Bloomberg Businessweek 10-02-24
Bloomberg Businessweek 10-02-24
Bloomberg Businessweek 10-02-24
◀ No detail in the
design and construction
of the Clippers’ new
arena is too small
to escape Steve
Ballmer’s attention
1
PHOTOGRAPH BY PHILIP CHEUNG FOR BLOOMBERG BUSINESSWEEK
46 AeroVanti’s Tailspin
Clients of the private jet startup accuse its CEO of flying off with their cash
◼ CONTENTS Bloomberg Businessweek February 12, 2024
◼ IN BRIEF 4 Trump’s not immune ● WeWork déjà vu? ● Dengue hits Rio ◼ COVER TRAIL
◼ OPINION 5 The US needs more Americans studying in China How the cover
◼ AGENDA 5 Black History Month ● UK jobs and GDP data gets made
①
“So this week’s story
◼ REMARKS 6 Will the economy fuel a Reagan-like turnaround for Biden? is about the latest AI
breakthrough—reading
ancient scrolls!”
BUSINESS 8 Falling birthrates are making diaper companies fussy
1 11 Las Vegas is finally a big league sports town “Wow! What made them
so hard to read in the
first place?”
TECHNOLOGY 14 COO Brad Lightcap quietly leads OpenAI’s charm offensive “Let’s just say they were
2 16 Job cuts show that tech has joined the regular economy victims of a volcano.”
ECONOMICS 22 ▼ China faces old and new problems in the Lunar New Year
4
“Just think—thousands
of years from now, after
the apocalypse, when AI
will be the only thing left,
it will still be able to read
this Cover Trail from
a rolled-up, fossilized
Businessweek.”
“Print—it’s future-proof!”
CHILE: ESTEBAN FELIX/AP PHOTO. NEUMANN: SHAHAR AZRAN/GETTY IMAGES. MOSQUITO: GETTY IMAGES. BIDEN: ANNABEGLE GORDON/BLOOMBERG. DATA: US BUREAU OF ECONOMIC ANALYSIS
alarm from industrial
WeWork out of
4
bankruptcy.
interests at the high cost
of the green transition. On
Feb. 6, Wopke Hoekstra, the
$14.3b
proposal to acquire the
EU climate commissioner, film and TV giant. Allen is
With case numbers of the mosquito-
pitched a borne viral disease spiking, the city up against David Ellison,
declared a public-health emergency who’s proposed merging his
90%
The co-working company’s on Feb. 5. Officials said the outbreak
co-founder has been wasn’t expected to derail Carnival, Skydance Media with the
formulating a bid with Dan which runs through Feb. 14, but it has
Loeb’s Third Point and other
company.
prompted a slew of special measures.
investors since December, according to net reduction in emissions City Hall is opening care centers,
a letter sent to WeWork’s lawyers seen allocating more hospital beds
by Bloomberg News. The letter didn’t
by 2040 as the best way
for patients and deploying
include details of how much Neumann for Europe to reach climate insecticide-diffusing “smoke
was ready to offer for the business. He cars” to neighborhoods
stepped down as CEO in 2019 amid a
neutrality by 2050.
with lots of cases.
botched IPO.
$23.1b
Annual US trade balance
the Senate floor. Why?
$0t
A simple reason. on Super Bowl LVIII, an
increase of 35% from last
Donald Trump.” year. The AGA says about
42.7 million American adults
President Joe Biden, at the White will place a sports wager -0.5
House on Feb. 6, acknowledged
that a package to beef up security
online, while 36.5 million will
at the US southern border and bet casually with friends or
to get funding to Ukraine and
Israel was dead. Trump had
as part of a pool. ▷ 11
rallied Republican legislators
to oppose the bill—which -1.0
they helped write—rather
than give Biden a win. 2008 2023
◼ BLOOMBERG OPINION February 12, 2024
Is It Morning in
Joe Biden’s America?
Jerome Powell said on Jan. 31. “This is a good economy.”
● Forty years ago, a strong economy
The blockbuster jobs report on Feb. 2 showing that US com-
lifted Ronald Reagan to a second term panies boosted payrolls by 353,000 the previous month was
just the latest confirmation of a positive trend. Consumer sen-
timent surged by the most in almost 20 years. Real wages are
● By Joshua Green
growing. Inflation is steadily falling. “And that sting is going
to become less painful with each passing month as inflation
Right now, nobody would mistake Joe Biden for a popular drops and income stays strong,” says Mark Zandi, chief econ-
president. His approval rating hovers in the high 30s. People omist of Moody’s Analytics.
are angry about the US’s recent economic turmoil, particularly Gas prices have come down, too. The Standard &
the painful bout with inflation. As Biden’s campaign gears up Poor’s 500 has hit a series of new highs. And though Powell
for the reelection race, his opponents have also seized on his and the Fed seem likely to push back a March rate cut, Biden
advanced age as an electoral liability. Plenty of White House can still look forward to an incumbent president’s dream
officials privately agree. scenario of running for reelection with a growing economy
But for all that’s gone wrong, Biden has one big thing that’s and an accommodative central bank. A Goldman Sachs
suddenly going right. “Let’s be honest,” Federal Reserve Chair Group Inc. note from Jan. 31 forecast five quarter-point rate
◼ REMARKS Bloomberg Businessweek February 12, 2024
cuts in 2024, with four of them coming before Election Day. Partisan Economics
Forty years ago, another incumbent president was wres- US adults who say economic conditions in the country are excellent or good
tling with lousy poll ratings, a recent recession and serious Republican or leaning Republican Democrat or leaning Democrat
doubts about his age and electoral viability. Ronald Reagan
wound up winning the 1984 election in a landslide, carrying 80%
Great Depression. Reagan’s political standing suffered along 11/8/2016 11/17/2020 1/21/2024
with the economy: In 1983 his popular support bottomed out
DATA: PEW RESEARCH CENTER
at 35% in a Gallup poll (a level Biden hasn’t yet reached). At
the time, Washington was buzzing with conviction that Reagan control for the political factors,” Zandi says, “it’s the economy
was likely to be a one-term president. In polls with potential and how people feel about their own financial well-being that
Democratic opponents, he lost to both Mondale and Ohio matters to independents and people on the political margin.”
Senator John Glenn. Biden can’t hope to match the scale of Reagan’s turnaround.
But as the economy recovered, so did Reagan’s standing. Political polarization has intensified to such a degree in the
Once unemployment began to fall in February 1983, his popu- decades since that opinions about the president have become
larity started to climb and did so steadily through the following much more rigid. “We’re in a different era now when it comes
year’s election. Reagan was no passive observer, either, but a to presidential approval,” says Jeffrey Jones, senior editor at
skilled pitchman expert at shaping public sentiment and cheer- Gallup Inc. People’s views on the economy have also become
ing along the nascent recovery. Biden could draw a lesson. In more anchored to their political outlook—Biden won’t be win- 7
the depths of the recession in January 1983, Reagan announced ning 33% of Republican voters. “Democrats are certainly a lot
to Congress without qualification that “the long nightmare of more positive about the economy right now,” Jones says. “The
runaway inflation is now behind us.” key this year is whether the other groups will come along.”
Reagan also had the good fortune to have had a helping They certainly aren’t yet. In a Feb. 4 NBC News poll, Trump
hand from the Fed heading into election season (though many holds a commanding 22-point lead over Biden on the ques-
of his top aides loathed and distrusted Volcker, and some even tion of who would do a better job handling the economy. That
plotted to engineer his ouster). Those critics quieted down mirrors Trump’s 18-point lead in a recent Bloomberg News-
when the economy turned around and consumer sentiment Morning Consult poll of swing-state voters.
soared. By the fall, Reagan’s campaign captured the improving But with economic confidence trending upward, it wouldn’t
national mood in its iconic ad: “It’s Morning Again in America.” be surprising if independents and Republicans started warm-
History tends to attribute the turnaround to Reagan’s sunny ing to Biden, at least a bit. A booming economy can have a clari-
disposition and optimistic, can-do spirit. No doubt that helped fying effect that overrides—to a degree—partisan instincts. “The
him. But at the time, many didn’t regard him as the heroic fig- more ambiguity there is in the economy, the more it allows
ure in the recovery. A Gallup survey of major corporate exec- people’s partisanship to affect their perceptions,” says John
utives found that they ranked Volcker much more highly than Sides, a political scientist at Vanderbilt University.
they did Reagan, with 51% expressing “great confidence” in The prospect of a strong economy galvanizing voters to
PHOTO ILLUSTRATIONS BY 731; PHOTOS: BLOOMBERG (1); GETTY IMAGES (1)
the Fed chair, versus only 27% for the president. Indeed, as believe that it’s morning again in America, after the bleak years
the journalist William Greider noted in Secrets of the Temple, of the Covid-19 crash and spiking inflation, hasn’t materialized
his magisterial history of the Reagan-era Fed, a month before yet. But Trump perceives enough of a threat that he’s begun
the 1984 election, one Merrill Lynch analyst joked in a client predicting a crash and criticizing Powell for allegedly trying to
note, “They should call it the Federal Open Market Committee aid his opponent. “I think he’s going to do something to prob-
to Re-elect Reagan.” But Reagan got plenty of credit where it ably help the Democrats,” the former president told Fox News
mattered—at the ballot box. He even managed to carry 33% of on Feb. 2. “It looks to me like he’s trying to lower interest rates
Democratic voters. for the sake of maybe getting people elected.”
Can Biden, too, despite his political struggles, hope that a Modern politics precludes election blowouts, but luckily for
strong election year economy will deliver him a second term? Biden, even a narrow win will suffice. With voters expressing
He has his believers. A new Moody’s Analytics elec- persistent concerns about his age and ability, a booming elec-
tion model has him narrowly edging out Donald Trump in tion year economy may be less a magic bullet than a necessary
November, propelled by economic tailwinds. “Once you precondition for any hope of a second term. <BW>
Bloomberg Businessweek February 12, 2024
1
Disposable diapers came to be in the US around
the same time that large numbers of women joined
U
biggest consumer products companies. No lon-
ger. The US birthrate has stagnated in recent years,
damping the prospects of a business that takes in
$5.9 billion a year and had long been considered
S almost an annuity.
America’s nascent baby bust is a never-seen-
while those age 40-44 saw their rate soar by 132%. Avoiding a Bum Wrap
That shift toward later childbearing could Diaper makers are continually adding features to keep babies
comfy—and parents spending more
be problematic for companies that traditionally
counted on parents to generate multiple rounds of ⑦
demand for products like diapers, infant formula, 1. BLOWOUT BARRIER ①
An inverted pocket at the
toys and sneakers as they had additional children, waist stops poop from
which many families today are choosing to forgo. running up a child’s back—
every parent’s nightmare
“I wouldn’t count on the birthrates suddenly
changing direction,” says Pricie Hanna, managing 2. INNER LEG CUFF
These flaps keep
partner at Price Hanna Consultants, which advises moisture inside a
businesses about hygiene and nonwoven products. diaper. But placing ④
them improperly
“It’s really a cultural fact.” can result in leaks
②
This cultural shift has implications far beyond
3. ELASTIC LEG
diapers, says Gary Stibel, chief executive officer of OPENING ③
New England Consulting Group. The recent years Correct sizing is key to ⑤
keeping these just tight
of declining US fertility portend increased com- enough to hold moisture
petition for makers of all sorts of child-centered and waste inside
⑥
goods, he says. 4. UMBILICAL CORD
“When Americans are having more children, CUTOUT 7. FASTENER STRIPS
This notch avoids irritating Some brands are adding
there’s plenty there for everybody,” Stibel says, newborns’ skin stronger, wider or stretchier
referring to dollars spent by parents on kid goods. closure areas to provide better
5. DESIGNS sealing against leaks
“When the market starts to decline, it becomes Colorful patterns are in. ⑧
a market share war, and the only way to benefit Pampers says it uses 8. ABSORPTION LAYERS
pigments rather than dyes The diaper body can include
is to take share from someone else. The implica- to avoid skin allergies a top sheet next to skin; layers
tions are huge. What used to be a land grab now that absorb, distribute and
6. WETNESS INDICATOR store moisture; superabsorbent
becomes a share war.” This pH strip indicates when gel to hold liquid; and a 9
Other categories will be affected by the demo- it’s time for a change back sheet
wetters—that’s young children who have trouble Almost half, or 47%, of US households with young ▼ Annual US births
staying dry at night—we’re addressing a consumer kids said they don’t have enough money for the
need that has not yet been met,” he says. diapers needed to keep their children clean, dry 4.0m
Schulten says getting caregivers to use more and healthy, according to a study by the National
wipes is another way for the company to boost Diaper Bank Network, comprising local banks and
its baby business. P&G, which now sells multi-use sponsors such as Huggies that help needy families
wipes for not only bottoms but dirty faces and obtain diapers. As recently as 2017, the need was 3.8
kitchen counters, is trying to build a “regimen” much less, at about one-third of families.
with parents, he says. “With every diaper change “Inflation is making it very, very difficult for fam-
is not only the diaper, but is [also] the wipes.” ilies to meet their basic needs,” says Joanne Samuel
Meanwhile, rival Kimberly-Clark is betting that Goldblum, NDBN’s CEO. People may use the same 3.6
its new moisturizing baby wipes and its multi- diaper for too long or “use things that aren’t meant 2010 2022
ple lines of fragrance-free diapers will win over to be diapers as diapers—T-shirts or other absorbent
parents who worry about protecting their tot’s materials,” she says. ▼ US retail price
per package of
sensitive skin. In Chicago, families that can’t afford necessi- disposable diapers
“The diaper of the future is relentlessly focused ties often add paper towels to diapers to stretch
on better and better meeting consumer needs,” them longer, says Rikki Ray, founder of the Diaper $20
says Matt Barresi, general manager of Kimberly- Bank of Chicago, which in 2023 received more than
Clark’s diaper business. Shoppers are increas- double the requests for diapers than it had in the
ingly demanding fragrance-free products, he says: prior year. “We’ve heard that people are trying to
“We’re really seeing consumers resonate with that.” potty-train, that they’re waiting longer to change 10
And the company says its new calming and nour- the diaper,” she adds.
ishing wipes—which promise to clean, hydrate and Parents definitely feel the financial pinch.
soothe delicate baby skin—are meeting internal Richard Dixson, a 62-year-old in Kansas City,
expectations, thanks to repeat purchases by par- Missouri, who, with his wife, is raising four of 0
10 ents despite their higher cost. their grandchildren, says brands like Pampers 2018 2023
Still, new products with advanced features don’t and Huggies are out of reach. A package of mid-
always succeed. P&G’s Pampers Lumi system, intro- tier training pants for his twin 5-year-old grandsons
duced four years ago, included a video camera plus costs him about $30. A few years back, it used to be
a sensor that attached to diapers to notify care- more like $24, he says.
givers via a mobile app when a diaper was dirty. That sticker shock likely won’t fade anytime
The $349 Connected Care System didn’t catch on soon. Inflation in other parts of the economy is
and was discontinued. starting to moderate, but diaper makers haven’t
The big price hikes for diapers, as well as gotten much relief. Kimberly-Clark said last year
other food and household product items, over that resin prices, which influence the cost of poly-
the past couple of years occurred largely because propylene materials used for several parts of dia-
shoppers were stocking up during Covid-19 lock- pers, were moving up. And consultant Hanna says
downs, just when there were shortages of raw that fluff pulp prices are set to increase as one of
ETHAN MILLER/GETTY IMAGES. DATA: CDC NATIONAL CENTER FOR HEALTH STATISTICS, CIRCANA
materials and workers to keep up with the surge the largest producers, International Paper Co.,
in demand. Besides offsetting the supply chain cost permanently stops production at two of its pulp
and wage increases, manufacturers have tried to machines in Florida and North Carolina. “We have
recover and maintain profitability they lost during particular materials important to these products
the pandemic. that are still troublesome,” she says.
“Companies were feeling pressure from all In the longer term, however, material costs
angles,” says Edward Jones analyst Brittany may be the least of the challenges for diaper mak-
Quatrochi. “It wasn’t just a lack of labor, it was ers and other US businesses as they are forced
higher commodities costs, it was higher gas costs. to adapt to a changing demographic outlook
Sometimes they had to pay up for those materi- that could slowly sap demand for their prod-
als before anyone else could buy them. A lot of ucts. “This has a huge ripple effect,” says New
those prices have been pretty sticky, and that’s England Consulting Group’s Stibel. “It’s a dom-
when you’ve seen the prices being pushed on to ino effect over multiple categories and over time.”
the consumer.” �Leslie Patton, with Alex Tanzi
Although manufacturers are promoting expen-
THE BOTTOM LINE The number of diapers sold at retail in the US
sive, feature-laden diapers to keep up profits, has fallen for four years. This decline could be a worrisome omen
affordability is a growing problem across America. for consumer businesses that depend on birth-rate gains.
◼ BUSINESS Bloomberg Businessweek February 12, 2024
When Las Vegas hosts its first Super Bowl on Feb. 11, a world-class city in Las Vegas, and sports are now
it will mark a kickoff party that few saw coming. an integral part of that,” says Las Vegas Mayor
For decades, the major US sports leagues shunned Carolyn Goodman. Investors have committed
Nevada’s most populous city, despite its status as almost $7 billion, turning Vegas into a global sports
a tourism epicenter. Gambling was taboo, espe- capital, pumping money into venues and negotiat-
cially after a basketball referee betting scandal in ing deals with both the NFL and MLB among other
the mid-2000s. And no place on earth has embod- leagues—calling to mind the mass migration of fran-
ied that unsavoriness more than Sin City. chises to Southern California in the 1950s and ’60s.
“You go back 10 years, and we couldn’t say the Some of Vegas’ biggest advocates are the celeb-
words ‘Super Bowl,’ ” says Sean McBurney, regional rities and athletes who live and party in the city.
president at Caesars Entertainment Inc., which Former Patriots quarterback Tom Brady purchased
owns eight resorts on the Strip. “How sports has a stake in the Aces and is looking to own a portion
embraced Las Vegas has changed dramatically.” of the Raiders; retired baseball star José Bautista
The players and fans traveling to see the San bought a minor league soccer team, the Las Vegas “We’re trying
Francisco 49ers square off against the Kansas City Lights; and NBA superstar LeBron James, an equity to build a world-
Chiefs for pro football’s biggest prize will converge partner in Boston Red Sox owner Fenway Sports class city in
on a city that over the past eight years has been busy Group, has been vocal about owning an NBA expan- Las Vegas, and
collecting sports franchises. The National Hockey sion team in the city. “They have everything here,” sports are 11
League’s Golden Knights arrived in 2017, just as the he said in December, after the league’s inaugural now an integral
National Football League finalized the relocation In-Season Tournament in Las Vegas. part of that”
of the Oakland Raiders. The Aces of the Women’s But for some Las Vegas locals, living in a sports
National Basketball Association showed up next, boomtown has been a mixed bag. The Strip and
coming over from San Antonio a year later. And its surroundings have been covered in construc-
in November 2023, Major League Baseball’s own- tion sites, tangling roadways and annoying resi-
ers unanimously approved the Oakland Athletics’ dents and visitors alike. In only a few years, the city
move to the Las Vegas valley. “We’re trying to build added more than 100,000 seats at new venues,
◀ Ready for the
big game outside
Caesars Palace
◼ BUSINESS Bloomberg Businessweek February 12, 2024
funded entirely by MGM Resorts International and us,” says MGM CEO Bill Hornbuckle. 2022
Anschutz Entertainment Group. With the Las Vegas Super Bowl Host Committee
The arrival of the NFL signaled an escalation estimating that 450,000 tourists will head to town,
of the city’s sporting ambitions. Originally, Las Raiders owner Davis says it’s quite a turnabout
Vegas wasn’t on the list of potential new homes from eight years ago, when the NFL was so anti- 2024
for the Oakland Raiders. But local officials gave Vegas that the league canceled a fantasy football
Golden Knights (NHL)
Aces (WNBA)
Raiders (NFL)
Desert Dogs (NLL)
Athletics (MLB)
owner Mark Davis a lucrative deal: The team convention here. “They’re talking about the NBA
spent $1.2 billion to build the 65,000-seat Allegiant and MLB coming,” Davis says. “What I’ll say about
Stadium, and Clark County chipped in the remain- Nevada is, the first word out of people’s mouths
ing $750 million via hotel room taxes. is not ‘no.’ ” �Kim Bhasin and Randall Williams
Stanford University economist Roger Noll
THE BOTTOM LINE Super Bowl LVIII will be a coming-out party
called that arrangement the worst deal for a city for Las Vegas as a sporting hub. And new $1.9 billion football and
he’d ever seen. (The record-large subsidy has since $1.5 billion baseball stadiums will only boost its sports cred.
MAKE SURE CUTIE
PIE IS IN THE
RIGHT SEAT.
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Bloomberg Businessweek February 12, 2024
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Edited by
Joshua Brustein
◼ TECHNOLOGY Bloomberg Businessweek February 12, 2024
In late 2022, just a few months after OpenAI released After months of discussions with Axel Springer’s
ChatGPT, the company received an inquiry from point person on the deal, Chief Information Officer
Axel Springer SE, the German media conglomerate Samir Fadlallah, Lightcap invited a handful of its
that owns Politico and Business Insider. It was inter- executives to visit OpenAI’s headquarters in May.
ested in talking about how the chatbot would affect He says he was “admittedly a little intimidated”
the future of news, and whether the two companies about designing media deals. “I was thinking, ‘This
could find a way to work together. isn’t a world I know super well,’ ” he says. “I don’t
The tension caused by OpenAI’s practice of come from it. I don’t have deep contacts or a net-
ingesting material on the internet to build the large work here.”
language model powering ChatGPT was already People in media often see the tech industry as
evident. It was facing a lawsuit alleging that GitHub arrogant and unappreciative of the importance
Copilot, which uses OpenAI’s tech to write com- of so-called legacy companies, but Lightcap’s
puter code, violated copyright by using existing code guests were pleased by his humility. Fadlallah says
repositories as training data, a claim that OpenAI Lightcap told him that OpenAI “cares about journal-
disputed. Visual artists were suing other artificial ism” and that it’s “important to foster democracy.”
intelligence companies such as Midjourney and Lightcap “was really listening to our perspective
Stability AI Ltd. for copyright infringement, which and listening to our fears,” says Fadlallah, adding
the companies also contested. It wasn’t hard to fore- that “the fear was that they are providing a con-
see similar legal action coming from media compa- tent creation machine that is really threatening our
nies, whose businesses had already been disrupted business model.”
by the internet, and which were concerned that AI In December the two companies reached a
chatbots built in part on their own content could broad agreement whose terms, Bloomberg News
siphon away readership without compensation. reported, include OpenAI paying Axel Springer
Working with Axel Springer presented a major tens of millions of dollars over three years to
opportunity for OpenAI to get started on a new license content that it can use to train its AI mod-
class of partnerships that could make allies out of els. OpenAI will also feature the summaries of Axel 15
media companies rather than alienate them from Springer’s news articles directly in ChatGPT, along
the start. It seemed like an obvious assignment for with attribution and links to full articles.
OpenAI Chief Executive Officer Sam Altman, the The deal provides a road map for additional
38-year-old who was earning a reputation as the media deals. OpenAI says it’s in talks with dozens
spokesperson-in-chief for the entire AI industry. of other publishers; Bloomberg reported that those
Instead, Altman asked Brad Lightcap, the compa- include CNN, Fox and Time. OpenAI also says it will
ny’s chief operating officer, to handle the negotia- change the user interface of its current ChatGPT
tions, giving him full control over the talks. “When I app to show more summaries and links to news
delegate, I really delegate,” Altman says. from Axel Springer and other media partners.
At 33, Lightcap makes even Altman seem kind Lightcap hasn’t convinced everyone that the
of old. He started his career in finance before mov- deals OpenAI is offering are good ones. The New
ing to San Francisco to work for Dropbox Inc. in York Times had been engaging with OpenAI in what
2013. Lightcap worked for Altman as an investor the startup had called “productive” conversations
at the startup incubator Y Combinator, then fol- last year, but on Dec. 27 the newspaper sued OpenAI
lowed him to OpenAI in 2018, when it was a small and Microsoft Corp., OpenAI’s largest investor, say-
nonprofit research lab without a business plan or a ing that their copyright infringement was causing
working product. Lightcap—who over the years has billions of dollars in statutory and actual damages.
become one of Altman’s most trusted lieutenants— OpenAI is contesting the claim; Lightcap describes
is now tasked with transforming the most intriguing the Times dispute as an anomaly and says the rest of
tech startup in recent memory into a commercial the company’s talks with publishers are going well.
powerhouse that can compete with Alphabet Inc.’s Media deals and copyright litigation will likely
Google and Meta Platforms Inc. remain among the central challenges in building
People who work with Lightcap describe him as a OpenAI’s business, but they’re not the only ones.
good listener who’s fixated on the needs of OpenAI’s Altman has described the company as “the most
customers—he spent three hours on Christmas Eve capital-intensive startup in Silicon Valley history.”
having brunch with a prospective client—and who’s The computer hardware costs to keep ChatGPT run-
helped create structure within a rapidly changing ning could exceed $500 million annually, accord-
organization. “He doesn’t say a lot, but he says very ing to an estimate by Dylan Patel, chief analyst at
incisive things when he does talk,” says Altman. consulting firm SemiAnalysis. He estimates that
◼ TECHNOLOGY Bloomberg Businessweek February 12, 2024
OpenAI’s annual costs to train its next model on top of it—that our services are stable and the
are in the “lower billions.” OpenAI has an esti- company is in good shape.” He says the business
mated annual revenue of $1.6 billion, according to didn’t lose a single customer. “I really saw the best
a December report from the Information. The com- of Brad through that,” Altman says.
pany declined to comment on its revenue and costs. One of OpenAI’s newer areas of focus is semicon-
Patel says that as OpenAI seeks to build bigger ductors. Bloomberg reported that Altman has trav-
models with even more data, its computing costs eled to South Korea to tour manufacturing plants as “If their
are only increasing. “If their mission wasn’t liter- the company considers expanding its partnerships mission wasn’t
ally to make the machine God, to make artificial in the chips business, including potentially setting literally to
superintelligence that’s smarter than humans, up a network of factories to manufacture semi- make the
then I think they could be profitable sooner,” he conductors. This could take years and is arguably machine
says. “But because they want to make something an even more complicated challenge for Lightcap God … then
smarter than humans in every way possible and than his recent endeavors into the media industry. I think they
then deploy that rapidly in every way possible, that Lightcap declines to comment on OpenAI’s could be
takes so much money.” hardware plans, saying they’re trade secrets. But profitable
OpenAI’s business plan centers on charging juggling so many projects in an industry that his sooner”
customers for special versions of its products. In company is essentially willing into existence is “the
the past six months, Lightcap has helped oversee fun of the job,” he says.
the expansion of new lines of revenue, including “Some of those things are things that we have to
a business version of its consumer app, ChatGPT do today. Some of those things are one-year things,
Enterprise, which now has more than 260 pay- some of them six- or five-year things,” Lightcap says.
ing customers and 100,000 registered users. It’s “And I’d like to think I’m good at being able to trans-
also built an online store—akin to Apple Inc.’s late that into concrete action.” �Shirin Ghaffary
App Store—through which developers can dis-
THE BOTTOM LINE To become a real business, OpenAI has to
tribute customized apps, or “GPTs,” that use sort out media partnerships, earn enough to offset its massive
16 OpenAI’s software. costs and maybe even get involved in making semiconductors.
But competition is stiff and likely to get even
more so. Google, for instance, has its own large lan-
guage model, a cloud computing network to sup-
port it and a large team with years of experience
in enterprise sales. Lightcap says OpenAI’s main
advantage is its ability to get products to market
Tech Acquires a
and incorporate feedback quickly. Taste for Layoffs
Like many startups, OpenAI says developing its
technology takes priority over short-term revenue.
But the outcome of the AI arms race also hinges ● Significant job cuts this year show how
on how the company and its competitors develop an industry taboo has fallen
the businesses around their technologies. Lightcap
acknowledges that he hasn’t figured it all out.
“There’s a lot of areas where there’s huge opportu- For Sydney Russakov, it’s been a year of
nity, but we still don’t quite know what the imple- transitions. In March 2023 she lost her job at a
mentation model looks like,” he says. “Nothing is startup called Universe, which offers “no-code”
super predictable for us at this point. And I suspect software design tools, when it cut her product
that’ll be true for a while.” manager role. She took a new position at Nextdoor
Lightcap’s ability to endure uncertainty was on Holdings Inc., the hyperlocal neighborhood social
display in November, when OpenAI’s board briefly networking service, in June, but was let go again
ILLUSTRATION BY YANN BASTARD. DATA: LAYOFFS.FYI
ousted Altman, a period some at the company now in November, when Nextdoor conducted its own
refer to as “the blip.” While working with other round of layoffs.
executives to soothe employee anxiety, he also Losing a job is an experience Russakov, 31, is
attempted to reassure customers by personally call- learning to live with. There was “an element of
ing about 40 of them over the course of two days. discomfort and surprise that first time,” she says.
“I didn’t want time to pass between the things “The second time around, I think I was in a better
that people were reading in the news and when place to deal with it.”
they heard from us,” Lightcap says. “Our priority The tech industry is also getting used to job cuts.
was making sure people know we’re here, we’re Starting in late 2022, technology companies began
◼ TECHNOLOGY Bloomberg Businessweek February 12, 2024
▼ Tech companies
laying off employees
17
conducting rounds of layoffs that were deeper and As Mark Zuckerberg, Meta Platforms Inc.’s chief
broader than anything in recent memory. So far executive officer, said in an internal Q&A quoted 250
this year, more than 32,000 tech workers have lost by the newsletter Command Line, he doesn’t want
their jobs, according to Layoffs.fyi, a startup that’s to have “managers managing managers, manag-
been tracking the metric in the industry since the ing managers, managing managers, managing the
pandemic. Alphabet, Amazon.com, Microsoft, people who are doing the work.” 125
Salesforce, Snap and Zoom have all announced However, there’s another interpretation: The
head count reductions in recent weeks. industry is becoming more like the rest of the
The cuts have caused a sense of unease through- economy. Tim Herbert, chief research officer
out tech, which has long been one part of the at CompTIA, says that tech has regularly gone 0
economy where work has been easy to come through “periodic pendulum swings between 8/2022 1/2024
by, well-paid and safe. The situation is far from ‘all in’ on innovation to ‘all in’ on business fun-
dire. Unemployment is below 4%, the economy damentals.” During the pandemic, tech seemed ▼ Tech employees
laid off
continues to add jobs, and the latest government to inhabit its own reality. Profits were fat, and
data show that “layoffs and discharges” are at the companies hired furiously. The job cuts are a sign
same low levels where they spent much of 2023. that things are swinging the other way. Growth 80k
The tech industry ended January with 18,000 more at tech companies has slowed, and higher inter-
employees than the month before, according to est rates have choked off much of the money that
CompTIA, which tracks tech industry trends. Still, for years fed startups, even as the broader econ-
the latest round of cuts does suggest something has omy continues to expand at a healthy clip. And so 40
changed. The long-standing taboo around layoffs in Silicon Valley is settling into a pattern familiar in
Silicon Valley, where companies compete intensely many industries: Companies hire when times are
for talent, has been broken. “The shine of tech jobs good, let people go when they’re not—and some-
is wearing off a bit with these layoffs,” Jeff Shulman, times let people go even when they’re not so bad. 0
professor at the University of Washington Foster �Antonia Mufarech and Drake Bennett 8/2022 1/2024
School of Business, wrote in an email.
THE BOTTOM LINE Tech companies that once mostly avoided
Some industry leaders have characterized the layoffs have begun to hire in good times and fire in lean times, just
shift as a return to a purer kind of tech enterprise. like their peers in many other industries.
Bloomberg Businessweek February 12, 2024
3
Big Banks
F Take On
I The FX
N Upstarts
● Wise and other fintechs
A slashed fees on money
transfers. Now HSBC and
others are striking back
N In the early 2010s, a pack of financial technology
head the Zing project, which it code-named Marco Eastern markets, also in the works. The Zing web-
Polo. Allan’s small team built the new service site makes a virtue of its big bank origins, stating,
in-house under strict secrecy, buying off-the-shelf “Get the flexibility of a fintech that’s part of the
technology from other fintechs where necessary, HSBC Group.” But with fees broadly comparable
according to HSBC executives who asked not to be to its rivals, which generally charge less than 1%,
named discussing internal matters. HSBC hasn’t the question is whether HSBC’s offering is distinc-
said how much it cost to create Zing, but UK corpo- tive enough to lure customers away.
rate records show the bank plowed almost $74 mil- Kunal Jhanji, leader on payments and fintechs
lion into MP Payments Group Ltd., the subsidiary it at Boston Consulting Group (BCG) in the UK,
set up to develop the service. Some managers have says that big banks wanting to take on fintechs
referred to the project as the “Wise killer,” accord- will need to rely on more than just their name.
Edited by
Laura Bliss and
ing to one person familiar with the initiative who Typical pain points for bank customers, Jhanji
David Rocks asked not to be named. says, include a lack of transparency on payment
◼ FINANCE Bloomberg Businessweek February 12, 2024
to anywhere
everywhere
Business to
Consumer
$39b
$28b
$78b
$20b
19
status, unpredictable transaction speeds and high stretch well beyond the low exchange fees that
fees. “The new players will need to ensure that the made its name.
improvements in value propositions for customers London-listed shares of Wise PLC dropped 7.5%
deliver true differentiation,” he says. on Jan. 2 as investors reacted to HSBC’s announce-
Wise itself shows how big a challenge even ment. But now Wise is striking back. In full-page “This is a bit of
the largest banks face in trying to take on a well- ads in British newspapers, it offered a tongue- a shot across
funded, successful fintech. The company has spent in-cheek welcome to its new competitor. “Your the bows of the
13 years honing its product and employs 800 engi- app is a great step forward to make international competitor
neers who push out more than 5,000 incremental transfers and currency conversion more trans- banks”
improvements to its app every month, says Harsh parent,” the ad stated. “So thanks, HSBC, for
Sinha, chief technology officer at Wise. launching Zing. For telling us ours is a mission
Revolut Ltd., another fintech offering transfers, you believe in too.”
has also come a long way since its 2015 founding. BCG says global cross- border payments
Today it employs about 8,000 people to cater to reached $180 trillion worldwide in 2022, with rev-
its 40 million customers, and its services, which enues of $165 billion expected to grow from 6%
include cryptocurrency and share trading services, to 7% annually over the next five years. Wise,
◼ FINANCE Bloomberg Businessweek February 12, 2024
in its marketing, has accused banks of fleecing That wager is at the heart of the $40 million
customers with high and hidden fees, issuing a Black Bear Value Partners fund that Schwartz, a
recent report singling out HSBC as one of the worst former director at Fir Tree, runs from Boca Raton,
offenders. A spokeswoman for HSBC said Wise’s Florida. The bulk of his portfolio is given over to
research excluded the bank’s Global Money ser- a handful of companies bucking the overall trend
vice, which lets customers send foreign currencies and holding very little—or no—debt. The rest is in
at a lower cost compared with standard accounts. short positions against parts of credit markets that
She added that HSBC fees include FX risk man- Schwartz thinks are due for a correction.
aged by the bank. The notion that defaults will rise as ultracheap
Meaghan Johnson, a fintech consultant, says bonds issued in the Covid-19 era expire is nothing
Zing would have to get better quickly if HSBC wants new. But Schwartz says yields aren’t pricing in the
to catch up. “The track record isn’t great for incum- potential for a bigger-than-expected jump in bank-
bent banks launching standalone international pay- ruptcies. Things look especially bad, he says, when
ment platforms,” she warns, pointing to PagoFX, you consider that much of the debt was borrowed
Santander Bank’s answer to Wise, which was shut- on terms that minimize the amount that investors
tered just 15 months after its 2020 launch. US bank- are able to recover if companies default.
ing giant JPMorgan Chase & Co. made its own, more “You have this environment where nobody
successful foray into fintech when it introduced defaulted forever,” Schwartz says, referring to the
Chase UK three years ago. Like Zing, Chase UK has past 15 years of historically low interest rates. “It’s
a foreign exchange offer priced at the same level like a doctor’s waiting room. A lot of companies
as the fintechs, but as an all-around digital bank, it were able to leave and buy themselves some time,
offers checking and savings services as well. but at the end of the day they’re going to need to
Nizam Uddin, chief strategy officer at fintech refinance at higher rates.”
Algbra, which focuses on serving socially excluded The impact of a pandemic-era borrowing spree is
PHOTOGRAPH BY SAUL MARTINEZ FOR BLOOMBERG BUSINESSWEEK. DATA: BLOOMBERG. INCLUDES INVESTMENT-GRADE AND HIGH-YIELD BONDS ISSUED IN THE US AND EUROPE
banking customers, believes HSBC still has time to set to hit companies hard this year, and many hedge
20 tweak features to make it competitive. funds are betting it will spur a culling of indebted
Tim Levene, founder of Augmentum Fintech companies. By some counts, the debt maturity wall
PLC, a UK-based specialist fintech investor, says has never been bigger: In the next three years, US
HSBC’s move is likely to raise questions on the and European companies face maturities of some
boards of other major financial institutions about $3 trillion in debt, about 26% of the global total, data
whether they need to be more innovative. “This is compiled by Bloomberg show. Just under a third of
a bit of a shot across the bows of the competitor that total was issued in 2020-21.
banks,” he says. ——Harry Wilson and Aisha S. Gani Yet markets are trading as if none of this mat-
ters. US companies with investment-grade ratings
THE BOTTOM LINE HSBC’s new foreign exchange app aims to
claw back customers from upstart Wise. But the bank may face
sold $189 billion in debt in January, a record for the
an uphill battle. month. Average spreads for their bonds stand at
around 95 basis points over Treasuries, approach-
ing the lowest level since the Federal Reserve started
hiking rates. Most investors are betting that Fed rate
cuts this year will create a window of opportunity
Shorting the Debt for refinancing, and part of the January surge was
due to companies doing just that as a sudden wave
Maturity Wall of optimism pushed down borrowing costs. “Everyone
thinks that just
But Schwartz and other bears say that rates
may not come down as quickly or as far as mar- because the
● One financier is betting his own money on a kets expect, because of either lingering inflation last couple
wave of defaults as ultracheap bonds expire or an economic downturn. This argument got years have
some vindication on Feb. 1 when Fed Chair Jerome gone smoothly,
Powell dashed hopes that rate cuts would begin as the next five
Hedge fund manager Adam Schwartz got rich early as March, sending bonds tumbling. years will go
in 2020 predicting the corporate bond market’s The bull case doesn’t take into account that a lot smoothly”
boom and bust. Now he’s staking most of his fund— of today’s outstanding debt was issued at such his-
and his own cash—on another bet that companies torically low rates that any refinancing will cost far
coming up against record debt maturities will spark more, even if the Fed cuts this year. More than 40%
a wave of defaults. of the junk-rated bonds due between 2024 and 2026
◼ FINANCE Bloomberg Businessweek February 12, 2024
were taken out during the pandemic, when the Fed Overall, though, Schwartz’s shorts have
made credit cheap and easy for vulnerable compa- not generated much profit for his fund,
nies, even pledging to buy certain types of high-yield which returned 18% last year, versus 24% for
debt. With inflation raising costs for most busi- the S&P 500 Index. Bets last year against Silicon
nesses, the environment is ripe for defaults. Valley Bank and First Republic paid off when
Schwartz isn’t alone in seeking to short the the lenders collapsed after an exodus by depos-
looming maturity wall. Hedge funds such as Hamza itors. But investors have to pay interest on short
Lemssouguer’s Arini profited last year with bets positions, so they can be costly to hold over an
that borrowers who raised money during the easy- extended period. The hope is that when they
money era would struggle to refinance their debt. do pay out, the profit will cover those costs, but
Some signs hint that the bears could be right. there’s no guarantee.
Over 200 large US companies went bust in 2023, the Schwartz offsets the cost of the short positions
worst year since the global financial crisis, not includ- with a handful of holdings in companies with lit-
ing the first 12 months of the pandemic. Speculative- tle debt, in some cases because they’ve undergone
◀ Schwartz
21
▼ Corporate bond
maturities
$300b
200
100
grade companies are defaulting at the fastest rate recent restructurings, in others because they
since May 2021, and there’s been a surge in payment- operate in sectors that lenders eschew because of 0
in-kind arrangements by companies that lack the poor environmental credentials. He’s invested 87% Q2 ’24 Q4 ’26
cash to cover their debts. of his portfolio in just seven companies, including
Schwartz sees big opportunities for those willing a coal producer, a building materials supplier and
to play the long game. He declines to name stocks an owner of auto dealerships. He says that as higher
he’s shorting, but there’s a mix of private equity interest rates and inflation hammer weak balance
firms that have loaded up on over-leveraged com- sheets, companies with good management and low
panies and online retailers with scant cash flow. debt will benefit.
That was fine when low rates meant low costs, “but “Everyone thinks that just because the last cou-
you can’t grow like that if what you’re offering is ple years have gone smoothly, the next five years
a partly subsidized product dependent on low will go smoothly,” Schwartz says. “It’s a lot better to
rates.” He’s also reinstated a short on exchange- be skeptical and cautious, given the sheer amount
traded funds that track major investment-grade of debt that’s out in the system.” �Natasha Doff
and emerging-market credit indexes, which paid and Cecile Gutscher
out handsomely when corporate bonds slumped
THE BOTTOM LINE Schwartz and other bearish investors see
at the start of the pandemic, helping his fund grow opportunity in expiring bonds issued in the heyday of ultralow
almost fourfold. interest rates. But the short position comes with risk.
Bloomberg Businessweek February 12, 2024
E
C
O China Limps Into
N The Year
O Of the Dragon
22
M
I
C
S Beijing hasn’t hit on the right mix of policies
to reawaken the animal spirits
Edited by
Cristina Lindblad
◼ ECONOMICS Bloomberg Businessweek February 12, 2024
As China heads into the lunar Year of the Dragon, The GDP deflator, the widest measure of prices
traditionally seen as one of the most auspicious crea- in the economy, has fallen for the last three quar-
tures on the zodiac, the country’s leaders are strug- ters, the longest streak since 1999. Manufacturing
gling to restore confidence at home and abroad. is leading the price drops—a side effect of Beijing’s
The economy is besieged by deflation, a per- approach to economic stimulus. Officials are chan-
sistent housing market slump and a stock selloff. neling credit to manufacturers to boost output. But
And Beijing’s piecemeal stimulus policies—such as with growth in consumer spending on goods weak
lowering bank reserve requirements to encourage at home and demand for Chinese exports also flag-
more lending and issuing more government bonds ging overseas, businesses are left with little choice
to fund construction projects—don’t seem to be but to mark down their products.
improving sentiment. “The biggest
A key issue is the government’s focus on pro- ② WHILE OLD PROBLEMS PERSIST challenge
moting what President Xi Jinping calls “high-quality China’s economy grew faster than the US’s last year, is Beijing’s
development,” an umbrella term for a variety of but relative to expectations at the start of 2023, the inattention to
policy goals, from boosting China’s high-tech former underperformed, while the latter consis- deteriorating
capabilities to combating social inequality. That’s tently beat estimates. growth”
a more complex ambition than officials’ earlier Blame it on China’s property market crisis. It’s an
single-minded fixation on achieving high levels old story by now—the slump began in 2021—but it’s
of economic expansion. “The biggest challenge is making headlines again thanks to a Hong Kong judge’s
PHOTO ILLUSTRATION BY 731; PHOTOS: GETTY IMAGES (2). *EXCLUDES OFF-BALANCE-SHEET SPENDING. DATA: NATIONAL BUREAU OF STATISTICS COMPILED BY BLOOMBERG AND BLOOMBERG CALCULATIONS;
Beijing’s inattention to deteriorating growth, which ruling ordering the liquidation of China Evergrande
exacerbates all the structural and secular problems Group, one of the many distressed developers.
China faces,” says Houze Song, an economist at the Despite Beijing’s efforts to deter real estate spec-
Paulson Institute, a think tank focused on US-China ulation, construction still represents a huge chunk
relations. “And the solution is to assign a bigger of the economy, driving demand for goods and
weight to growth in government policy.” services worth around 20% of GDP, according to
Here are five charts that zero in on China’s pain Bloomberg Economics. Related sectors such as 23
points in 2024. household furnishings and cement are also being
dragged down. And there’s a spillover effect to
① DEFLATION NOW TOPS LIST OF WORRIES other areas, as falling home prices make many
The term “deflation” describes a situation in which households reluctant to spend on everything from
CITIGROUP DATA COMPILED BY BLOOMBERG; PEOPLE’S BANK OF CHINA AND CHINESE MINISTRY OF FINANCE FIGURES COMPILED BY BLOOMBERG
prices for goods and services fall across a large swath electronics to luxury goods.
of the economy. (Not to be confused with disinfla- After a few mistaken calls of a turn in the prop-
tion, which signifies prices are still rising, though erty market, Wall Street analysts have arrived at the
more slowly. That’s what’s happening in the US.) consensus that conditions won’t stabilize until 2025.
Adjusted for inflation, China’s gross domestic
product expanded 5.2% in 2023. But in nominal ③ NEED MORE, BETTER STIMULUS
terms the world’s No. 2 economy grew 4.6%, the Chinese government advisers’ calls for more
slowest pace in almost four decades, not counting stimulus reached a fever pitch last summer, and
the years when pandemic restrictions were in place. Beijing responded with an unusual midyear dose
① China GDP deflator, year-over-year change ② Citi Economic Surprise Index ③ China’s monetary and fiscal stimulus
as a share of GDP
US China
◼ Central bank balance-sheet increase
◼ Government deficit*
9% 180 9%
6 90 6
3 0 3
0 -90 0
-3 -180 -3
of deficit spending. While the timing signaled a ④ China consumer confidence index ⑤ Change in benchmark stock index
since Dec. 30, 2022
welcome flexibility, the scale of the effort, at 1 tril-
Government eases China (CSI 300)
lion yuan ($13.9 billion), paled compared with Covid restrictions
India (S&P BSE Sensex)
past interventions. Government officials chan-
US (S&P 500)
neled funds into construction, a tried-but-less-true
method of spurring the economy, ignoring recom- 120 30%
when it says it will never again unleash “floodlike” 12/2017 12/2023 12/30/22 2/2/24
stimulus (a reference to the government’s response
DATA: NATIONAL BUREAU OF STATISTICS DATA COMPILED BY BLOOMBERG, BLOOMBERG
during the global financial crisis) or massively
increase demand for housing (as it did after a down- government funds to buy stocks at scale—an idea
turn in 2015). Policymakers will instead prioritize that was floated last month—are unlikely to produce
industries such as high-tech manufacturing that are a lasting upswing. “Without a growth rebound, I
central to Xi’s revamp of China’s economic model. see little chance policy can sustainably boost the
stock market,” says Song of the Paulson Institute.
④ FEELING LOW �Tom Hancock
Stubbornly low confidence among households and
THE BOTTOM LINE China’s economy is battling an assortment of
businesses is blunting the impact of stimulus. That ills, some chronic and others new. Sporadic doses of government
24 may be a hangover from the past few years, which stimulus have proved an ineffective treatment so far.
along with the housing slump have been marked
by unpredictable pandemic restrictions, sudden
crackdowns on sectors including education and
tech, and rising US-China tensions.
One sign Chinese families are feeling less secure:
Rather than investing in housing or stocks, they’re
socking money away in savings accounts at banks.
Politics and the Fed
Companies are being showered with credit, but out-
side of growth sectors such as electric vehicles and ● Powell hopes to stay out of the crosshairs of the US
cleantech, business owners appear to be reluctant to presidential election. It won’t be possible
expand amid weak demand and falling prices.
The optimistic view is that confidence will recover
as recent traumas recede further into the past and Federal Reserve Chair Jerome Powell would no
China’s relations with the US and other key markets doubt prefer that the central bank not be dragged
improve. The pessimists see the property slump into the middle of what’s likely to be a highly con-
continuing to drag on confidence. The prospect of tentious presidential election campaign. But he’s
a Donald Trump reelection won’t ease nerves either. finding that may be near impossible.
In a rare interview, on CBS’s 60 Minutes, which
⑤ FINDING THE FLOOR aired on Feb. 4, Powell insisted the Fed wouldn’t
Worries about China’s future are reflected in prices take politics into account in deciding when to
of stocks traded at exchanges on the mainland and reduce interest rates as inflation ebbs. “It just
in Hong Kong. A yearlong rout has wiped away about doesn’t come up in our thinking,” he said.
$6 trillion in market value, from a peak in 2021. But such assertions didn’t stop former President
Although the stock market isn’t a reliable Donald Trump from accusing him of doing just that.
tracker of China’s economy over the long term, in “I think he’s political,” the likely Republican presi-
the medium term it’s sensitive to trends in nomi- dential nominee said in an interview that aired on
nal growth because they affect profits. So Beijing’s Fox Business’ Sunday Morning Futures, also on Feb. 4.
efforts to boost valuations by tweaking market rules, “I think he’s going to do something to probably help
such as restricting short selling, and possibly using the Democrats, I think, if he lowers interest rates.”
◼ ECONOMICS Bloomberg Businessweek February 12, 2024
Feb. 4 that he wouldn’t reappoint Powell if elected eschewed specific policy recommendations, sea-
in November. soned Fed observers took note. “I don’t think I’ve
President Joe Biden, who backed Powell for a ever seen Powell so forcibly insist the Fed stays in
second four-year term in 2022, has refrained from its lane and then make strong pronouncements” 25
giving the Fed public policy advice, though some like those, Sarah Binder, a senior fellow at the
of his Democratic colleagues haven’t been so shy. Brookings Institution, posted on X. “It’s hard for
Several prominent lawmakers, including Senate The Fed is no stranger to feeling the political them not to
Banking Committee Chairman Sherrod Brown and heat in an election year. In 2016, then-presidential accidentally
Massachusetts Senator and former presidential can- candidate Trump repeatedly accused former Fed stumble on
didate Elizabeth Warren, wrote separately to Powell Chair Janet Yellen of keeping interest rates low to political land
last month urging him to lower interest rates. help Hillary Clinton win the White House. mines even as
In his 60 Minutes appearance, Powell pushed But several things set the coming campaign they’re trying
back on pressure for a quick turn to easier credit, apart. The post-pandemic surge in inflation—along to do the best
even though inflation is cooling quickly. The “dan- with the Fed’s big rate increases to contain it—has economic
ger of moving too soon is that the job’s not quite made voters more aware of Powell and the central policy”
done and that the really good readings we’ve had bank. And they don’t like what they see. Just 43% of
for the last six months somehow turn out not to be a Americans in a Gallup Poll in December gave him
true indicator of where inflation’s heading,” he said. a favorable job rating, down from 53% in 2021, the
That didn’t come as a surprise to Fed watchers. last time the company asked that question.
After all, Powell had said as much at his Jan. 31 press The election is also coming at a particularly deli-
conference after policymakers held rates steady for cate time for the economy and the Fed. Powell told
the fourth straight meeting. What did take some reporters on Jan. 31 that the central bank is trying
analysts aback was his willingness to comment on to navigate two competing risks. If it cuts rates too
some potentially highly charged political issues not soon, it runs the danger of allowing inflation to settle
directly tied to monetary policy. at levels well above its 2% goal. If it delays reducing
The Fed chair extolled the advantages of rates too long, it could end up driving the US into a
America supporting global democracy and the recession. “Powell was trying to get ahead of a pres-
economic and security framework behind it. idential campaign in which he and the Fed will be
SAMUEL CORUM/BLOOMBERG
He called the federal government’s debt unsus- in the crosshairs,” says Mark Spindel, chief invest-
tainable in the long run and urged lawmakers to ment officer at Potomac River Capital. �Rich Miller
tackle the issue. And while he said immigration
THE BOTTOM LINE Federal Reserve policymakers like to stay
policy isn’t the Fed’s job, Powell did argue that above the fray when it comes to politics, but that will be difficult as
immigrants have benefited the US economy over the presidential election nears.
Bloomberg Businessweek February 12, 2024
26
Bloomberg Businessweek February 12, 2024
had been developing one of the first coding assistants Terrible things happened to the scrolls in the many
powered by artificial intelligence; he’d seen the rising power decades that followed. The scientif-ish attempts to loosen
of AI firsthand. He had a hunch that AI algorithms could find the pages included pouring mercury on them (don’t do that)
patterns in the scroll images that humans had missed. and wafting a combination of gases over them (ditto). Some
After studying the problem for some time and ingratiat- of the scrolls have been sliced in half, scooped out and gener-
ing himself with the classics community, Friedman, who’s left ally abused in ways that still make historians weep. The per-
GitHub to become an AI-focused investor, decided to start a son who came the closest in this period was Antonio Piaggio,
contest. Last year he launched the Vesuvius Challenge, offer- a priest. In the late 1700s he built a wooden rack that pulled
ing $1 million in prizes to people who could develop AI soft- silken threads attached to the edge of the scrolls and could
ware capable of reading four passages from a single scroll. be adjusted with a simple mechanism to unfurl the document
“Maybe there was obvious stuff no one had tried,” he recalls ever so gently, at a rate of 1 inch per day. Improbably, it sort
thinking. “My life has validated this notion again and again.” of worked; the contraption opened some scrolls, though it
As the months ticked by, it became clear that Friedman’s tended to damage them or outright tear them into pieces. In
hunch was a good one. Contestants from around the world, later centuries, teams organized by other European powers,
many of them twentysomethings with computer science back- including one assembled by Napoleon, pieced together torn
grounds, developed techniques for taking the 3D scans and bits of mostly illegible text here and there.
flattening them into more readable sheets. Some appeared to Today the villa remains mostly buried, unexcavated and
find letters, then words. They swapped messages about their off-limits even to the experts. Most of what’s been found there
work and progress on a Discord chat, as the often much older and proven legible has been attributed to Philodemus, an
classicists sometimes looked on in hopeful awe and some- Epicurean philosopher and poet, leading historians to hope
times slagged off the amateur historians. there’s a much bigger main library buried elsewhere on-site.
On Feb. 5, Friedman and his academic partner Brent A wealthy, educated man like Piso would have had the clas-
Seales, a computer science professor and scroll expert, sics of the day along with more modern works of history,
revealed that a group of contestants had delivered transcrip- law and philosophy, the thinking goes. “I do believe there’s
tions of many more than four passages from one of the scrolls. a much bigger library there,” says Richard Janko, a University
28 While it’s early to draw any sweeping conclusions from this of Michigan classical studies professor who’s spent painstak-
bit of work, Friedman says he’s confident that the same tech- ing hours assembling scroll fragments by hand, like a jigsaw
niques will deliver far more of the scrolls’ contents. “My goal,” puzzle. “I see no reason to think it should not still be there
he says, “is to unlock all of them.” and preserved in the same way.” Even an ordinary citizen
from that time could have collections of tens of thousands types get together and share big ideas. Seales gave a short
of scrolls, Janko says. Piso is known to have corresponded presentation on the scrolls to the group, but no one bit. “I
often with the Roman statesman Cicero, and the apostle Paul felt very, very guilty about this and embarrassed, because
had passed through the region a couple of decades before he’d come out to California, and California had failed him,”
Vesuvius erupted. There could be writings tied to his visit Friedman says.
that comment on Jesus and Christianity. “We have about 800 On a whim, Friedman proposed the idea of a contest to
scrolls from the villa today,” Janko says. “There could be thou- Seales. He said he’d put up some of his own money to fund
sands or tens of thousands more.” it, and his investing partner Daniel Gross offered to match it.
In the modern era, the great pioneer of the scrolls is Brent Seales says he was mindful of the trade-offs. The
Seales, a computer science professor at the University of Herculaneum papyri had turned into his life’s work, and he
Kentucky. For the past 20 years he’s used advanced medical wanted to be the one to decode them. More than a few of his
imaging technology designed for CT scans and ultrasounds students had also poured time and energy into the project
to analyze unreadable old texts. For most of that time he’s and planned to publish papers about their efforts. Now, sud-
made the Herculaneum papyri his primary quest. “I had to,” denly, a couple of rich guys from Silicon Valley were barg-
he says. “No one else was working on it, and no one really ing into their territory and suggesting that internet randos
thought it was even possible.” could deliver the breakthroughs that had eluded the experts.
Progress was slow. Seales built software that could More than glory, though, Seales really just hoped the
theoretically take the scans of a coiled scroll and unroll it scrolls would be read, and he agreed to hear Friedman
virtually, but it couldn’t handle a real Herculaneum scroll out and help design the AI contest. They kicked off the
when he put it to the test in 2009. “The complexity of what Vesuvius Challenge last year on the Ides of March. Friedman
we saw broke all of my software,” he says. “The layers inside announced the contest on the platform we fondly remem-
the scroll were not uniform. They were all tangled and mashed ber as Twitter, and many of his tech friends agreed to
together, and my software could not follow them reliably.” pledge money toward the effort while a cohort of budding 29
By 2016 he and his students had managed to read the papyrologists began to dig into the task at hand. After a cou-
Ein Gedi scroll, a charred ancient Hebrew text, by program- ple of days, Friedman had amassed enough money to offer
ming their specialized software to detect changes in density $1 million in prizes, along with some extra money to throw
between the burnt manuscript and the burnt ink layered onto at some of the more time-intensive basics.
it. The software made the letters light up against a darker back- Friedman hired people online to gather the existing scroll
ground. Seales’ team had high hopes to apply this technique imagery, catalog it and create software tools that made it easier
to the Herculaneum papyri, but those were written with a dif- to chop the scrolls into segments and to flatten the images out
ferent, carbon-based ink that their imaging gear couldn’t illu- into something that was readable on a computer screen. After
minate in the same way. finding a handful of people who were particularly good at this,
Over the past few years, Seales has begun experiment- he made them full members of his scroll contest team, pay-
ing with AI. He and his team have scanned the scrolls with ing them $40 an hour. His hobby was turning into a lifestyle.
more powerful imaging machines, examined portions of the The initial splash of attention helped open new doors.
papyrus where ink was visible and trained algorithms on Seales had lobbied Italian and British collectors for years to
what those patterns looked like. The hope was that the AI allow him to do his first scans on their scrolls. Suddenly the
would start picking up on details that the human eye missed Italians were offering up two new scrolls for scanning to pro-
and could apply what it learned to more obfuscated scroll vide more AI training data. With Friedman’s backing, a team
chunks. This approach proved fruitful, though it remained set to work building precision-fitting, 3D-printed cases to pro-
PHOTOGRAPH BY HELYNN OSPINA FOR BLOOMBERG BUSINESSWEEK
a battle of inches. The technology uncovered pieces of the tect the new scrolls on their private jet flight from Italy to a
scrolls, but they were mostly unreadable. He needed another particle accelerator in England. There they were scanned for
breakthrough. three days straight at a cost of about $70,000.
Seeing the imaging process in action drives home both the
riedman set up Google alerts for Seales and the magic and difficulty inherent in this quest. One of the scroll
papyri in 2020, while still early in his Rome remnants placed in the scanner, for example, wasn’t much big-
obsession. After a year passed with no news, he ger than a fat finger. It was peppered by high-energy X-rays,
started watching YouTube videos of Seales dis- much like a human going through a CT scan, except the result-
cussing the underlying challenges. Among other ing images were delivered in extremely high resolution (for the
things, Seales needed money. By 2022, Friedman real nerds: about 8 micrometers). These images were virtually
was convinced he could help. He invited Seales carved into a mass of tiny slices too numerous for a person to
to California for an event where Silicon Valley count. Along each slice, the scanner picked up infinitesimal
Bloomberg Businessweek February 12, 2024
changes in density and thickness. Software was then used California. He was in the break room sipping a Diet Coke
to unroll and flatten out the slices, and the resulting images when he saw the post, and his initial disbelief didn’t last long.
looked recognizably like sheets of papyrus, the writing on Over the next month he began hunting for crackle in other
them hidden. image files: one letter here, another couple there. Most of
The files generated by this process are so large and difficult the letters were invisible to the human eye, but 1% or 2% had
to deal with on a regular computer that Friedman couldn’t the crackle. Armed with those few letters, he trained a model
throw a whole scroll at most would-be contest winners. To be to recognize hidden ink, revealing a few more letters. Then
eligible for the $700,000 grand prize, contestants would have Farritor added those letters to the model’s training data and
until the end of 2023 to read just four passages of at least 140 ran it again and again and again. The model starts with some-
characters of contiguous text. Along the way, smaller prizes thing only a human can see—the crackle pattern—then learns
ranging from $1,000 to $100,000 would be awarded for vari- to see ink we can’t.
ous milestones, such as the first to read letters in a scroll or to Unlike today’s large-language AI models, which gobble up
build software tools capable of smoothing the image process- data, Farritor’s model was able to get by with crumbs. For
ing. With a nod to his open-source roots, Friedman insisted each 64-pixel-by-64-pixel square of the image, it was merely
these prizes could be won only if the contestants agreed to asking, is there ink here or not? And it helped that the out-
show the world how they did it. put was known: Greek letters, squared along the right angles
of the cross-hatched papyrus fibers.
30 uke Farritor was hooked from the start. In early August, Farritor received an opportunity to put
Farritor—a bouncy 22-year-old Nebraskan who his software to the test. He’d returned to Lincoln to finish
often exclaims, “Oh, my goodness!”—heard out the summer and found himself at a house party with
Friedman describe the contest on a podcast in friends when a new, crackle-rich image popped up in the con-
March. “I think there’s a 50% chance that some- test’s Discord channel. As the people around him danced and
one will encounter this opportunity, get the drank, Farritor hopped on his phone, connected remotely
data, and get nerd-sniped by it, and we’ll solve to his dorm computer, threw the image into his machine-
it this year,” Friedman said on the show. learning system, then put his phone away. “An hour later, I
Farritor, a computer science undergrad at the University of drive all my drunk friends home, and then I’m walking out
Nebraska-Lincoln, thought, “That could be me.” of the parking garage, and I take my phone out not expect-
The early months were a slog of splotchy images. Then ing to see anything,” he says. “But when I open it up, there’s
Casey Handmer, an Australian mathematician, physicist and three Greek letters on the screen.”
polymath, scored a point for humankind by beating the com- Around 2 a.m., Farritor texted his mom and then
puters to the first major breakthrough. Handmer took a few Friedman and the other contestants about what he’d found,
stabs at writing scroll-reading code, but he soon con-
cluded he might have better luck if he just stared at
the images for a really long time. Eventually he began
to notice what he and the other contestants have come
A cross-section of the scroll
produced by Farritor,
Nader and Schilliger
32
AND
By Kurt Wagner
Illustrations by Alex Kiesling
FEATHERED
February 12, 2024
Bloomberg Businessweek February 12, 2024
E
some Twitter users had
on Friday evening, Nov. 4, 2022. begun harassing advertisers
who were still running ads
It had been just over a week since on the service in an
attempt to get them
he’d closed his $44 billion deal to stop. Musk was
for Twitter, and advertisers were incensed. Soon
after his call with
bailing on the company in droves. Many Wheeler ended,
he sent her a text
brand-conscious marketers were wor- and included Yoel
ried that Twitter’s historical reputa- Roth, Twitter’s
head of Trust and
tion for nastiness would return as a Safety, who man-
aged the teams in
result of Musk’s pledge to defeat the charge of enforcing
“woke mind virus,” his derisive Twitter ’s rulebook .
“Yoel, please suspend all
term for the censorious atti- Twitter accounts that are
engaged in harassment of our
tude he felt had sucked advertisers to get them to stop
the joy out of his favor- advertising on Twitter,” he wrote.
“That is not OK.”
ite social network. Pressuring an advertiser to stop
34 spending money was certainly not
against Twitter’s rules—it wasn’t even
Musk said the way to save Twitter executive, and asked unusual. Suspending Twitter users for
was to restore what he saw as freedom how bad the business doing so would be impossible to justify
of speech. He hadn’t actually changed was. Wheeler had to be delicate. In a under the company’s rules, and it cer-
any of Twitter’s speech policies by that meeting a few days earlier, her pre- tainly didn’t align with Musk’s stated
Friday, but the list of advertisers who decessor had pushed back on Musk’s pledge to uphold free speech. But Musk
had paused their Twitter ads already decision to tweet a joke about Donald made clear that if the company didn’t
included United Airlines, REI and Trump, and had been escorted out of have the rules he needed to exert his
Volkswagen and was steadily growing. the building by security just 24 hours will, he’d create them. He then called
This was a major concern, considering later. It was clear Musk still didn’t appre- Roth shortly after sending the text and
Twitter made roughly 90% of its reve- ciate just how anxious advertisers were spent the brief conversation rant-
nue from advertising. about the new direction he was taking ing that trolling Twitter’s advertis-
Musk told his staff he couldn’t under- Twitter. He also seemed oblivious to ers was akin to blackmailing the
stand why things had already gone side- how his own behavior was contribut- company. “Blackmail is against
ways. He’d spent his first full week as ing to this feeling. One of the things that our rules now,” he declared.
Twitter’s “Chief Twit” kowtowing to its made Musk such a popular Twitter user Roth hung up and contem-
most important advertising partners. was his lack of filter, but that was prov- plated quitting right then and there.
He’d flown his Gulfstream to New York ing to be a liability now that he was the Instead, he called Wheeler and asked
for a slate of meetings that included face of the operation. her to talk Musk off the ledge. Wheeler
advertising industry heavy hitters like Wheeler tried to explain this to her succeeded, and Musk quickly moved on
PHOTOS: BLOOMBERG (4), ALAMY (2), GETTY IMAGES (1)
WPP’s Mark Read and Horizon Media’s new boss by bringing up a tweet he’d to other problems. But the strains that
Bill Koenigsberg. NFL Commissioner posted just a few hours earlier in which have defined Musk’s tenure ever since
Roger Goodell had visited Twitter’s he’d threatened to go “thermonuclear” were already emerging in those first few
office in Chelsea, where Musk prom- on advertisers who stopped spend- weeks on the job, according to several
ised him in person that Twitter would ing money on Twitter ads. “You don’t people familiar with Musk’s interactions
still be a safe place for the league’s valu- want to go to war with advertisers,” and decisions at the time, who spoke
able highlight videos. she warned. on the condition of anonymity to avoid
Now Musk was demanding answers. “Oh, I will go to war,” he replied. retaliation. Within that first week, he
He called Robin Wheeler, his top sales “And I win wars.” was learning how his stated principles
Bloomberg Businessweek February 12, 2024
of absolute free speech didn’t mix well entity behind it, it will be attacked.” about Twitter on Bluesky, a competing
with an advertising business. And the Dorsey’s own tenure at Twitter social network he’d helped envi-
people trying to help him implement hadn’t always gone smoothly, and sion long before Musk ever entered
his vision were learning how quickly the he believed that if anyone could fix the picture. Jason Goldman, an early
new boss would abandon those princi- Twitter’s problems, it was Musk. But Twitter board member, asked Dorsey
ples once they didn’t if Dorsey’s analysis of Twitter’s flawed a simple but loaded question: “Do you
to go to war
stood the tension
inherent in run-
ning Twitter
change of heart
and tried to tor-
timing was bad. Nor do I think the board
should have forced the sale.
“It all went south.”
with advertisers.”
better than Jack
T
Dorsey, who’d here was already plenty of
helped start the company, served two pedo his own deal. He spent much of upheaval at Twitter by the
stints as chief executive officer and the year fighting with Twitter in court. time Musk showed up with
played a role in orchestrating Musk’s When he abandoned his legal fight and $44 billion in early 2022. In
acquisition. As the deal with Musk reluctantly closed the deal that October, the two years leading up
came together, Dorsey, who still sat on he immediately fired half the employ- to the acquisition, activ-
Twitter’s board, texted and spoke with ees, including most of the executive ist investors tried to push Dorsey out;
“Oh, I will go
him regularly, team Dorsey Twitter permanently banned a sitting
according to pri- had hired and US president; the company set a series
vate messages worked with of lofty financial goals it never came
the acquisition.
Dorsey shared his And I win wars” November 2021. The conditions were
ideal for someone like Musk to swoop
concerns about Twitter’s reliance on This bumpy start was a taste of in and take advantage.
advertising revenue and told Musk the things to come. About 16 months into Dorsey was eager to woo Musk, a
company would be better served if it the Musk era, the company’s revenue is business leader he greatly admired—
was no longer publicly traded. “It can’t now just a fraction of what it was before and someone he often referred to as
have an advertising model,” Dorsey tex- he arrived. Musk’s plan to restore free his favorite tweeter. Dorsey had tried
ted in March 2022, weeks before Musk speech to the service—which he pre- unsuccessfully to get Musk to give a
first made his offer. “Otherwise you sented as a straightforward hands-off companywide pep talk in 2018, and
have a surface area policy—has come with all kinds of aster- then succeeded in getting him to do so
that governments isks and stumbles. in 2020. In 2021 Dorsey visited Musk
and advertisers will Dorsey has acknowledged that his at his Texas rocket launch facility,
try to influence attempt to hand off the company has Starbase, and brought along his friend,
and control. If it been bungled. In April 2023, he spent the music producer Rick Rubin.
has a centralized some time responding to questions Dorsey and Musk kept an open
Jack Dorsey Ev Williams Dick Costolo Jack Dorsey Parag Agrawal Elon Musk Linda Yaccarino
2007-2008 2008-2010 2010-2015 2015-2021 2021-2022 2022-2023 2023-present
Bloomberg Businessweek February 12, 2024
different type of
ble to build towards your goals until aging Twitter’s rep-
close,” Dorsey wrote to Musk. “He is utation as the go-to
36 really great at getting things done when place for breaking
tasked with specific direction.”
Dorsey drew up an agenda that social-emotional
included problems Twitter was working Twitter’s top lawyer and pol-
news in the process.
who will not be happy no matter what directly object to Musk’s approach, he
he does.” acknowledged its impact. Shortly after
“At least it became clear that you Musk fired half of Twitter’s employees
can’t work together,” Dorsey replied. just one week after taking over, Dorsey
“That was clarifying.” sent a melancholy tweet of apology. “I
Bloomberg Businessweek February 12, 2024
am grateful for, and love, everyone who that stalwarts such as Coca-Cola, Apple facilitate human connection and
has ever worked on Twitter,” he added. and Disney use to shape their public communication require a different type
“I don’t expect that to be mutual in this image without necessarily expecting of social-emotional intelligence.”
moment … or ever … and I understand.” immediate sales.
Before the antisemitic tweet and orsey rarely t weets
D
lot has happened since the DealBook conference, X’s target anymore, and when he
A
Musk first walked into for advertising revenue in 2023 was does, it’s often related
Twitter’s San Francisco about $2.5 billion, or just over half to his personal interests,
headquarters carrying what the company made in the last which include Bitcoin,
a porcelain sink and a full year before Musk bought it, accord- music and supporting the
plan to turn the company ing to people familiar with X’s busi- presidential campaign of Robert F.
inside out. Working with the skeleton ness, who didn’t want to be named as Kennedy Jr. It’s easy to see, though,
crew that remains after laying off or they weren’t authorized to speak pub- that he hasn’t gotten what he envi-
running off most of the nearly 8,000 licly for the company. At the DealBook sioned when he encouraged Musk to
employees, he’s aiming to transform conference, he buy his company.
Twitter into an “everything app” where blamed advertis- Dorsey made a lot of the idea that
people can shop, tweet, find dates and ers who were reluc- one of Twitter’s flaws was it had too
manage their money. tant to spend on X for much power and control over global
Musk changed Twitter’s official name the company’s finan- speech, and that the world would run
to X in July 2023. “The Twitter name cial issues. “What this better if such power was distributed.
made sense when it was just 140 charac- advertising boycott is When it comes to what is said on
ter messages going back and forth—like gonna do is it’s gonna kill X, there’s still a company holding
birds tweeting,” he wrote that month. the company,” Musk said. the power, but that company is
As an everything app, X will be some- “And the whole world will controlled by the richest man
thing different entirely, Musk has said, know that those advertisers killed in the world with no board of
and “so we must bid adieu to the bird.” the company.” directors, no public share- 37
In the meantime, X’s advertising Of course, it won’t be Disney’s fault holders and seemingly no
business continues to suffer from his if X fails. That will fall on Musk’s shoul- concerns about creating
commitment to tweeting whatever he ders, because of his unwillingness to globally significant speech
wants whenever he wants. In April, adjust to the realities of running an policies on a whim.
Musk changed his Twitter username advertising business. X operates dif- In an interview with
to “Harry Bolz.” In July he called Meta ferently from companies such as Tesla the online political show
CEO Mark Zuckerberg a “cuck” and Inc. and SpaceX, where he’s had such Breaking Points in June,
then challenged him to a “literal dick success. A global speech platform can’t Dorsey admitted that the
measuring contest.” be fixed or perfected simply by writ- Musk era had gone wrong
In November he posted support for ing better code, improving manufac- even before it officially started, when
an antisemitic tweet, which was the turing processes or pushing employees Musk accused the company of lying
final straw for some major advertisers to work longer hours. about how many users it had and Twitter
including Apple Inc. and Walt Disney “I learned a ton from responded by suing him.
Co. Musk offered an apology from the watching Elon up close—the “I think it set up a dynamic
conference stage at DealBook a few good, the bad and the ugly,” where he had to be very
days later, but didn’t put much effort tweeted Esther Crawford, a hasty, he had to be impatient,
into coming off as particularly apolo- product executive who sur- he had to move as quickly as
getic. “Go f--- yourself,” he announced vived a few months under possible with features even
to boycotting advertisers just minutes Musk before she was laid off if they weren’t fully thought
later from that same stage. in a round of cost cuts last out,” Dorsey said. “It all
Musk’s approach seems self- February. “His boldness, looked fairly reckless.”
defeating, given that advertising passion and storytelling is Still, Dorsey maintained
still makes up roughly 75% of his inspiring, but his lack of pro- something that many of his
Adapted from Battle for
company’s revenue. Unlike Meta cess and empathy is painful. the Bird: Jack Dorsey,
former colleagues have long
and Google, which have enormous “Elon has an excep- Elon Musk, and the since abandoned: hope. “I do
$44 Billion Fight for
direct-response advertising businesses tional talent for tack- Twitter’s Soul, published
have confidence that he’ll fig-
whose clients are often small busi- ling hard physics-based by Atria Books, an imprint ure it out,” he continued. “I
of Simon & Schuster
nesses, Twitter is mostly dependent problems,” she contin- LLC. Copyright © by
own 3% of this new company,
on brand advertising—the type of ads ued, “but products that J. Kurt Wagner so I’m supportive.” <BW>
HOW TO BUILD A
38
Ballmer tours
the Intuit
Dome, which
will open for
the 2024-25
NBA season
$2 BILLION
THE FUTURE
HOME OF THE
LA CLIPPERS
WILL BE STEVE
BALLMER’S ODE
TO BASKETBALL.
IT WILL ALSO
HAVE MORE
THAN 1,000
TOILETS
BY IRA
BOUDWAY
PHOTOGRAPHS
BY PHILIP
CHEUNG
NBA PALACE
39
Bloomberg Businessweek February 12, 2024
STEVE
on one baseline known as the Wall—is intended to create an
environment where fans pay rapt attention to the game and
lend frenzied support to the home team.
The most expensive basketball arena ever built, the dome
is both an embodiment of Ballmer’s lifelong passion for the
Ballmer’s suite at Crypto.com Arena in Los Angeles is a bunker sport and a large-scale experiment in behavioral psychology.
beneath the stands, across the hall from the locker room for “There are stadiums that are built more as places for casual
the Clippers, the NBA team he bought for $2 billion in 2014. conversation,” he says, “but I’m saying, ‘Hey, this is where
It’s a low-lit room with a high-top table, a row of dark couches you go if you’re about the game.’ ”
and three TVs along the far wall. There’s no view of the court, As anyone who’s attended a game or concert in the past
which is fine with Ballmer. During games he rarely strays from 15 years can attest, the smartphone has had a profound effect
his first-row seat along the baseline. On a Tuesday night in on how people interact—or don’t—at live events. The show on
December, two hours before tipoff against the Sacramento the floor struggles to compete with screens in hands. Over that
Kings, Ballmer is sitting at the table explaining how happy he same span, sports teams have ramped up efforts to entice big
is to be leaving this place next season. spenders with lavish dining options and private spaces. The
“We can’t establish a sense of identity around here,” he result, between the fans buried in their phones and those
says of the arena, which the Clippers share with the NBA’s ensconced in clubs, is often a lifeless space. The Intuit Dome
Lakers, the NHL’s Kings and the WNBA’s Sparks, as well as is Ballmer’s attempt to make arenas rock again.
about 50 concerts per year. On game nights the Clippers hang “It’s a stark departure from what has become the status
portraits of their current players over the Lakers’ champion- quo,” says Ryan Sickman, global leader for the sports practice
ship banners. (There’s a lot to cover: The Lakers have won at architecture firm Gensler, which wasn’t part of the project.
17 NBA titles, tied for the most with the Boston Celtics. The “It could almost bring a hearkening back to the yesteryear of
Clippers have won zero.) “I think most people would say we’re fandom in a modern building.”
in the Lakers’ building,” Ballmer says. Since voters in California have repeatedly proved unwill-
40 Many might also say they’re in the Lakers’ city. For three ing to fund arena and stadium projects with taxpayer money,
decades after former owner Donald Sterling moved the Clippers Ballmer is shouldering the cost of his basketball Xanadu him-
from San Diego to LA in 1984—a span in which the Lakers won self. “I’ll just say it’s well north of $2 billion,” he says when
eight championships with Hall of Famers including Magic a Bloomberg Businessweek reporter asks about the cost so far.
Johnson, Shaquille O’Neal and Kobe Bryant—the team was a “And that’s primarily your money?”
punchline, with just five winning seasons and mostly anon- “No, no, it’s not,” he deadpans.
ymous players. The franchise had begun to improve by the “It’s all my money.”
time Ballmer took over, with the “Lob City” era of Blake Griffin At 67 years old, almost a decade
and Chris Paul underway. But in the popular imagination, the into his tenure as Clippers owner,
Clippers remain LA’s “other” team. Ballmer hasn’t changed much
Since moving into Crypto.com, then known as the Staples from the big, boisterous, bald-on-
Center, in downtown LA in 1999, the Clippers have also been top software executive who spent
the third tenant in the building, often left to make do with 34 years at Microsoft Corp., the last
weekend matinees and other suboptimal slots in the sched- 14 as chief executive officer, helping
ule after the Kings and Lakers have taken dibs. That’s set to build the company into a tech
to end next season, when the Clippers move into the Intuit colossus and amassing a personal
Dome, a 17,500-seat arena under construction about 10 miles fortune now worth about $140 bil-
southwest, in Inglewood. lion. He bought the team as a (very
For the past nine years, since he began scouring LA for expensive) retirement hobby a few
a plot of land, Ballmer has poured thousands of hours into months after stepping down from
building a home for the Clippers. He’s finessed state and local Microsoft. While he leaves most
politicians, paid hundreds of millions of dollars to brush aside of the day-to-day decisions to the
a legal challenge from a rival NBA owner and labored over Clippers’ front office, he’s devoted
every detail, from legroom and acoustics to locker rooms himself to the arena project in all
and toilets. The result is a venue, set to open in August, that of its minutiae. “I had a real view of
CREDITS CREDITS CREDITS
“Developers! Developers! Developers!” chant from the stage He’s only slightly more subdued in his suite at Crypto.com
at a 2006 Microsoft conference, Ballmer waxed lyrical about as he describes the project. Dressed in a gray, microchecked
the Intuit Dome’s copious plumbing. “I’ve become a real business-casual shirt that wouldn’t be out of place at a Microsoft
obsessive about toilets,” he told the assembled grandees. product launch, he punctuates his sentences with staccato
“Toilets, toilets, toilets.” bursts of volume, arm waves, hand claps and table pounds:
“We got to have a
point of view,” he
says. “What do we
stand for? What are
we about [pound]?
We’re about bas-
ketball [pound].
Hardcore [pound].
We’re [pound] about
basketball [pound].”
taking a long escalator that overlooks the Clippers’ on-site Ballmer’s purchase of the team had come together
practice facility to the terrace level. suddenly. In spring 2014, gossip site TMZ published an audio
Intuit is designed so fans in every section walk down to their recording of then-owner Sterling making racist comments to a
seats, rather than making those in the nosebleeds turn away mistress. Within days, NBA Commissioner Adam Silver issued
from the court to go up, a concept the Clippers borrowed from a lifetime ban and urged the league’s other owners to force a
European soccer stadiums. “Even if you’re sitting in the very sale of the team. Ballmer, recently retired from Microsoft, pre-
last row, you’re walking toward what you are here for,” explains sented Sterling’s wife, Shelly, with a $2 billion bid—almost four
the day’s tour guide, Gillian Zucker, the Clippers’ president of times the previous record for an NBA team—and she accepted.
business operations, as she navigates the construction debris By August, after her husband’s attempt to block the sale had
and takes a spot in what will be one of the back rows. failed, the Clippers belonged to Ballmer.
Zucker, a 54-year-old New Jersey native, came to the A lifelong basketball fan who coached one of his sons’
Clippers in 2014, shortly after Ballmer took over. She’d spent third-grade youth teams and played in pickup games at
most of her career in auto racing, including nine years run- Microsoft, Ballmer had pursued previous attempts to buy
ning the Auto Club Speedway east of LA. During one of her into the NBA—in Seattle, Sacramento and Milwaukee—all of
job interviews with Ballmer, he told her the Clippers weren’t which hinged upon building or renovating an arena. When
the place to come if she was looking for infrastructure proj- the Clippers became available, he was excited to nab a team
ects. “If you think we’re building an arena, and that is why without such complications. “The Sterling stuff happens,”
you want this, forget it,” she he says, “and I said, ‘Hey! I get to go where I don’t have to
Ballmer and Zucker recalls him saying. worry about arenas.’ ”
42
unleashed a barrage of lawsuits seeking to Billionaires Index, Ballmer can afford to overpay for what he
block it. In one the company accused Butts wants. Plenty of pundits suggested he’d done as much when
of tricking it into giving up its lease by saying he bought the Clippers for $2 billion. The then-record sum
he wanted the land for a technology park— has been eclipsed four times in the decade since, however, by
an allegation he denied. Butts’ successful buyers of the Houston Rockets ($2.2 billion), Brooklyn Nets
Bloomberg Businessweek February 12, 2024
($3.3 billion), Phoenix Suns ($4 billion) and Dallas Mavericks of a college field house, it leaves less room for corporate
($3.5 billion). The Clippers are now worth almost $4.6 billion, suites. Intuit has only 46 of them around its bowl, compared
per the latest NBA franchise valuations from news site Sportico. with 178 at Crypto.com. And even these premium spaces are
Does Ballmer feel vindicated? “Yes,” he says with a shrug, engineered for maximum intensity, with the top row of seat-
taking out his phone (an iPhone, for the record) and open- ing for each suite set near the ceiling, so fans won’t have a
ing the calculator app to explain how he evaluates his view of the court from the dining areas. They’ll have to go
investment. A typical index fund, he estimates, would have back out to their seats.
returned about 8% annually over the last 10 years—he plugs Underneath the stands on the baseline opposite the Wall
in “1.08^¹0,” taps the equal sign and gets 2.15—meaning a dol- are four subterranean luxury boxes, cabanas, as the Clippers
lar invested then would be $2.15 today. At a $4.6 billion val- call them, where fans can nosh a few steps from their third-
uation, the Clippers have only slightly outperformed the row seats—not unlike Ballmer’s bunker arrangement at
market. “Microsoft stock sure would have done better,” Crypto.com. Fans in some sideline sections of the lower bowl
Ballmer says, erupting in laughter. “I’m not saying I did badly. will likewise be able to retreat down to private, floor-level
I clearly didn’t overpay. But you can’t look at it as the steal dining spaces called bungalows. The suites, cabanas and bun-
of the century.” galows will all be outfitted with countdown clocks to show
With the Intuit Dome, Ballmer is once again spending what- fans when a timeout or other break in the action is set to end,
ever it takes. In addition to the $400 million for the Forum, so they can hustle back to their seats. Clocks will also be put
he’s committed $100 million to a community benefit plan for up throughout the concourses. “Always clock, clock, clock,
Inglewood to fund affordable housing, youth programs and clock everywhere,” Ballmer says.
other civic needs. Throughout the arena’s design and construc- His fixation on toilets? Also about keeping fans in their
tion, he’s spent extra to fulfill his vision of a hoops cathedral. seats, rather than standing in line, during the game. Intuit
After seeing a full-size basketball court in the lobby of the
Gainbridge Fieldhouse in Indianapolis, where the NBA’s Pacers
and WNBA’s Fever play, Ballmer decided that his arena needed
one, too, and that it should have wooden bleachers. “Turns
44 out they don’t make wooden bleachers anymore,” Zucker says,
pointing out the space where Intuit’s indoor fan court, with
custom-built wooden bleachers, will go. “You could have a
prom or graduation or unveil a new product in here, or play
your Tuesday night pickup game.”
The line between thoughtful detail and extravagance
is always thin. At times the Intuit Dome seems to cross it.
“Anytime he starts a sentence with ‘Wouldn’t it be cool,’ ”
Zucker says of Ballmer, “you know that you’re in for some-
thing amazing.” But the arena is more than an exercise in
wish fulfillment for a basketball-obsessed billionaire; it’s a bet
that the Clippers can find about 17,500 more Angelenos like
Ballmer—and teach them the Tao of Steve—to create a com-
petitive advantage.
Take, for instance, the Wall, an uninterrupted bank of
4,500 seats in 51 rows from floor to ceiling behind one of the
baskets. “It’s built for people to channel their inner Steve
Ballmer,” says Zucker. To fill the section with those who
share in Ballmer’s mania, the Clippers plan to restrict access
through a loyalty program. Fans will be required to complete
a handful of actions, such as sharing photos of themselves in
Clippers gear on social media or answering trivia questions,
to earn a “Chuckmark”—named for the team’s mascot, Chuck
the Condor—before they can buy tickets for seats in the Wall.
“It’s about bringing fans closer,” Ballmer says, “but it’s also
CREDITS CREDITS CREDITS
to say, ‘Hey … you got a purpose here. Your job is not just to
enjoy [clap, clap]. You’re here to contribute. You gotta [clap,
clap] help our team out.”
While the Wall, modeled after the stands at San Diego State
University’s Viejas Arena, may help re-create the atmosphere
Bloomberg Businessweek February 12, 2024
will have roughly one toilet for every 15 seats, more than system in which customers simply take what they want and
double the typical ratio at an NBA arena. get charged automatically as they walk out, without so much
Intuit’s concessions have also been designed for maxi- as a tap or swipe.
mum throughput. The menu will be small and identical at Even the halo board, ostensibly a huge overhead distrac-
every stand, so fans don’t waste time wandering in search of tion, is intended to help keep people locked in with carefully
their favorite items. And the Clippers are planning a checkout programmed stats and analysis. “We put up that big score-
board,” Ballmer says. “Why? We can teach [clap] you more
of the game. We can tell [clap] you more about the game, the
game [clap], the game.”
Ballmer knows his gonzo style isn’t for everybody. Some
people want to eat, drink, lounge and, especially in LA, be
part of a scene. But there’s already an NBA team in town
for those people: the “Showtime” Lakers. The Clippers, as
Ballmer sees it, need to cultivate an alternative identity—
in the model of their owner—as the team for hoops purists.
RENDERING: COURTESY LA CLIPPERS
46
47
assured disgruntled customers it would reimburse them hangar. At a member recruiting event on a yacht in Fort
for market-rate rebookings through another charter com- Lauderdale, he provided $50,000 worth of caviar, accord-
pany, which could cost tens of thousands of dollars per leg. ing to Scott Hopes, who briefly succeeded him as CEO.
Often, though, it didn’t. But AeroVanti had no company credit card or shared
Employees say Britton-Harr’s sales pitches, which account; Britton-Harr controlled all of its finances.
often included free test flights, were part of the prob- Assuming they’d be compensated, employees often
lem. “Patrick would add flights in and destroy the sched- paid for company expenses using personal funds. Even
ule,” Marchick says. “If employees pushed back, he would Philip Welborn, the senior finance manager for Air Club,
be like, ‘I’m the CEO. This is my company. This can be AeroVanti’s membership program, griped to co-workers
done. There are no real rules.’ ” Despite the overload, that he spent $58,000 of his own money and wasn’t reim-
AeroVanti’s sales team was ordered to add $5 million in bursed. Welborn didn’t respond to requests for comment.
revenue every two weeks. At one point, Britton-Harr stopped paying AeroVanti’s
Under these conditions, safety sometimes took a back bills. The office became inundated with calls from fuel
seat. Someone had written “Minimum ten hours of rest” companies, mechanics, parts suppliers and the people
on an office whiteboard, in reference to federal guidelines whose planes they’d leased. One of these callers was a
that dictate how long pilots can fly per day. Marchick says Florida entrepreneur named Scott Levine, who’d leased
that one day, Britton-Harr pointed at the board. “Erase AeroVanti his LearJet in 2021. The three-year contract was
that number,” he said. “That doesn’t exist.” supposed to net him $1 million in profit, plus four free
He insisted that his two dozen pilots fly more frequently years of AeroVanti membership, but after two payments,
to accommodate the surprise extra flights he added to the AeroVanti defaulted.
schedule. When employees balked, he’d say, “This is an Britton-Harr didn’t respond to requests for an expla-
at-will state!”—implying that anyone who complained nation, Levine says, so he started texting other employ-
could be easily fired, according to Marchick. At one point, ees whose numbers he had, asking for help. The next day,
Britton-Harr fired his father, who had protested his man- AeroVanti canceled his membership and said it wouldn’t
50 agement style. “NO ONE IS TO CONTACT Steve Harr any- make any more payments because his plane was “not air-
more for any reason,” pilots were warned in a company worthy,” which Levine said wasn’t true. When he went to
email last May. De Pol, whom many employees regarded repossess it, there was a mechanic’s lien on the plane cit-
as the company’s one responsible executive, also left with- ing unpaid bills, and Levine had to sue to get it back. When
out warning. (De Pol declined to comment beyond say- he eventually did, four months after first leasing it, several
ing he wants to distance himself from AeroVanti.) Now parts were missing: tires, a landing beacon, a hose under
Britton-Harr had total control of the company, according a wing cover. Fellow lessors told him they’d been installed
to Marchick and other employees. He began flying by heli- on other AeroVanti planes.
copter to the Sarasota office from his home on Tampa’s After Levine unloaded on AeroVanti and its CEO in a
glitzy Davis Islands. LinkedIn post, Britton-Harr’s attorney threatened to sue
During this time, Britton-Harr continued to court new him for libel. Instead, Levine sued Britton-Harr for unpaid
sources of cash for AeroVanti, and the planes were a useful bills. He received a default judgment of $2 million, though
prop, Marchick says. Prospective investors often received Britton-Harr never responded. Levine says that hubris
free flights, even at the expense of paying members. He tracks. “When you’re pretending to have all that money
and other employees say many of these flights were kept but you’re spending other people’s money, it just kind of
off official logs, a violation of FAA regulations. Britton-Harr inflates you,” he says. Several other owners have repos-
referred to these free flyers with the abbreviation “D.N.S.,” sessed planes from AeroVanti.
meaning “do not screw.” “He had his pecking order of peo-
ple,” Marchick says.
One regular D.N.S. was businessman Alexander
Nistratov, who fled Russia some years ago after being
indicted for real estate fraud while working for that gov-
B ut all of that was still behind the scenes. Outwardly,
at least, AeroVanti’s second year looked like a story
of expansion. In July 2021 it announced it had raised
about $10 million in venture capital from Network 1 Financial
ernment’s property management agency. Businessweek Securities. (US Securities and Exchange Commission filings
viewed a screenshot of his page in AeroVanti’s schedul- indicate that Network 1, which didn’t respond to requests
ing system that notes, “Per PBH, flights for Mr. Nistratov for comment, paid only about one-third of it.) Originally,
DAVID JENSEN/GETTY IMAGES
are gratis.” Nistratov declined to comment on AeroVanti Britton-Harr’s business model for AeroVanti relied on out-
beyond confirming that he had chartered flights. sourcing some flights and services to other operators. Now
Britton-Harr was a big spender known to throw lavish, he was focused on what he called “vertical integration,”
boozy parties. Some took place in AeroVanti’s Sarasota doing everything in-house, from flying to maintenance.
Bloomberg Businessweek February 12, 2024
In March 2022, AeroVanti purchased a small Arizona Amway Corp. scion Doug DeVos.) Its website notes that one
aviation company called Marjet. It said in a press release of its vessels, the 108-foot Casino Royale, had been used in
that it did so to acquire Marjet’s FAA Part 135 certifica- the James Bond film “as the floating lair of the villain.”
tion, something Guzman and other aviation experts say At the same time, AeroVanti struggled to pay employ-
AeroVanti should have had all along. (Part 135, earned ees. In late 2022, every employee interviewed for this
through rigorous inspections of a company’s safety prac- story says, paychecks started appearing late, then not at
tices, is required for an airline to perform charter flights all. One day, office workers heard they’d be paid by wire
on demand.) AeroVanti said the deal upgraded its oper- transfer instead of their usual payroll vendor, ADP. There
ations and would allow the company “to rapidly scale.” had been “issues” with ADP, they were told. In fact, the
Around this time, its fleet grew to include an Embraer vendor had dropped AeroVanti because of unpaid bills,
Phenom 100, at least nine Piaggios, three Learjet 31As, according to a former members services staffer. ADP
a Gulfstream GIII and a helicopter. The company hired declined to comment beyond confirming that AeroVanti
in-house mechanics. After De Pol resigned, Britton-Harr is no longer a client.
brought in former Piaggio America CEO Paolo Ferreri as Pilots were getting skimped, too. They were upset with
interim COO. It was a time of “incredible momentum and a sudden switch from an hourly rate to a flat salary of
record growth of more than 400% year-over-year,” the $12,000 a month. Then the payments started arriving late.
company said in a press release. AeroVanti’s client list One pilot says they were more than a month behind at one
soon included athletic departments at the University of point. On a single day in June, four pilots quit, and a dozen
Maryland and the University of Central Florida. or so more left soon after, leaving AeroVanti with maybe
Meanwhile, Britton-Harr was spending jet-loads on mar- six. “They could see the writing on the wall,” says the pilot,
keting. He signed multimillion-dollar sponsorship deals who stayed through that period. “They said, ‘We’re done.’ ”
with the Chicago Cubs, USA Sailing, the Florida Panthers Then a pilot who was ferrying New Orleans Saints
and the Tampa Bay Buccaneers. (The “AeroVanti Lounge” kicker Wil Lutz accidentally drove a plane off a runway in
at Raymond James Stadium in Tampa promised “luxury at Destin, Florida. Other pilots had warned Britton-Harr that
every step.”) For the Coca-Cola 600, the company spon- this pilot wasn’t qualified to operate a Piaggio’s notoriously 51
sored a Nascar driver named Corey LaJoie. For the 2023 finicky controls. But with so many pilots gone, and desper-
Preakness Stakes, it sponsored 10 suites. It co-hosted ate to please a VIP like Lutz, Britton-Harr had pressured
events with the Blue Angels Foundation, raising money the pilot to fly. “It could have been much worse,” says an
for veterans. One Christmas, it flew a low-income Navy AeroVanti flight scheduler. “They pleaded with Patrick not
family from Florida to Maryland to see relatives and posted to let this guy fly, and Patrick didn’t care.”
a video of the reunion to YouTube. In an interview with Businessweek, the pilot who
The company even started an offshoot yacht club that crashed blamed mechanical issues, though he acknowl-
required a $100,000 deposit. The AeroVanti Yacht Club was edged that AeroVanti didn’t find evidence of any. He says
run by Britton-Harr’s younger half-brother, Liam Harr, a Britton-Harr pushed him to keep flying Piaggios after the
College of Charleston sailing ace with elite connections. accident but he refused, worried they were unsafe.
(He’d once raced to Bermuda on a sailboat financed by In June 2023, Joey Giordano, the vice president for
operations, emailed employees to say that compensation
was stopping completely. AeroVanti was not closing but
◼ AeroVanti’s car at the Coca-Cola 600 in North Carolina last May merely “awaiting some capital in order to get back on track
and continue on a path of success,” he wrote. “There are
no hard feelings if you decide that AeroVanti isn’t the right
path for you. For those that stay, there could be very green
valley’s [sic] ahead to enjoy!” Giordano didn’t respond to
requests for comment.
Beyond being ticked off and anxious about paying their
own bills, employees were confused. How could a com-
pany with such a massive marketing budget fail to make
payroll? It wasn’t as if AeroVanti had been crying poverty
all along. It had been less than a year since the company
announced raising a fresh $100 million in capital led by
Lafayette Aircraft Leasing LLC.
The announcement turned out to be hot air. Lafayette
says it never raised any money for AeroVanti. It had only
Bloomberg Businessweek February 12, 2024
All of this pressure further inflamed Britton-Harr’s para- of a Southern man of means. In the ’90s he’d run a med-
noia. One day last spring, he demanded that employees ical firm, HMD Healthcare—this was why he’d acquired a
stop using Slack to communicate. He was concerned that pilot’s license, he says, to fly between various business
“the feds” might be trying to infiltrate the messaging plat- matters in Florida.
form, Marchick recalls. The feds were, in fact, interested Hopes first met Britton-Harr in late 2022, he says,
in Britton-Harr. In July the Justice Department filed a com- at an event hosted by the Sarasota newspaper Business
plaint against him for his conduct at a previous lab testing Observer. Britton-Harr had made the paper’s annual
venture. The DOJ alleged that he’d defrauded Medicare out 40 Under 40 list (the Observer: “Who would play you in
Bloomberg Businessweek February 12, 2024
how my actions same time, Todd had been convicted of real estate fraud in
Florida. He served several years in prison. Now he was run-
ning a construction business in Tampa called Britton-Harr
RR
ENT 58
The best boots for
slushy season
60
Florida’s golf gold rush
62
Who’s driving the fine
fragrance sales boom?
Anita Colton fishes
for trout on the Upper 63
Delaware with the Piaget returns to prep
newest Helios
Edited by
Chris Rovzar
Businessweek.com
FISHING Bloomberg Pursuits February 12, 2024
ly anglers like to test themselves by attempting strength may have been that
F
to hook a glorious ocean fish, like a 100-pound it bent the learning curve for
tarpon. But if you want to put a rod to a real thousands of rookie fly anglers.
test, it’s best to try it in a situation that’s more The company’s share of
fussy and technical: casting tiny, buggy flies the premium fly-rod market
at tiny, cagey brook trout. The surrounding surged from an estimated 15%
branches and bushes leave little margin for error, as do the before the H3 to almost dou-
shoe-size pockets of water where you must land the fly. The ble that at the height of the
trout themselves are easily spooked—they’re as skittish as pandemic. And for the first
mice, and usually not much larger. time in decades, fly-fishing
That’s why I found myself along a trickle of a creek in accounted for roughly 30%
Manchester, Vermont, with two of the high priests of fly- of Orvis’ business, according
fishing: Shawn Combs and Tom Rosenbauer. Combs is head to President Simon Perkins,
of fishing research and development at Orvis Co., which a share on par with men’s
started making fly rods in 1856 and has since expanded into apparel. For Combs, the suc-
a retail giant selling outdoor apparel and ephemera such as cess of the H3 was both val-
dog beds and flasks. He’s been locked in his lab for almost idating and nerve-wracking.
seven years trying to come up with a rod to improve upon the Every order prompted an
Helios 3—regarded by many as the finest fly rod ever made. internal question: Could he
Rosenbauer, meanwhile, is the guy who helps sell Combs’ do it again?
creations through the homespun media empire he’s cobbled By the time Combs was
together in 48 years at Orvis, which includes a hit podcast nearing completion of the
and a stream of how-to videos and books. Combs hands me new Helios—the fourth itera-
a wisp of a fly rod—the future of the 168-year-old enterprise— tion—there was a Covid hang-
with the restrained giddiness of an engineer about to pitch over. From 2020 to 2021, the
56 a killer app. “Go ahead, give it a try,” he says. number of people fly-fishing
Much has happened in the fly-fishing world since the fell 4% in the US, the first dip
summer of 2017, when Orvis rolled out the third iteration in almost a decade. Scores of
of its celebrated Helios line of rods—the H3 for short. The pandemic anglers had stored
product was hailed as a breakthrough (in these pages no their gear for good, and those
less) for its uncanny combination of power and who stuck with it were no lon-
accuracy. By manipulating graphite sheets and ger so flush with either money
a proprietary resin, Combs created a rod that or time. “Honestly, it’s a really
was both strong and calm. Small vibrations at leaky bucket,” Rosenbauer says
the tip, which can send a cast off course with of all the anglers who got away.
other rods, all but disappeared. Eventually its Combs’ latest creation
remarkable accuracy became a cheat code for would have to be not only bet-
anglers of all abilities. ter than his last—it would have
A couple of years later, Orvis found itself to be significantly so to per-
on the receiving end of a Covid-sparked ava- suade customers to upgrade.
lanche of interest, alongside Netflix, Zoom I probably can’t cast nearly
and Amazon. Suddenly the world had ample as well as Perkins, but I’ve been chasing trout (and other
free time and money, and a fancy fishing rod fish) for 35 years, and my garage holds more rods than I’d
became an $850 ticket to social distancing. like to admit. I’m about to the level of hobbyist Combs is
Orvis’ Helios went from esoteric invention to trying to win over.
PREVIOUS PAGE AND THIS SPREAD: COURTESY ORVIS CO.
mass-market blockbuster. In 2020 some 7.8 mil- The first impression the fourth generation of the Helios
lion Americans whipped a fly rod around, makes is with its weight, or rather the lack thereof. Scurrying
1 in 5 of them for the first time, according to a down to the creek, I whack the tip into one tree after another,
report from the Outdoor Foundation and the in part because it doesn’t feel like I’m carrying much of any-
Recreational Boating & Fishing Foundation. thing. On the water, in a tunnel of foliage, a quick flick of the
Scores of independent fly shops ordered wrist sends a small, fuzzy fly 35 feet, dropping gently into a
Orvis rods for the first time, still pool of water.
The new Helios specifically the H3. While it With fly-fishing, as with food, there’s been a recent cultural
rod is the fourth
in Orvis’ most was among the finest and most shift toward the traditional, the organic. For decades the indus-
popular line expensive available, its greatest try cranked out stiff—so-called fast—graphite rods that could
FISHING Bloomberg Pursuits February 12, 2024
57
catapult a line 100 feet or more. Lately, though, many fly fishers tight-lipped. We may never know how the H4 performs
are more pragmatic: They realize they seldom need to cast that financially. Perkins, the top executive, does share one estimate:
far. They want a tool that’s more sensitive, less turbo. The new rod, which goes on sale this month for $1,098 to
Bendier—or slower—rods have made a comeback. There’s $1,198, is four times better in quality than its predecessor.
even been a renaissance in fiberglass, for example, a heavier, After plucking a few fish out of remote eddies of the
whippier material that was ubiquitous in the 1960s and ’70s stream, I hand the rod to Rosenbauer. For months he’s been
before Orvis and its rivals discovered graphite. casting it at striped bass and other megafauna, but he’s yet
The magic in Combs’ creation is that it’s softer and slower to give it the tiny-water test. He quickly works out some line,
than its predecessor but no less powerful and accurate. It’s a the rod bending deeply—down almost to his hand—before
bit of a paradox—a 200 mph supercar with 1960s steering, a it slings straight and tucks the fly under a log. The bug dis-
robot with emotions. It does all the things the H3 manages, appears in a splash.
with more finesse, “more feel,” as Combs puts it. It seems Rosenbauer isn’t an effusive guy and doesn’t consider
perfectly weighted to where fly-fishing culture is right now. himself a great caster. Nevertheless, he cackles gleefully.
Orvis is still a private company and, as such, fairly “Shawn!” he gushes. “I love it.” <BW>
STYLE Bloomberg Pursuits February 12, 2024
Only Fools York City was blanketed in white in January, just as the 2024 Old
Farmer’s Almanac predicted. It was a welcome development for
footwear makers: Sales of cold- and all-weather boots in 2023
Slush In were down 18% from 2022, according to Beth Goldstein of con-
sumer research company Circana. Nora Kleinewillinghoefer, a
partner in the consumer practice of consulting firm Kearney,
says milder falls and winters are reshaping the snow boot
industry, “steering the market toward lighter, versatile styles.”
A stylish class of boot rises to handle Phyllis Leibowitz, a personal stylist who’s dressed the
wet winters and muddy springs likes of Marisa Tomei and Lou Reed, says most people want
By Matthew Kronsberg water-resistant options that are light enough to leap over an
icy puddle but grippy enough to stick the landing. We call
Photographs by Audrey Melton them slush boots; here are seven that stand out.
58
CAMPER PIX
Frigid climes were probably not the first thing on
Lorenzo Fluxa’s mind when he created Camper shoes
on the island of Mallorca in 1975. Since then the label
has built a reputation for bold designs suited to all
sorts of wintry conditions, such as these red and brown
leather Chelsea boots, which sport daring colors (and
textures) on a wraparound EVA outsole that gives 59
premium puddle protection. $225
DIEMME BALBI
Made in a village
within sight of the
Dolomite Mountains
in northeastern
Italy, these turn the
mere functionality
of the duck boot
into a high-fashion
statement. The
sturdy rubber sole
is offset by a white
CANADA GOOSE CYPRESS PUFFER BOOT
nappa leather
Best known for keeping torsos toasty, Canada Goose
brings the power of the puffer down to ground level. A upper, which
gusseted front zipper makes these women’s boots easy Leibowitz calls “a
to slip into and out of, while the grooved outsole has superfun cross
more texture on the heel and toe to make them extra between Gene Kelly
grippy in slippery conditions. $525 and L.L.Bean.” €339
GOLF Bloomberg Pursuits February 12, 2024
Golf’s Next also helps create firmer conditions so the ball rolls farther.
To transform their sites, these developers have hired some
of the world’s best golf course architects to work their magic.
initiation fee at $500,000, plans to have Fazio II, who builds all of DLC’s
1,000 members, according to Pascucci. It’s courses, including the one The Ranch
Creed Queen of Silk Memo Paris Cappadocia food) to amp up frankincense and amber in
This floral, amber, fruity creation from the Inspired by the ancient region in Turkey, this full-bodied, unisex scent. $330 for 4.25 oz
House of Creed has a timeless elegance—and Cappadocia offers an intoxicating olfactory
experience. The spice and warmth of Arquiste L’Or de Louis
the bottle doubles as a vanity showpiece.
saffron and sandalwood oil complement An initial spray explodes with orange blossom
$445 for 75ml
the sweetness of vanilla, white jasmine and and melts with honey and musk accords
Ourside Dusk Turkish rose. $310 for 75ml before settling into a smoky base. It’s heady
In a space that lacks diversity, Ourside, a and complex—worthy of the 24-karat gold
series of unisex scents, is the brainchild Glasshouse Fragrances Sunsets in Capri flakes floating inside. $245 for 100ml
of Bronx-based Harvard Business School The bright combination of mandarin, white
peach, jasmine and marine accord is simple Mizensir For Your Love
grad Keta Burke-Williams. Dusk leads The latest from master perfumer Alberto
with succulent berries, fig, bergamot and and straightforward, but it’s also playful
and pretty. As the name suggests, it smells Morillas—the nose behind Acqua di Giò,
grapefruit before drying to a warm cloak of Gucci Bloom and Marc Jacobs Daisy—is a
amber, vetiver, patchouli and frankincense. just like a beach vacation. $140 for 3.4 fl oz
cozy, powdery scent. The patchouli heart
$196 for 50ml Parfums de Marly Althaïr and benzoin essence base grounds the
Boadicea the Victorious 1907 A refined take on the gourmand trend: sweetness from the raspberry top note.
This British house teamed up with Neiman Inside the handsome bottle is a sweet $235 for 100ml
ILLUSTRATION BY ANA MIMINOSHVILI
Marcus to create a timeless aroma that will blend of cinnamon, bergamot and bourbon
vanilla with a base of praline and musk. H24 Herbes Vives
appeal to women and men. The red bottle and Herbaceous, without morphing into a
$365 for 125ml
gold shield have a regal quality, but the scent generic “manly” cologne, this fragrance
is lighthearted: Its cheery blend of lemon Christian Dior New Look uses sorrel, hemp, parsley and pear granita
zest, pink pepper and black currant top notes Dior Parfums Creative Director Francis to deliver a sophisticated outdoorsy
strikes a delightful balance with the tobacco, Kurkdjian used aldehydes, compounds that scent—even for a man who enjoys more
cedarwood and amber base. $695 for 3.3 oz add zing to a fragrance (akin to seasoning indoor comforts. $155 for 100ml
THE ONE Bloomberg Pursuits February 12, 2024
Golden Hour
Piaget rereleases a classic watch that
defined the decadence of the 1980s
By Chris Rovzar Photograph by Rene Cervantes
m a i l i n g o f f i c e s . E x e c u t i v e , E d i t o r i a l , C i r c u l a t i o n , a n d A d v e r t i s i n g O f f i c e s : B l o o m b e r g B u s i n e s s w e e k , 7 3 1 L e x i n g t o n A v e n u e , N e w Yo r k , N Y 1 0 0 2 2 . P O S T M A S T E R : S e n d a d d r e s s c h a n g e s t o B l o o m b e r g
B u s i n e s s w e e k , P.O. B ox 3 7 5 2 8 , B o o n e , I A 5 0 0 3 7- 0 5 2 8 . C a n a d a P o s t P u b l i c a t i o n M a i l A g r e e m e n t N u m b e r 41 9 8 9 0 2 0 . R e t u r n u n d e l i v e r a b l e C a n a d i a n a d d r e s s e s t o D H L G l o b a l M a i l , 3 5 5 A d m i r a l B l v d . , U n i t 4 ,
B l o o m b e r g B u s i n e s s w e e k ( U S P S 0 8 0 9 0 0 ) Fe b r u a r y 1 2 , 2 0 2 4 ( I S S N 0 0 0 7- 7 1 3 5 ) H I s s u e n o . 4 8 1 2 P u b l i s h e d b i - w e e k l y b y B l o o m b e r g L . P. P e r i o d i c a l s p o s t a g e p a i d a t N e w Yo r k , N .Y. , a n d a t a d d i t i o n a l
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● YOUNG PEOPLE TRUST SOCIAL MEDIA ALMOST AS MUCH AS
Share of US adults
In democracies, big election years such as this provide who say they have 100%
convenient moments to assess the health of the fourth estate. some or a lot of trust
in the information
News flash: Much of the industry is in upheaval. As public trust from each, 2016-22
in and consumption of mainstream outlets decline, Instagram, Local news
TikTok and YouTube have become the new juggernauts. organizations
50
These platforms draw right- and left-leaning news consumers National news
organizations
far more evenly than any national media outlet, yet hyper-
Social media
personalized feeds can create fragmented views of the world.
Young people in particular are tuning in to influencers and 0
peers for current affairs. Meanwhile, social media companies
18-29 30-49 50-64 65 and
have slashed fact-checking and moderation, and media layoffs older
keep piling up. �Laura Bliss and Minh-Anh Nguyen
Facebook
64
③ Independent news Influencers Influencers Celebrities Independent news 31%
YouTube
28
④ Celebrities Ordinary people Ordinary people Mainstream news Ordinary people Instagram
16
TikTok
⑤ 8
Politicians Celebrities Independent news Independent news Influencers
X/Twitter
20
⑥ Influencers Politicians Politicians Politicians Celebrities
Share getting news from
CONDUCTED IN JANUARY AND FEBRUARY 2023; CHALLENGER, GRAY & CHRISTMAS; TIKTOK; FREE PRESS
Local TV
● NEWS CONSUMPTION IS RISING ON YOUTUBE, INSTAGRAM AND TIKTOK
Share of any social media users in the US getting news from each platform, 2020-23 37%
Fox News
Facebook YouTube Instagram TikTok X/Twitter
30% 52
CNN
20 38
NBC/MSNBC
10 37
0 CBS
28
ABC
● MEDIA LAYOFFS ● NEXT-GEN NEWS ● TECH ROLLS BACK MODERATION 27
Some 528 journalists were laid off ANCHORS From Nov. 1, 2022, to Nov. 1, 2023, Meta,
in January after the loss in 2023 of Creators Dylan Page, aka X/Twitter and YouTube eliminated
Local radio
News Daddy, and V Spehar, of
3,087
print, digital and broadcast jobs,
UnderTheDeskNews, draw
10.4 million and 3 million
followers on TikTok, respectively.
17
policies aimed at reducing hate speech,
25
New York Times
33
the most annually since 2020. The New York Times: 595,600. ▲ Page misinformation and harassment.
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