. The remaining 13.4% of the club’s share capital is publicly owned, with the Friedkin Group initiating a mandatory tender offer upon these publicly-owned shares. Stumbling Blocks In the semi-annual Financial Report released by AS Roma for the 2019-20 financial year, the Giallorossi earned €94.641 million as its income. This is approximately €40 million less than this time last year. As for the total costs incurred by the club during this time, there was a slight decrease from last year dropping from €136 million to €123 million. Part of the reason for this loss in revenue was the dissolution of the agreement AS Roma had with their training kit sponsor Betway. In July 2018, the Italian government had passed the “Dignity Decree” - a legislation that prohibits the advertising of gambling logos, forcing the club to terminate their relationship with the betting company. In the first 9 months of the 2019/20 financial season, the Giallorossi sustained losses totaling €126 million, with the total debt at €280 million. This is not a one-off situation either. Roma has been struggling financially for quite some time now. For instance, revenue dropped down €17m to €236m, mainly due to less progress in the Champions League. Television revenue also went down 13% to €145m. So did matchday revenue, which dropped 14% to €34m. The good news is that commercial revenue was up €10m to €55m, and revenues from player sales went up 19% from €320m to €380m. The Road Ahead The revenue highlights show that it’s important for the Giallorossi to qualify for the Champions League and go a step ahead. The 2018/19 revenue of €236m was greatly influenced by revenues directly received from the Champions League, earning the club almost €66m. This was not as much as last year’s revenue though, with Roma earning €98m from the Champions League. This is part of the reason that the Friedkin Group took over the capital-based club. The new Board of Directors includes a mix of astute businessmen and financial lawyers who bring the necessary expertise to run the club. For instance, besides the Chairman Dan Freidkin, the BOD includes people like Marc Watts, who is President of The Friedkin Group. Partner at taxation law firm Salvini and Partners, Ines Gandini also joins the BOD bringing her years of taxation experience into the club. In addition, Professor of legal financial regulations Mirella Pellegrini also joins the BOD, as does Eric Williamson, who is the VP of the Friedkin Business Development Group. There is also on the BOD Benedetta Navarra, who represents Unicredit - one of AS Roma’s creditors. A new Executive committee has also been formed consisting of Dan Friedkin, Ryan Friedkin, Marc Watts, Eric Williamson with Guido Fienga as CEO. Fienga had started working with AS Roma under the Pallotta regime as the Strategy and Media Director in 2013, before being appointed as Chief Operating Officer last year, where he handled the day-to-day operations of the club. He will now be assisted by Ryan Friedkin, son of Daniel Friedkin, who has since moved to Italy and will be running the club’s day to day operations with Fienga. One of the criticisms leveled against Pallotta was the lack of progress in building the much-needed new stadium for the club. This is something that the new management will have to take on. In pursuing the Stadio Della Roma project, they will have to work closely with city Mayor Virginia Raggi - who is known to be on good terms with CEO Guido Fienga. So far, the moves made by the Friedkin Group look good on paper. They will also be getting a helping hand from the Pallotta group until the end of December to sort out their financial woes. The arrival of Pedro and Jordan Veretout will add much-needed firepower to their on-field performances too. Whether this acquisition is something the AS Roma fans will remember with fond memories, only time will tell PS: If you're reading this far, please consider subscribing to Your Weekend Beer - a weekend newsletter on the business of football. PPS: You can read the full issue (Essay + Non essay) here
Hi frodos_paw, you're not shadowbanned, but 49 of your most recent 105 comments/submissions were removed (either automatically or by human moderators).
Comments:
gaozlot in personalfinance on 31 Oct 20 (1pts):
Absolutely dispute with your bank. They can't just reach into your account and grab whatever they want for whatever amount they want for any reason. Follow the dispute procedure to the letter, it...
gao5dag in personalfinance on 31 Oct 20 (1pts):
Once you pay the entire balance due including penalty, send a letter requesting they refund the penalty. They may, they may not. The interest is statutory and cannot be waived.
gajvrui in personalfinance on 30 Oct 20 (1pts):
Considering you don't need to take a loan it's not worth losing 3k just so you have a loan on your credit report.
gafxdfo in personalfinance on 29 Oct 20 (1pts):
You should lock down your credit. but you're not getting the money back. If somehow your bank blocks the money going to Zelle, which is unlikely, Zelle will send you to collections and damage your...
gafv4pb in personalfinance on 29 Oct 20 (1pts):
Never put money down on a lease. If you total the vehicle tomorrow that money is gone.
gafuslb in personalfinance on 29 Oct 20 (1pts):
Is it still with Quest or is it with a collection agency? Have you reviewed the EoB from your insurance company for your recent visits to see if you owe this?
gafunwh in personalfinance on 29 Oct 20 (1pts):
Good. Some people ignore that thinking it's safe because "after all I'm talking to my bank!"
gafuk8y in personalfinance on 29 Oct 20 (1pts):
Banks like to loan money. If he's getting turned down that means they consider him a bad credit risk. Absent getting a cosigner, which is not something you should ask of anybody, no he probably...
gafsknw in personalfinance on 28 Oct 20 (1pts):
Then you will get sued and have a judgement against you which will last the rest of your life and they can even take money from your estate.
gafsj0u in personalfinance on 28 Oct 20 (1pts):
It's very unlikely they would accept $10 a month on a 10k bill
gafp81x in personalfinance on 28 Oct 20 (1pts):
It would be April 19, 2021. 12 full months. April 20, 2020 to April 1, 2021 is 11 months and 10 days.
gaepwnj in personalfinance on 28 Oct 20 (1pts):
Medicine isn't math. Sometimes doctors are wrong. The purpose of an ER is primarily to save your life. You can ask but don't allow your credit to be ruined over this.
gacdy0l in personalfinance on 28 Oct 20 (1pts):
If you pay the full balance of the notice including penalties and interest then you won't owe taxes for that year to Virginia. The collection agencies aren't allowed to lie to you. Some States...
gaccs0j in personalfinance on 28 Oct 20 (1pts):
The good news is that if you really want to spend the time churning and don't mind a slightly lower credit score you can make some decent money doing it. There is a sub dedicated to it. Look at this...
gaccl0h in personalfinance on 28 Oct 20 (1pts):
Probably they will sue you before the SoL is up. It's very unlikely this is just going away.
gac7c8m in personalfinance on 28 Oct 20 (1pts):
Do you need another credit card? Will you be taking advantage of the rewards? What's your goal here? Just having lots of credit cards isn't financial success.
gac5miw in personalfinance on 28 Oct 20 (1pts):
If your payroll department does it right you will get 2 W-2s. One for CA with a small amount of wages and CA witholding and a second one for all your wages since then in your new State.
gabzoem in personalfinance on 28 Oct 20 (1pts):
There's no "too soon" unless you have a prepayment penalty (unlikely) or some other fee associated with the new loan. The sooner you can move debt to a lower interest rate, the better. (now of...
gabzh57 in personalfinance on 28 Oct 20 (1pts):
That's an insane rate. You follow the application at whatever lender you're applying with. There's no universal form you fill out. Why is your credit so low? Do you have accounts in collections,...
gabtztf in personalfinance on 27 Oct 20 (1pts):
Instead of all that, OP first should try following the terms of the contract he signed before that level of escalation. Their "legal address" will be in the contract, and nobody needs a lawyer to...
gabon3d in personalfinance on 27 Oct 20 (1pts):
What's your deductible?
gabo9hp in personalfinance on 27 Oct 20 (1pts):
If it's not on your credit report then if you pay it now it probably won't be reported. The greater risk here is getting sued which you want to avoid, because there's nothing you can do to keep that...
gabo1kk in personalfinance on 27 Oct 20 (1pts):
It's entirely possible they may deny you service, that's up to them. We can't predict that. They may be willing to settle for less than the full amount, again up to them.
gabnvbj in personalfinance on 27 Oct 20 (1pts):
Even if you surrender the car you could still end up owing a great deal of money because it will be sold at auction for only a fraction of what it's worth especially given the damage. There is no...
gabjp1b in personalfinance on 27 Oct 20 (1pts):
You can bet your last nickle the IRS will be on high alert for anybody claiming this sort of deduction who has not in the past. You'll be putting a bullseye on your return for an audit. Make sure...
gabjki3 in personalfinance on 27 Oct 20 (1pts):
did she keep proof of returning the box?
gabfj98 in personalfinance on 27 Oct 20 (1pts):
There is only one sensible thing to do. Fix the car and don't drive it again until you have insurance. A "voluntary surrender" is just a euphemism for "a repo that doesn't happen at 3 in the...
gabf8zc in personalfinance on 27 Oct 20 (1pts):
Once you establish domicile, you are subject to that State's taxation. Your employer should be reporting the income to the state you living in at the time the payment is made.
gabf03p in personalfinance on 27 Oct 20 (1pts):
Assuming for one minute they would qualify for a loan, which is very doubtful consider your mother wrecked her credit, they only make sense if they are at a lower interest. It's doesn't make the...
gabehxe in personalfinance on 27 Oct 20 (1pts):
Yes very possible. It's a new loan. it will depend on your credit. is this person who cosigned also on the title or just the loan?
gabd9r7 in personalfinance on 27 Oct 20 (1pts):
Mathematically it depends on the interest rates. The big risk with a HELOC is if you default you can lose your home.
gabc3gj in personalfinance on 27 Oct 20 (1pts):
It's not your fault but you still have to deal with it. A 3 way call is the best step to try and resolve this. The money is somewhere with Kaiser they just need to find it.
gabag0p in personalfinance on 27 Oct 20 (1pts):
That's very likely to happen. Those who provided medical care and other debts get priority over the estate. There's no trick to avoiding this. They have every right to collect from his estate. If...
gaba95x in personalfinance on 27 Oct 20 (1pts):
This is a common scam. They are betting you will give up because it's not worth the cost to return to China. Retain records of all communications. Contact your credit card company. Follow the...
ga864fi in personalfinance on 27 Oct 20 (1pts):
Keep in mind there is no way I can fix this gambling issue until I get back to 2000
Yes there is. You can accept what you've lost and never do it again and get help for your gambling addiction.
ga84fvl in personalfinance on 27 Oct 20 (1pts):
If you can immediately pay it back why put it on a credit card in the first place?
ga84bn0 in personalfinance on 27 Oct 20 (1pts):
You are not required to work any set amount of hours. They cannot legally dock your pay by the hour on days you worked, but they can dock your pay for full day absences and make you use your PTO to...
ga843re in personalfinance on 27 Oct 20 (1pts):
This is more of a legal issue. What did you agree to in writing if anything?
ga81ngl in personalfinance on 27 Oct 20 (1pts):
If you're getting a full refund I'm not sure what else you want to happen.
ga7r0nn in personalfinance on 26 Oct 20 (1pts):
Nothing is going to happen overnight. Call them in the morning.
ga7qkus in personalfinance on 26 Oct 20 (1pts):
Have you talked to your insurance? That's the first step.
ga7qhel in personalfinance on 26 Oct 20 (1pts):
Keep watching your statement and dispute any other unauthorized charges. everything on beenverified is a matter of public record.
ga7q5cz in personalfinance on 26 Oct 20 (1pts):
Is this some sketchy internet job from somebody you've never met?
ga7pwam in personalfinance on 26 Oct 20 (1pts):
Not on that grounds. Clerical errors don't undo debts. Contact them about a payment plan if you can't afford the whole bill at once.
ga7pv49 in personalfinance on 26 Oct 20 (1pts):
Just say no and keep saying no. He can't force you to sign anything. Of course you have a choice in the matter.
ga685p8 in personalfinance on 26 Oct 20 (1pts):
They won't know your personal tax situation. Per IRS rules they can withhold at 22% or combine with your regular income. Those are the only 2 allowable methods to calculate withholding on...
ga67uq9 in personalfinance on 26 Oct 20 (1pts):
Please say you file taxes because if you don't you need to get that cleared up and pay everything you owe before you get a mortgage.
Welcome to Lost in the Sauce, keeping you caught up on political and legal news that often gets buried in distractions and theater… or a global health crisis. Figuring out how to divide the COVID-19 content from the “regular” news has been difficult because the pandemic is influencing all aspects of life. Some of the stories below involve the virus, but I chose to include them when it fits into one of the pre-established categories (like congress or immigration). The coronavirus-central post will be made again this Thursday-Friday; the sign up form now has an option to choose to receive an email when the coronavirus-focused roundup is posted. House-keeping:
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Let’s dig in!
MAIN COURSE
Congress passes stimulus
Last week started out with a Republican-crafted stimulus bill that was twice-blocked by Senate Democrats, who objected to the lax conditions of aid to corporations, too little funding for hospitals, and a $500 billion “slush fund” for big companies to be doled out by Treasury Secretary Steve Mnuchin with no oversight. Conservative-Democrat Joe Manchin (WV) even criticized the GOP bill:
“It fails our first responders, nurses, private physicians and all healthcare professionals. ... It fails our workers. It fails our small businesses… Instead, it is focused on providing billions of dollars to Wall Street and misses the mark on helping the West Virginians that have lost their jobs through no fault of their own.”
Through negotiations, Democrats shifted the bill in a more-worker friendly direction. The version that passed includes the following Democrat-added provisions: expanded unemployment benefits, $100 billion for hospitals, $150 billion for state and local governments, direct payments to Americans without a phase-in (ensuring low-income workers get the full amount), a ban on Trump and his children from receiving aid, and oversight on the “slush fund” (see next section for more info). Senate Democrats also managed to remove a provision that would have excluded nonprofits that receive Medicaid funding from the small-business grants.
Further reading: After Senate Democrats blocked the Republican-crafted bill, House Speaker Nancy Pelosi led the House Democrats in releasing their own version, a best-case scenario of their dream coronavirus stimulus bill. It is interesting to contrast what the Democrats prioritized to what the Republicans focused on: “How the House Democrats' stimulus plan compares to the Senate's”
Echoing sentiments expressed during debate on the previous coronavirus bill (the second, for those keeping track), Republican senators derided the $600 a week increase in unemployment payments as “incentivizing” workers to quit their jobs. Sens. Ben Sasse (Neb.), Rick Scott (Fla.), Tim Scott (S.C.) and Lindsey Graham (S.C.) delayed passage of the bill in order to force a vote on an amendment removing the extra unemployment funding. "This bill pays you more not to work than if you were working," Graham said. Fortunately for American workers, the amendment failed and the improved bill passed the Senate and the House.
Note: In 2009 only three Republicans helped Obama pass his stimulus bill in his first month in office.
The giveaways in the bill
While Senate Democrats were able to add worker-friendly provisions, the bill still required bipartisan support to pass the chamber and some corporate giveaways remained in the final version.
NYT: “Senate Republicans inserted an easy-to-overlook provision on page 203 of the 880-page bill that would permit wealthy investors to use losses generated by real estate to minimize their taxes on profits from things like investments in the stock market. The estimated cost of the change over 10 years is $170 billion.”
NYT: “...if a company owns multiple hotels, even if the overall hotel or restaurant chain has more than 500 employees — the limit to qualify for treatment as a small business — it will still be able to take advantage of the small-business benefits offered in the rescue package. ...The provision could benefit the Trump Organization, which operates a relatively small chain, with six hotels in the United States in cities including New York, Washington and Chicago.”
“A provision for the FDA to approve ‘innovative’ sunscreens—which would benefit L’Oreal, which has operations in Kentucky—appeared in the bill, which was steered in the Senate by Majority Leader Mitch McConnell of Kentucky.”
“The $25 billion allocated in loans and loan guarantees for the airlines will also benefit eligible businesses "approved to perform inspection, repair, replace, or overhaul services, and ticket agents.” The last two words — ‘ticket agents’ — mean that travel agents who book flights will also be able to apply for a piece of the $25 billion.”
“The credit reporting industry got a win by defeating a total ban on negative credit reports during the crisis. Instead, a watered down version made it into the final bill: Consumers wouldn't get a negative credit report if they have an agreement with a lender to delay payments or make partial payments.”
Trump’s signing statement
While signing the latest coronavirus relief bill, the president also issued a signing statement undercutting the congressional oversight provision creating an inspector general to track how the administration distributes the $500 billion “slush fund” money. The newly-created inspector general is legally required to audit loans and investments made through the fund and report to Congress his/her findings, including any refusal by the executive office to cooperate. In his signing statement, Trump wrote that his understanding of constitutional powers allows him to gag the special IG:
"I do not understand, and my Administration will not treat, this provision as permitting the [inspector general] to issue reports to the Congress without the presidential supervision required" by Article II of the Constitution.
The signing statement further suggests that Trump does not have to comply with a provision requiring that agencies consult with Congress before it spends or reallocates certain funds: "These provisions are impermissible forms of congressional aggrandizement with respect to the execution of the laws," the statement reads. While some have said that Congress fell short in this instance, one Democratic Senate aide told Politico that Congress built in multiple layers of oversight, including “a review of other inspectors general and a congressional review committee charged with overseeing Treasury and the Federal Reserve's efforts to implement the law.” Legal experts have pointed out that a signing statement is “without legal effect.” But that ignores the fact that oversight is not equal to enforcement. The problem, in my opinion, isn’t that Congress won’t be notified of any abuses of power by Trump. The problem is that congressional Republicans and the judiciary have largely failed to hold him accountable and enforce our laws even after learning of his abuses.
Concerns about the IG
Another potential weakness in the oversight structure is the inspector general position itself. The special inspector general for pandemic recovery, known by the acronym S.I.G.P.R., is nominated by the president and confirmed by the Republican-controlled Senate. As we’ve seen from Trump’s previous nominees, particularly judicial, many unqualified individuals have been confirmed. The Democrats will not have the power to stop the president and Mitch McConnell from jamming through a loyalist to fill the SIGPR role.
Former inspector general at the Justice Department Michael Bromwich: “The signing statement threatens to undermine the authority and independence of this new IG. The Senate should extract a commitment from the nominee that Congress will be promptly notified of any Presidential/Administration interference or obstruction.”
You may recall that Trump has already proven that he’s willing to interfere with the legally-mandated work of an inspector general. When the Ukraine whistleblower filed a complaint last year, the IG of the Intelligence Community, Michael Atkinson, investigated and determined the complaint to be “urgent” and “credible.” Atkinson wrote a report and gave it to Director of National Intelligence Joseph Maguire to hand over to Congress. However, the White House and DOJ interfered and instructed Maguire not to transmit the report to the Senate and House Intelligence Committees. Chairman Adam Schiff had to subpoena Maguire to turn over the report and testify before his committee. Further, there are already five IG vacancies in agencies that have a critical role in responding to the pandemic. The Treasury itself has not had a permanent, Senate-confirmed IG for over eight months now, and Trump hasn’t nominated a replacement. The Treasury Dept. has taken a lead role in the coronavirus response, with Secretary Mnuchin handling most of the negotiating with Congress on Trump’s behalf. The fact that the lead agency doesn’t have IG oversight should be troublesome in itself; replicating the situation with a special IG doesn’t seem to be a promising solution.
The other four coronavirus-related agencies without a permanent IG: Department of Health and Human Services’ IG has been vacant for nine months, Department of Defense’s IG has been vacant for four years, Department of Education’s IG has been vacant for one year, and Office of Personnel Management’s IG has been vacant for four years. Overall, there are twelve IG vacancies in the 37) presidentially-appointed offices.
UPDATE: The nation's inspectors general have appointed Glenn Fine, the Pentagon's acting IG, to lead the committee of IGs overseeing the coronavirus relief effort.
This is one of several oversight mechanisms built into the new law. They include: A committee of IGs (now led by Fine), a new special IG (to be nominated by Trump), a congressional review panel (to be appointed by House/Senate leaders)
Direct payments
Included in the stimulus bill is a $1200 one-time direct payment for all Americans who made less than $75,000 in 2019 (less than $150,000 if couples filed jointly). More details can be found here. I have read that the Treasury will use 2018 information for those who have not filed yet this year, but I am not 100% sure that’ll happen. Mnuchin has said that Americans can expect to receive the money within three weeks, but many experts expect that timetable to be pushed into late April. Additionally, that only applies to Americans who included direct deposit information on their 2019 tax returns. Those who did not include their bank’s information will have to be sent a physical check in the mail… which could take anywhere from two to four months. Other options are being discussed, including partnering the Treasury Dept. with MasterCard and Visa to deliver prepaid debit cards. Venmo and Paypal are reportedly lobbying the government to be considered as a disbursement option. Future payments? House Speaker Pelosi is already planning another wave of direct payments to Americans, saying that the $1,200 is not enough to mitigate the economic effects of the pandemic: “I don’t think we’ve seen the end of direct payments.” Republicans, meanwhile, are taking a ‘wait and see’ approach, using the next couple of weeks to measure the impact of the $2 trillion bill passed last week.
House Minority Leader Kevin McCarthy: “What concerns me is when I listen to Nancy Pelosi talk about a fourth package now, it’s because she did not get out of things that she really wanted...I’m not sure you need a fourth package...Let’s let this work ... We have now given the resources to make and solve this problem. We don’t need to be crafting another bill right now.” For the fourth legislative package, Democrats have said they would like to see increased food stamp benefits; increased coverage for coronavirus testing, visits to the doctor and treatment; more money for state and local governments, including Washington, D.C.; expanded family and medical leave; pension fixes; and stronger workplace protections.
Trump’s signature Normally, a civil servant signs federal checks, like the direct payments Americans are set to receive. According to a Wall Street Journal report, Trump has told people that he wants his signature to appear on the stimulus checks.
THE SIDES
War on the poor continues
Amid the coronavirus crisis, Trump has defended his continued support of a Republican-led lawsuit to dismantle the Affordable Care Act, which would result in 20 million Americans losing health insurance if successful. The Supreme Court agreed to hear arguments in the case this fall. Contrasting with his position that the ACA is illegal, Trump is considering reopening enrollment on HealthCare.gov, allowing millions of uninsured individuals to get coverage before potentially incurring charges and fees related to COVID-19. Joe Biden called on Texas Attorney General Ken Paxton, who is leading the charge against the ACA, and President Trump to drop the lawsuit:
“At a time of national emergency, which is laying bare the existing vulnerabilities in our public health infrastructure, it is unconscionable that you are continuing to pursue a lawsuit designed to strip millions of Americans of their health insurance and protections under the Affordable Care Act (ACA), including the ban on insurers denying coverage or raising premiums due to pre-existing conditions.”
The Trump administration is also pushing forward with its plan to kick 700,000 people off federal food stamp assistance, known as SNAP (Supplemental Nutrition Assistance Program). The USDA announced two weeks ago that the department will appeal Judge Beryl Howell’s recent decision that the USDA’s work mandate rule is “arbitrary and capricious." Additionally: The Social Security Administration has no plans to slow down a rule change set for June that will limit disability benefits, the Department of Health and Human Services still intends to reduce automatic enrollment in health coverage, and the Department of Housing and Urban Development will continue the process to enact a rule that would make it harder for renters to sue landlords for racial discrimination.
Lawmakers’ stock transactions
The Justice Department and Securities and Exchange Commission are beginning to investigate stock transactions made ahead of the economic crisis caused by the coronavirus pandemic. CNN reports that the inquiry has already reached out to Senator Richard Burr for information. “Under insider trading laws, prosecutors would need to prove the lawmakers traded based on material non-public information they received in violation of a duty to keep it confidential,” a task that won’t be easy. Sen. Burr is facing another consequence of his trades: Alan Jacobson, a shareholder in Wyndham Hotels and Resorts, sued Burr for allegedly using private information to instruct a mass liquidation of his assets. Among the shares he sold were an up to $150,000 stake in Wyndham, whose stock suffered a market-value cut of more than two-thirds since mid-February.
Environmental rollbacks
Using the pandemic as cover, the Trump administration has begun to more aggressively roll back regulations meant to protect the environment. These are examples of what Naomi Klein dubbed “the shock doctrine”: the phenomenon wherein polluters and their government allies push through unpopular policy changes under the smokescreen of a public emergency. On Thursday, the EPA announced (non-paywalled) an expansive relaxation of environmental laws and fines, exempting companies from consequences for pollution. Under the new rules, there are basically no rules. Companies are asked to “act responsibly” but are not required to report when their facilities discharge pollution into the air or water. Just five days before abandoning any pollution oversight, the oil industry’s largest trade group implored the administration for assistance, stating that social distancing measures caused a steep drop in demand for gasoline.
Monday morning update: In an interview with Fox News this morning, Trump said he was going to call Putin after the interview to discuss the Saudi-Russia oil fight. A consequence of this "battle" has been plummeting prices in the U.S. making it difficult for domestic companies (like shale extraction) to turn a profit. It's striking that the day after Dr. Fauci told Americans we can expect 100,000 to 200,000 deaths from COVID-19 (if we keep social distancing measures in place), Trump's first action is to talk to Fox News and his second action is to intervene in an international tiff on behalf of the oil and gas industry.
Gina McCarthy, who led the E.P.A. under the Obama administration, called the rollback “an open license to pollute.” Cynthia Giles, who headed the EPA enforcement division during the Obama administration, said “it is so far beyond any reasonable response I am just stunned.” The EPA is also moving forward with a widely-opposed rule to limit the types of scientific studies used when crafting new regulations or revising current ones. Hidden behind claims of increased transparency, the rule would require disclosure of all raw data used in scientific studies. This would disqualify many fields of research that rely on personal health information from individuals that must be kept confidential. For example, studies that show air pollution causes premature deaths or a certain pesticide is linked to birth defects would be rejected under the proposed rule change. Officials and scientists are calling upon the EPA to extend the time for comment on the regulatory changes, arguing that the public is unable to express their opinion while dealing with the pandemic.
“These rollbacks need and deserve the input of our public health community, but right now, they are rightfully focused on responding to the coronavirus,” said Representative Frank Pallone of New Jersey, the chairman of the House Energy and Commerce Committee.
Other controversial decisions being made:
A former EPA official who worked on controversial policies returned as Administrator Andrew Wheeler’s chief of staff. Mandy Gunasekara helped write regulations to ease pollution controls for coal-fired power plants and vehicle emissions in her previous role as chief of the EPA’s Office of Air and Radiation. In a recent interview, Gunasekara, who played a role in the decision to exit the Paris Climate Accord, pushed back on the more dire predictions of climate change, saying, “I don't think it is catastrophic.”
NYT: The plastic bag industry, battered by a wave of bans nationwide, is using the coronavirus crisis to try to block laws prohibiting single-use plastic. “We simply don’t want millions of Americans bringing germ-filled reusable bags into retail establishments putting the public and workers at risk,” an industry campaign that goes by the name Bag the Ban warned on Tuesday. (Also see The Guardian)
Kentucky, South Dakota, and West Virginia passed laws putting new criminal penalties on protests against fossil fuel infrastructure in just the past two weeks.
The Hill: The Environmental Protection Agency (EPA) said Friday that it will extend the amount of time that winter gasoline can be sold this year as producers have been facing lower demand due to the coronavirus. It will allow companies to sell the winter-grade gasoline through May 20, whereas companies would have previously been required to stop selling it by May 1 to protect air quality. “In responding to an international health crisis, the last thing the EPA should do is take steps that will worsen air quality and undermine the public’s health,” biofuels expert David DeGennaro said.
NYT: At the Interior Department, employees at the U.S. Fish and Wildlife Service have been under strict orders to complete the rule eliminating some protections for migratory birds within 30 days, according to two people with direct knowledge of the orders. The 45-day comment period on that rule ended on March 19.
WaPo: The Interior Department has received over 230 nominations for oil and gas leases covering more than 150,000 acres across southern Utah, a push that would bring drilling as close as a half-mile from some of the nation’s most famous protected sites, including Arches and Canyonlands National Parks… if all the fossil fuels buried in those sites was extracted and burned, it would translate into between 1 billion and 5.95 billion metric tons of carbon dioxide being released into the air. That upward measure is equal to half the annual carbon output of China
Court updates
Press freedom case Southern District of New York District Judge Lorna Schofield ruled that a literary advocacy group’s lawsuit against Trump for allegedly violating the First Amendment can move forward. The group, PEN America, is pursuing claims that Trump “has used government power to retaliate against media coverage and reporters he dislikes.” Schofield determined that PEN’s allegation that Trump made threats to chill free speech was valid, providing as an example the White House’s revocation of CNN correspondent Jim Acosta’s press press corps credentials:
”The threats are lent credence by the fact that Defendant has acted on them before, by revoking Mr. Acosta’s credentials and barring reporters from particular press conferences. The Press Secretary indeed e-mailed the entire press corps to inform them of new rules of conduct and to warn of further consequences, citing the incident involving Mr. Acosta… These facts plausibly allege that a motivation for defendant’s actions is controlling and punishing speech he dislikes.”
Twitter case The president suffered another First Amendment defeat last week when the full 2nd Circuit Court of Appeals declined to review a previous ruling that prevents Trump from blocking users on the Twitter account he uses to communicate with the public. Judge Barrington D. Parker, a Nixon-appointee, wrote: “Excluding people from an otherwise public forum such as this by blocking those who express views critical of a public official is, we concluded, unconstitutional.” Trump-appointees Michael Parker and Richard Sullivan authored a dissent, arguing the free speech “does not include a right to post on other people’s personal social media accounts, even if those other people happen to be public officials.” Park warned that the ruling will allow the social media pages of public officials to be “overrun with harassment, trolling, and hate speech, which officials will be powerless to filter.” Florida’s felon voting U.S. District Judge Robert Hinkle ripped into Florida Governor Ron DeSantis’s administration for failing to come up with a process to determine which felons are genuinely unable to pay court-ordered fees and fines, which are otherwise required to be paid before having their voting rights restored. “If the state is not going to fix it, I will,” Hinkle warned. He had given the state five months to come up with an administrative process for felons to prove they’re unable to pay financial obligations, but Florida officials did not do so. The case is set to be heard on April 28 (notwithstanding any coronavirus-related delays).
ICE, Jails, and COVID-19
ICE One of the most overlooked populations with an increased risk of death from coronavirus are those in detention facilities, which keep people in close quarters with little sanitation or protective measures (including for staff). Last week, U.S. District Judge Dolly Gee ordered the federal government to “make continuous efforts” to release migrant children from detention centers across the country. Numerous advocacy groups asked for the release after reports that four children being held in New York had tested positive for the virus:
“The threat of irreparable injury to their health and safety is palpable,” the plaintiffs’ lawyers said in their petition… both of the agencies operating migrant children detention facilities must by April 6 provide an accounting of their efforts to release those in custody… “Her order will undoubtedly speed up releases,” said Peter Schey, co-counsel for the plaintiffs in the court case.
On Tuesday, 13 immigrants held at ICE facilities in California filed a lawsuit demanding to be released because their health conditions make them particularly vulnerable to dying if infected by the coronavirus. An ACLU statement says the detainees are “confined in crowded and unsanitary conditions where social distancing is not possible.” The 13 individuals are all over the age of 50 and/or suffering from serious underlying medical issues like high blood pressure.
“From all the evidence we have seen, ICE is failing to fulfill its constitutional obligation to protect the health and safety of individuals in its custody. ICE should exercise its existing discretion to release people with serious medical conditions from detention for humanitarian reasons,” said William Freeman, senior counsel at the ACLU of Northern California.
Meanwhile, ICE is under fire for continuing to shuttle detainees across the country, with one even being forced to take nine different flights bouncing from Louisiana to Texas to New Jersey less than two weeks ago. That man is Dr. Sirous Asgari, a materials science and engineering professor from Iran, who was acquitted last year on federal charges of stealing trade secrets. The government lost its case against him, yet ICE has had him in indefinite detention since November.
Asgari, 59, told the Guardian that his Ice holding facility in Alexandria, Louisiana, had no basic cleaning practices in place and continued to bring in new detainees from across the country with no strategy to minimize the threat of Covid-19...Detainees have no hand sanitizer, and the facility is not regularly cleaning bathrooms or sleeping areas…Detainees lack access to masks… Detainees struggle to stay clean, and the facility has an awful stench.
Jails State jails are making a better effort to release detained individuals, as both New York and New Jersey ordered a thousand people in each state be let out of jail. The order applied only to low-level offenders sentenced to less than a year in jail and those held on technical probation violations. In Los Angeles County, officials released over 1,700 people from its jails. A judge in Alabama took similar steps last week, ordering roughly 500 people jailed for minor offenses to be released to lessen crowding in facilities. Unlike in New York and New Jersey, however, local officials reacted in an uproar, led in part by the state executive committee for the Alabama Republican Party and Assistant District Attorney C.J. Robinson. Using angry Facebook messages as the barometer of the community’s feelings, Robinson worked “frantically” to block inmates from being released.
Reuters: As of Saturday, at least 132 inmates and 104 staff at jails across New York City had tested positive for COVID-19, the disease caused by the coronavirus… Since March 22, jails have reported 226 inmates and 131 staff with confirmed cases of COVID-19, according to a Reuters survey of cities and counties that run America’s 20 largest jails. The numbers are almost certainly an undercount given the fast spread of the virus.
Tribe opposed by Trump loses land
On Wednesday, The Federal Bureau of Indian Affairs announced the Mashpee Wampanoag Tribe’s reservation would be "disestablished" and its land trust status removed. Tribal Chairman Cedric Cromwell called the move "cruel" and "unnecessary,” particularly coming in the midst of a pandemic crisis. Rep. Bill Keating (D-Mass.), who last year introduced legislation to protect the tribe's reservation as trust land in Massachusetts, said the order “is one of the most cruel and nonsensical acts I have seen since coming to Congress.” The administration’s decision is especially suspicious as just last year Trump attacked the tribe’s plan to build a casino on its land, tweeting that allowing the construction would be “unfair” and treat Native Americans unequally. As a former casino owner, Trump has spent decades attacking Native American casinos as unfair competition. At a 1993 congressional hearing Trump said that tribal owners “don’t look like Indians to me” and claimed: “I might have more Indian blood than a lot of the so-called Indians that are trying to open up the reservations” to gambling. More than his past history, however, Trump has current interests at play in the Mashpee Wampanoag’s planned casino: it would have competed for business with nearby Rhode Island casinos owned by Twin River Worldwide Holdings, whose president, George Papanier, was a finance executive at the Trump Plaza casino hotel in Atlantic City.
In the Mashpee case, Twin River, the operator of the two Rhode Island casinos, has hired Matthew Schlapp, chairman of the American Conservative Union and a vocal Trump supporter, to lobby for it on the land issue. Schlapp’s wife, Mercedes, is director of strategic communications at the White House.
Virginia Code § 11-14. Gaming contracts void. Except as otherwise provided in this section, all wagers, conveyances, assurances, and all contracts and securities whereof the whole or any part of the consideration is money or other valuable thing won, laid, or bet, at any game, horse race, sport or pastime, and all contracts to repay any money knowingly lent at the time and place of such game Any resident found guilty of illegal gambling will face criminal charges and potential financial penalties. One good side to Virginia’s gambling legislation is that it does not specify sports betting, which means with the PASPA being deemed unconstitutional, Virginia will have the chance to legalise it. Virginia requires gambler to be at least 18 years of age. Only bingo, a state lottery, horse racing and daily fantasy sports are considered legal in the state. Virginia law exempts any gambling that occurs in a private residence as long as it is not considered a commercial operation. This includes home poker games and casino nights among friends. But the sale may not have happened if the General Assembly hadn’t voted this year to allow a major expansion of gambling at Colonial Downs and off-track betting sites throughout Virginia. Gambling Laws in Virginia Virginia is limited when it comes to legal gambling options. Within the state’s borders, residents won’t find casinos, racinos, card rooms, tribal casinos, or sports betting. The only types of gambling activities that are approved in the state are daily fantasy games, the lottery, and pari-mutuel horse race bets. Virginia would be the first state to venture into both legalization of gambling on casino games and sports betting jointly. Every state that has made sports betting legal has done so where they have already had legalized casinos and sports wagering facilities became an extension of their businesses or they’ve chosen to simply have legal sports betting and not add casino gambling. Here's how legalized sports betting in Virginia will work . By Katishi Maake – Staff Reporter, Washington Business Journal . Mar 9, 2020. The Virginia General Assembly passed legislation this Virginia Takes a Step Toward Legalized Gambling. Virginia’s Senate General Laws and Technology Committee approved legislation this week that will permit casino gaming in five different cities in the state. Now, it will go before the Senate Finance Committee with the hopes of eventually becoming Virginia state law. Online casinos and poker sites are prohibited in Virginia under current law. Virginia is one of the few states in the Union that specifically mention internet gambling. § 18.2-326 was amended in 2011 to include the phrase “interstate gambling.” Virginia is one of just 11 states that does not have commercial or Native American casinos. The state does have a lottery, and sold over $2 billion worth of tickets in 2016.
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