Morning Brew Daily - EU Puts Big Tech in Hot Seat & NBA Champs For Sale?

Episode Date: July 2, 2024

Episode 356: Neal and Toby dive into the EU’s latest campaign against Big Tech, namely Meta and Apple, alleging these companies are stifling competition in Europe. Then, the Boston Celtics are just coming off an NBA championship, but that doesn’t stop the owners from selling the team. Plus, the FTC is looking into ‘junk’ patents from pharmaceutical companies meant to prevent generic drug makers from cutting into their business. Meanwhile, Roaring Kitty is at it again, this time making movements for Chewy.com. Next, Toby examines the trend of ‘romantasy’ novels that are flying off the shelves. Lastly, China might have a way around high US tariffs: golf carts. Get your Morning Brew Daily Mug HERE: https://shop.morningbrew.com/products/morning-brew-daily-mug?utm_medium=youtube&utm_source=mbd&utm_campaign=mug Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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And I'm Toby Howell. Today, the EU penalizes another American tech company. Is its heavy-handed regulation stifling innovation? Then the Boston Celtics ownership group is selling the team because it's better to go out a hero than stick around and become James Dolan. It's Tuesday, July 2nd. Let's ride. Yesterday, the nine justices on the Supreme Court left for summer vacation,

but not before going out with a bang that will echo across the country. In a six to three opinion along ideological lines, Scotis decided that former President Trump has some immunity from criminal charges that he tried to overturn the 2020 election results. It was a first of its kind opinion. The court ruled that the former president can be shielded from prosecution for actions that are core to their role as president, aka official acts, such as commanding the armed forces,

but not for unofficial actions as individuals. The three dissenting liberal justice were outraged. They argued this expansion of presidential powers would send the country back to a time before July 4, 1776, and they said their colleagues had elevated the president into a king above the law. The ruling also has real-life implications for Trump's ongoing criminal cases. It means that the trial over his alleged efforts to reverse the 2020 vote will head back to lower courts and will likely not take place before the election in November, which is big for his campaign. I mean, Toby, go back to when he was president and he put three justices on the Supreme Court, giving them a conservative supermajority from this term that we've endlessly talked about from going after regulatory agencies to granting him and former president's partial immunity, which critics say is a threat to democracy.

They've just delivered him win after win after win after win and private sector interests. It's not hyperbole say that this court has totally reshaped the American political and business landscape in the process. Going over to Europe, the EU is fully embracing its role as Elmer Fudd in hunting down the bugs bunnies of the business world American tech giants. And it's not being very quiet about it. Yesterday, European regulators accused META of violating its landmark new tech law called the Digital Markets Act through the company's subscription for no ads model. Meta becomes the second U.S. company that's been charged through the DMA in two weeks after Apple got the hammer late last month. month. Meta's case is a bit of dark comedy that would make Looney Tunes proud. Back in November, meta gave Instagram and Facebook users in Europe two options. You could sign up in the traditional

way in which you don't pay, but we show you personalized ads, or you could pay a monthly subscription that comes ad-free. The entire reason Meta created this subscription was to comply with the DMA, which aims to protect user personal data. Well, that wasn't good enough for European and regulators who said having the option to pay to keep your data from tech companies was really no choice at all. And it said meta was therefore in violation of the DMA. Toby, it's Wabit Hunt season over in Europe. Let's talk about that. Lundy Tunes impression. That was very, very good. Actually, let's talk about the Digital Markets Act, because it is just absolutely wrecking havoc in big tech in Europe. The law was intended to

prevent these big companies from using their massive, massive size to force users to do things that they otherwise wouldn't do, like having their personal data harvest. And the concern was you have these platforms like Instagram and Facebook that are so widely used that people do not have a choice on whether to hand their data over or not because you either have to do that or not join at all. So one of the things the DMA did was name these big tech gatekeepers. They classified seven of them in the act, Facebook, Instagram, WhatsApp are among two dozen core platform services. So meta is squarely in this crosshairs of this attempt to strip the big away from big tech. And so now there is an investigation ongoing. This is meta has a chance to respond to this.

So does Apple. But if they are found in violation after this investigation wraps up next March, they could be handed fines of up to 10% of their global revenues, which for these companies amounts to billions and almost tens of billions of dollars. So it's no joke. Should these penalties come down the pipeline, the META and Apple do have a chance to respond and change their policies. Maybe they'll have to get rid of this subscription. Who knows? But these penalties that are oncoming could be massive. Meta really doesn't like Europe right now, too, because last week, Nick Clegg, which is meta's president, said that Europe was falling behind economically. Because of overregulation, he said that the patchwork of loss across different

member states often makes companies hesitant to roll out new products here. So they are explicitly calling out Europe right now for saying, listen, you're just too heavy-handed with this regulation. We literally tried to comply with it. Now you're interpreting the rulebook differently again. And now here it is with his back against the wall, and it could start incurring those crazy penalties that you just said. And Clegg is a British guy. And he wrote a blog post sort of admonishing the European regulatory state. And he said it, a number of very strong. striking statistics, saying that Europe has been so zealous in its regulation, but it has been much less focused on actually promoting its own tech industry. None of the world's top 10

companies are European. None of the dozen most valuable unicorns, which are startups valued at one billion or more, are European. Of the top 50 companies in Europe, none of them were founded within the last 30 years. Meanwhile, the GDP per capita in the EU right now is half that of the US, 40,000 per European compared to $80,000 per American. So there's a lot of soul searching going on in Europe. But if you talk to regulators in Europe, they're saying this is really important. Big Tech has gone way too big. And when we penalized Apple or took Apple under the DMA, we forced them to change.

Apple only allowed the app store. And because of European regulations, now they allow another independent app stores to come giving users a choice. So that's their pushback to critics that say they're, being a little too heavy-handed. If I told you that an asset bought for $360 million back in 2002 is now on the verge of being sold for $5 billion in 2024, you might think it's an under-the-radar AI stock

or a piece of fine art, but no, that 1,289% expected return is set to come courtesy of the Boston Celtics. The owners of the team, the Boston basketball partners, are looking to ride off in the sunset after winning a title this year and cash in on one of the better, investments in professional sports these days owning an NBA franchise. The sale is almost certainly going to beat the previous record for an NBA franchise, which was $4 billion for

the Phoenix Suns back in 2022, and it would place Boston behind just the Lakers, Knicks, and Warriors on the list of the most valuable NBA franchises. Neil, the official word from the ownership group is that estate planning was the motivation behind the sale, but with a new media rights deal pushing NBA valuations to absurd heights, you can't fault them for taking their chips off the table. Look, it's very rare for a team, a franchise like this, to come on the market. The Boston Celtics are a huge brand. Some you might say, like a global brand. It's kind of like the Yankees or the Cowboys going up for sale, which would be kind of unheard of. I don't know if the Celtics reached that level in terms of brand awareness. But yeah, over

five billion, their valuations have surged, and they're obviously coming off an NBA title. The 18th, they're the most in NBA history. So this is going to be a very juicy sale for. someone to take part of or probably it'll be a consortium of people because who has $5 billion. Let's talk about this media rights deal, though. It is set to be massive, reportedly worth $76 billion over 11 years, around $7 billion a year. It's a significant increase from its previous deal, too, which was paying it around $2.5 to $2.7 billion annually. This new deal expected to have the who's who of broadcasting partners, Disney, NBC, Amazon, and it would set the NBA as just it would cement it clearly as the second most valuable sports media property in the United States behind the NFL.

The one thing that also some people have been pointing to when it comes to the sale is just the operating costs of operating the Boston Celtics have been increasing because just look at Boston's payroll right now. They just handed out the biggest contract in the NBA history to Jason Tatum. Their starting five almost has $1 billion of salary committed to them, which is just absolutely. insane, thinking about paying five people on a basketball cart, almost a billion dollars. But hey. But when they bring in $76 billion for TV rights, then maybe they're worth it. But there has been a flurry of NBA transactions recently. If the Celtics are sold, they would be the fourth sale of a franchise in the last two years.

The Phoenix Suns were purchased by Matt Ishbia for $4 billion. There was a sale of the Milwaukee Bucks to Cleveland Brown owners for $3.5 billion. And then last November, Mark Cuban sold a majority stake in the Mavericks for $3.5 billion to the Adelson family, who are a casino family out of Las Vegas. So there's been a lot of action. The Minnesota Timberwolves are about to be sold as well. So who could buy the Boston Celtics? Toby and Neil. Toby and Neil.

But there are a few maybe local potential buyers. There's the Jacobs family, which owns the Boston Bruins and the TD Garden. They said they could be particularly interested. And then there's Fenway Sports Group, which is really the big Cahuna in Boston. They own the Red Sox, Fenway Park, Liverpool, and the Penguins. And they've indicated they also want to get into the NBA. So this could be very, very interesting. Moving on to pharma, drug prices are way too high.

Everyone can agree on that. But you can't exactly snap your fingers and make them cheaper. Now the FDC is trying out a novel strategy to bring down costs for Americans. It's going after what it considers bogus patents. Last week, the agency launched an investigation into Teva Pharmaceuticals, over two dozen patents for its asthma and COPD inhalers. The FTC believes that Teva has made minor cosmetic tweaks to its products, like changing the cap of the inhaler, to extend its patent protection and fend off generic competition, which could bring down prices. As it stands, these inhalers cost hundreds of dollars in the U.S.

While overseas, they go for a fraction of the price, and critics think that these patent ploys are a third. big reason why. Toby, the war against alleged junk drug patents has been going on since last year, but this investigation represents a significant escalation. Yeah, so these brand name drug makers use patents almost as weapons to protect their medicines and then stave off these cheaper, more generic medicines from getting made. Any blockbuster drug that you've heard the name of is likely protected by dozens and dozens of patents, covering everything from the ingredients to how it's actually made in the manufacturing process of the IP associated with it. And what they're trying to do is just box out these generic drug makers. They don't want them to launch cheaper versions

of their drug. They can only do that if they successfully challenge or if those patents in court or if they expire. So right now, for generic drug makers, it's death by a thousand patents. It's just the way kind of the pharmaceutical industry protects its golden geese. And they say that's really important because why would they invest in tens of billions of dollars spend decades developing a particular drug only do have competitors steal their ideas and launch generic cheaper versions that come onto the market. Like, we would not have the innovate, this is their argument, and there is absolutely some merit to it, is that we would not have the innovation that we have in the U.S. pharmaceutical industry,

developing new treatments to treat various diseases if there wasn't this level of patent protection where they knew their investment would actually amount to something in the end and they wouldn't get undercut by competitors that didn't do any. of the work. So they say that these patents are important. The government is saying you are abusing the system by creating patents for anything from the injectable device. This is what they accused the Ozempic-Mager Novo Nordisk of doing, of just changing the delivery mechanism by by just a little bit. It really wasn't a big change. That extends the patent even longer. They already have years and years under patent protection. And these little tweaks of the delivery

mechanism, the ingredients slightly, just the packaging is an abuse of the system. Right. And price is what the FTC is after here. Having just one generic competitor for a brand name drug usually cuts prices by around 40% according to the FDA. So they're looking to foster that competition. And yeah, in the spirit of patents, it is not within them to just change one particular thing about the injectable device and say it's an entirely new product. And yeah, the FTC has been on a warpath against anti-competitive health care practices. So far, Alina Khan, in her tenure, has challenged two major pharmaceutical mergers. She sued a private equity company for consolidating anesthesiology practices. She's launched probes at middleman to other steps. So it's definitely an area of focus for the FTC trying to get those drug prices down. Up next is Roaring Kitty losing his fastball. Yamava Resort and Casino at San Manuel is California's number one entertainment destination for today's superstars.

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If at first you don't succeed, try again. And again, and again. Such is the motto of everyone's favorite meme investor Keith Gill, aka Roaring Kitty. The man who first sent GameStop shares pumping back in 2021, has a new meme stock target after he revealed a large stake in the online pet retailer, Chewy. An SEC filing showed that he purchased about 9 million shares of Chewy that as of Friday's

clothes were worth $245 million, meaning he now owns 6.6% of the company. The stock subsequently went on a wild ride yesterday, jumping as much as 10% to start the day before settling about 7% lower. Around the same time this Chewy news was coming out, it was also revealed that a game investor sued Gill, accusing him of orchestrating a pump and dump scheme for his previous meming related to GameStop. That suit was subsequently dropped, but it all capped off another roller coaster of a few days for Kitty.

Neil Chewy is very much a part of Kitty's lore because it was founded by Ryan Cohen, the current CEO of GameStop. Say what you will about Keith Gill, but the man ride or dies with Cohen. Is this nickname Kitty? I was just calling him that now. It's easier. Okay, this is the first time I heard that. We are just in a new era of the Roaring Kitty legend because previously when he invested in a company, which was particularly GameStop, he would post a cryptic meme or he would send a screenshot to Reddit of his e-trade portfolio.

Now he's literally having to file with the SEC because this stake is so big, it makes him Chewy's third largest shareholder. So we are just in a new ballgame. He has graduated from the minor leagues to the major leagues in terms of his influence as an investor. you could make an argument whether that's positive or negative. But this guy has amassed so much money from GameStop that now he's being able to throw it around in huge, huge, huge batches and could make an impact on many other companies. He's chosen Chewy specifically because of that connection with Ryan Cohen. GameStop and Chewy are like cousins.

I would say, you know, maybe Chewy is the older, better looking, more successful cousin because GameStop is struggling and Chewy was bought for $3.5 billion by PetSmart in 2017. and has, you know, seen, has, like, rather solid fundamentals compared to GameStop. So Chewy's story actually starts back last week as well, because Gil posted a picture on, or, yeah, kitty, whatever you want to call him, of a cartoon dog that resembled Chewy's logo. That immediately got everyone's hackles up and said, okay, he's probably interested in Chewy. It's very easy to make that connection. shares jumped as much as 34% on Thursday, but then they end of the day down slightly as well. So I do want to talk about this lawsuit, even though it was dismissed, because the question throughout Roaring Kitty's entire lore is, is what he's doing legal? Can he really tweet out pictures of memes, get his rabid followers to join him in buying a stock that he had bought days before he tweeted him out? And for a minute, it looks like we were actually going to get a suit that was going to delve into that. But one thing to note here, after the person dropped the suit, one thing to note here still is that the date of the filing versus the date that he tweeted out the dog picture. It was,

he tweeted out the dog picture a few days after he bought the share. So he is clearly trying to spur his followers to boost the position that he took a few days before. So I do think that he's running a playbook here and we might see more legal challenges to what exactly that he's doing. Well, if he's trying to pump and dump, then he's not being super good at it because his last few investments have not really worked out in his favor when he did that very closely watched YouTube live stream. about GameStop, shares ended the day 40% lower. And then when he unveiled this 6.6% stake in Chewy, the shares also ended the day lower. So you said he lost his fastball,

but it doesn't seem like he has that influence, that aura about him. I know everyone's talking about aura these days. I don't know if Roaring Kitty has it anymore. So we'll see what he does with this Chewy steak. It is an absolute bet on Ryan Cohen, who's also an investing meme stock, legend, who founded Chewy and,

also is the CEO of GameStop. So we'll see what happens with the Roaring Kitty story, but it seems like his posts have diminishing returns right now. If you're listening to this right now, raise your hand if you have read a book in the last year. MBD listeners are supremely bright and talented people, so I assume a lot of you have your hands raised. Now, keep your hand raised if that book involved a dragon. And one more time, keep that hand in the air if there was also some steamy,

sultry romance involved. I know your arms are probably tired now, so put them down and relax. as I take you through another edition of Toby's trends where I take a deep dive through internet culture and emerge with the trend you should keep your eye on. In a case you haven't guessed already, today's trend is about the rise of smutty fantasy books or, as the Wall Street Journal described them, Romanticy Books. There has been an absolute bonanza of stories that combine spicy encounters with dangerous male leads with your typical fantasy fair of magic and dragons.

For any of you who have read Fourth Wing by Rebecca Yarrow or A Court of Rose and Thorns by Sarah J. Moss, you know exactly what I'm talking about. These books are selling like hotcakes. Sales in the Romanticy category rose 45% last year to nearly 20 million copies, even as overall U.S. book sales fell 2.6%. Just to put that 20 million copy number in perspective, James Patterson, Stephen King, and John Grisham only sold 6 million print books in 2023, according to Circana BookScan. So this is a new book industry we are looking at, Neil, by one category. It's absolutely insane. I mean, yesterday we were talking about young men doing nothing on flights. And then today we're talking about young women reading romance novels about

fairies and dragons. It's just kind of interesting to see the way the trends are headed. But it does seem like a lot of this has to do with TikTok, right? Absolutely. Hashtag book talk has been massive for these books as well. It's just a part of being online these days when a book hits book talk. It's more influential than the New York Times. It really is. a distributed New York Times bestseller list that, but a lot of the authors say, like, listen, you have to provide the kindling book talk will then set a book on fire, but it is absolutely remarkable to see which titles just hit book talk and then just reach the masses.

That's where I first saw, I've read the fourth wing series, and I first saw it on TikTok. You just see video after video of these people talking about it. They're like, all right, fine, I guess I'll get on it. It's a very effective review mechanism, and it really has taken a grip of this very specific genre. And another product that Book Talk has also led to a sales boom is Kindle. So Kindle sales have grown by double digits for each of the past two years. People under 45 are their fastest growing customer segment.

I wonder if the rise of very spicy stories and Kindles are somehow related. Because I don't know if you want to be in public, you know, on a subway, reading some of these books. because you can get pretty hot and bothered. I mean, I didn't read them, but you read the fourth wing. But it does seem like it gets pretty steamy. So I wonder if people are turning to Kindles to maybe hide what they're reading a little bit more. So these two trends go a little hand in hand.

You're totally right about one thing. There is this cognitive dissonance of sitting on an airplane and reading something. You feel you're blushing because of what you're reading. The final trend that I actually do think is important to mention here. It's just this loneliness epidemic that we've been talking about in American society. I mean, you have dating apps that are just filled with dissatisfied people where data shows that young men and women are both having less sex.

So I do think that this fantasy book trend allows that escapism, allows this different sort of intimacy. I mean, between you and a book, you in a Kindle, but still, I think that's maybe the third factor that is contributing to this rise of this niche of writing. Drama has come to the world of golf carts. And I'm not talking about Toby accidentally finishing the transfusion. That was in my cup holder. Two of the largest golf cart producers in the U.S., club car and textron, are asking the Biden administration to help prevent a flood of imported Chinese golf carts that are undercutting their business. In a filing with the U.S. trade representative last week, the American golf cart companies asked the government to slap 100% tariffs on Chinese golf carts and other low-speed vehicles, just as they are planning to do on fully fledged Chinese EVs. Whether or not you believe terrorists are the answer, they do have a point that Chinese golf carts are booming in the U.S.

In the past few years, sales have increased sixfold from 148 million in 2020 to 916 million last year. Toby, I know this is a market you would call niche, but it does highlight the heightened protectionist vibes around Chinese vehicles in the West. And one of the big complaints that these cart manufacturers have in the U.S. is saying that Chinese cars are coming across the border and then getting souped up with all these new bells and whistles in order to dodge those tariffs. It's something that is a complaint that full-size EVs have as well. I mean, we've talked about Chinese companies setting up shop in Mexico and using that as a way to get around the tariffs. Overall, though, I think it shows what this explosion of protectionist tariffs does to the world economy because this skirmish between the China and China and U.S. has created all this tension and it's led to all these loopholes,

these workarounds, these unintended consequences, as this tariff. escalates between the two biggest economies in the world. So it is very interesting to see the fallout, the second order effects of this tariff for. You could probably pick any sector, go down the line, and there will be probably a complaint from an American manufacturer saying, please help us with these tariffs. You're doing it for all these other industries. But particularly in golf carts, this is not the first time they've been caught up in a trade war. Back in 2018, the Trump administration put golf carts on the list of vehicles that were,

the list of products that were subject to $50 billion worth of tariffs. from China. So golf carts have been this trade war bargaining chip for a long time. Do you, when you get a golf cart, do you like pay attention to the brand? I do know club car. And I do think it's interesting to that both of these companies have ties to Augusta, Georgia. That's where the, I mean, the home of American golf is a little bit. So I think it's funny that it is, it's a very sensitive topic for a lot of people. So it explains why we're talking about a tear for when it comes to golf cars. I do just want to get a shout out to another tiny vehicle that we do love in the U.S.

and these are these trucks called K trucks that come from Japan. Farmers love them. They're very cheap, very reliable. And experts, K-exports from Japan to the U.S. have more than tripled since 2019. So it's not like we don't like small foreign-made vehicles coming into our country, as long as they are small, cheap, and dependable and something that you can't get in the American-made system.

It's the era of the quirky small car for sure. Okay, let's wrap it up there. Thanks so much for listening and have a wonderful Tuesday. For any comments, questions, or feedback, you know where to find us. Morning Brew Daily at MorningBrew.com. Let's roll the credits. Emily Milliron is our executive producer.

Raymond Lue is our producer. Olivia Graham is our associate producer. Ed Lewis is our technical director. Billy Minino is on audio. Hair and makeup is not too embarrassed to read the fourth wing in public. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil.

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