Morning Brew Daily - WeWork Goes Bankrupt & Trump Takes the Stand

Episode Date: November 7, 2023

Episode 186: Neal and Toby discuss the Donald Trump civil fraud case involving his business and property valuations. Plus, WeWork finally files for bankruptcy and Google takes on Epic Games in a second anti-trust lawsuit. Toby shares his favorite trends of the week and Bumble gets a new CEO. Finally, why are there so many celebrity memoirs and what made Barbara Streisand call Tim Cook? 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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Good morning, Brew Daily Show. I'm Neil Fryman. And I'm Toby Howell? On today's pod, how much is Mar-a-Lago actually worth? Then Epic Games is finally squaring off against Google over a thousand days after it originally sued. It's Tuesday, November 7th. Let's ride. Toby, it is Election Day.

Sure, it's an off-year election before the big one next year, but there are important decisions to be made across the country. So if you're listening in the United States, head to vote.org to see what's on your ballot and find a polling place near you. Neil, when you retire from the pod, I could totally see you as the map guy, keeping the country up to date with the latest pulling figures.

Would you do that? I was born for that. I mean, I can tell you what happened in 2008 and 2012 in Mecklenburg County and the share of the suburban votes. I mean, that is my jam. I could watch six hours of that. I think I could really do that well

once I retire from podcast. I know. I would trust you, too. You're very trustworthy. Before we dive into the news, we have a quick word from our sponsor, Brex. Tell me about him, Toby. Well, Brex is a spend management platform. That means you can hook your business up with a corporate card, a travel portal, and help pay your bills all in one place.

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While supplies last, ends June 30th, terms at AKA.m.m.S. College PC. For our first story, former President Donald Trump was in court yesterday to testify in a 200, $150 million civil fraud case that could bar him from the world of New York real estate. It was combative. Over the course of the four-hour testimony, Trump offered long, rambling answers to the judge's yes or no questions and called the judge sitting right next to him biased, the court a fraud, and the case against him crazy. At one point, the judge asked Trump's lawyer, can you control your client?

Because this is not a political rally. But let's get down to the substance of the case because it covers some interesting real estate concepts. Remember, Trump and his businesses are on trial over accusations that he inflated his assets by as much as $3.6 billion a year to do banks and insurers into giving him better terms for loans and policies. The judge already ruled that Trump was liable for fraud, and the trial will determine the extent of the financial penalties and whether Trump can still do business in New York. This could be a devastating blow not only to his real estate empire, but to his entire persona as a billionaire mogul who could cut a deal with anyone. Toby, I want to zero in on Mar-a-Lago specifically because the valuation of Trump's Florida estate is at the heart of the matter in this case. The judge found that Trump consistently exaggerated the worth of Mar-a-Lago by as much as 2,300 percent. But Trump contends that it's worth even far more than it was appraised.

Do you want to walk us through this? Yeah, there is a massive delta on what people think it's worth. The Palm Beach County property appraiser had it valued between $18 million and $37 million. Meanwhile, real estate agents have told other news outlets that they'd put it between $300 to $600 million, while Trump said in court he thinks it could be worth as much as $1.5 billion. So where are these huge discrepancies and valuations coming from? Well, first of all, tax assessors typically value properties a lot lower than real estate agents would. Also, because Mar-Largo operates as a private club, the Palm Beach County assessor appraised it based on its annual net operating income,

not on its potential resale or developmental value. So they kind of overlooked the fact that it's this mansion and this super exclusive part of Palm Beach and instead only looked at its income statement in order to determine its value. To appraise a property, often you look at comparable properties and you say, okay, you know, we have this two-acre home, four bedrooms. What did a similar property in this neighborhood

in the zip code sell for? The problem is Mar-a-Lago is a unique, one-of-a-kind property. there are very few things like it. There's not huge mansions near the ocean that also serve as a private golf club as well. So there's just no way to know what other similar properties went for. And so you have this huge discrepancy where Trump is like, I'm just eyeballing this. Like, it's definitely a billion dollars because it's got my name on it. It has a private club.

It's got a golf course. It's in a ridiculous location. It's this historic building that was built in 1927. And then you have the county appraisers that are like, well, we're just looking at it as a golf course. commercial business. So maybe it ends up somewhere in the middle. But real estate agents in the area are like, this thing would go rock bottom, 300 million. Right. So there is that huge delta, but this isn't just about Mar-Alargo, though. Remember, there's the Trump Tower apartment that was once valued at $327 million back in 2016. That fell to right around $116 million after Forbes

kind of outed Trump in 2017 for claiming the apartment was 30,000 square feet. It turned out to just be 11,000 square feet. So there are a few more cut and dry cases other than Mar-Lago, which, as you said, it's very hard to pin down. Right. So Mar-a-Lago is the interesting one to talk about. The judge already found that these financial statements were filled with fraud. Looking ahead in this trial, Ivanka is going to, Ivanka Trump, his daughter is going to testify on Wednesday, and then things should wrap up by December 5th. So we'll see the future of Trump's real estate empire in New York is really at stake here. And then that's not even talking about all the other criminal and diamonds that he has to face over the next year.

Okay, moving on, 47 billion and 45 million. Those are the main two numbers you need to know for this next story. 47 billion is what WeWork was valued at at its peak in January 2019, and 45 million is what it was worth last Friday. The reason I bring this up is because WeWork, as expected, filed for Chapter 11 bankruptcy protection last night, putting a CODA on its spectacular rise and fall over the past decade. The company went bankrupted primarily because it is holding onto some terrible long-term leases that it has not made any money on. In the late 2010s, as it was

rapidly expanding its co-working model to cities around the globe, WeWork locked into agreements precisely at the top of the commercial real estate market. Then the pandemic happened, wiping out the office sector, and WeWork has been on the hook for billions in payments to landlords. As of June, it had lost $16 billion in total and burned through all of the bailout cash. It had been lent by investors. Bankruptcy gives WeWork an option to wriggle out of some of the most toxic leases. As part of its filing, WeWork said it has the ability to unilaterally reject between 50 and 100 leases in the U.S. and Canada, and we'll continue efforts to renegotiate many others, which it's been doing for years now. Toby, we've been expecting this for months, but really a remarkable collapse, one of the biggest in recent memory, and one that wasn't really precipitated by fraud of any kind like FDX, but just awful mismanagement.

Yeah, for all its bluster, for all its promise, we just suffered from kind of a cold hit of reality. and they signed just these gigantic leases. At one point, it was the biggest leaser in the entire country. It was the biggest leaser in Manhattan of office space. So it just expanded too big. It got too big too quickly. And once these rent payments came due, especially as the office market, kind of took a downturn, it just got a splashed cold water in the face

and realized we can't take ourselves out of this without bankruptcy. Yeah, it should really never have been valued at $47 billion. I think that was a product of this low interest rate environment from 2017 to 2019, SoftBank was throwing hundreds of millions of dollars in cash to really any startup. And then you had this very charismatic founder, Adam Newman, who promised to elevate the world's consciousness and expanded WeWork to all areas of the globe when it was, in fact, just a real estate company. It branded itself as a tech company or even something even more than that.

So it just maybe got ahead of itself and did not realize what it actually was, which is this middleman for flexible co-working space, which doesn't sound that sexy. Yeah. Newman actually did chime in on the bankruptcy filing. He said it's been challenging from me to watch from the sidelines as WeWork has failed to take advantage of a product that is more relevant today than ever before, which I actually do think is true, even though the broader office market has taken a downturn as kind of remote work has taken a hold. I do feel like people want that flexible option of just going into work once or twice a day at your own kind of space in a WeWork. So it does feel like this business model, has a way of working is if just you could renegotiate these leases and figure out how to, yeah, drop some of that debt. Yeah, we work to has a few rivals that are doing pretty well. Two of them are industrious and there's another one called IWG. And IWG had a 48% increase in half year profits this year.

So, you know, I was always pretty bullish on the co-working model during COVID when people are coming in three to five days a week or three, average of three days a week. And I just saw firsthand morning. Bruce started out in WeWork in 2017, and it was so ideal for a young startup. We had a two-person office and a four-person office and an eight-person office and an eight-person office and a 12-person office all in the same building. And in what kind of other, you know, before then, a lot of offices didn't offer that type of flexibility.

So, you know, I just saw it firsthand how successful it was. And We-Work probably did too much in terms of the decorations and it grew way too fast. And we just, I just remember going into the office. and they were like, yeah, we're opening office in Buenos Aires, and you're in charge. And it was like some dude who just graduated from Michigan and he's 21 and he has no experience. So we all kind of looked at each other. We were like, this is a little, maybe they're growing a little too fast at this point. But I am sold on the general model for this, especially in a post-COVID world.

For our next story, Fortnite Maker Epic Games and Google kicked off its jury trial in federal court yesterday, where the two will duke it out over the so-called Google tax levied on apps in the Google Play Store. Epic wants to sell in-game items without paying that 15 to 30% fee to Google off the top each time and transaction happens. If this sounds familiar, it's because Epic also lobbed a similar lawsuit at Apple back in 2020, a case that it mostly lost after a judge ruled that Apple's App Store is not considered a monopoly. But Epic is running it back against Google 1,180 days after it originally sued, and this time it thinks it's got a better chance.

First of all, Epic versus Google was a jury trial. Epic versus Google is a jury trial, whereas the Apple case was a Ben's trial. So Epic has to convert a jury, not a judge, which gives it a totally different dynamic this time around. And there's an additional claim that Google spent about a billion dollars on contracts with phone makers, app developers, and video game companies in order to prevent them from creating their own app stores. As for the stakes, they are high. Epic wants to break up Google's alleged monopoly on Android app. stores and payment methods. So this case poses an existential threat to the Google Play Store. But according to Google, if Epic wins, it could make Android phones less safe, as well as hand more of the general App Store market share over to Apple. Neil, a big, chunky case with a lot of history on both sides. Where do you land on this? I want to go back to 2020, because maybe many people listening were not paying attention

to business news back then. But Epic launched this crazy revolt against Apple and Google. They said what they did was basically goaded Apple and Google into kicking Fortnite out of their app stores because they told users to pay for Fortnite outside of the app stores. And so when they did that, they knew that Apple and Google would kick Fortnite out. And then they had this huge PR machine ready where they launched this movie that was resembling 1984. And they just went on this huge press tour to brand themselves as the underdogs against these

behemoth app stores that were making profits and screwing developers over by charging them a 30% cut of all purchases and accusing them of Monopoly. So it was this heavily orchestrated thing. We're finally seeing some of the climax of that in this trial. Yeah, the vibe is totally different this time around because, as I mentioned, that 1,000 day number, remember, Epic definitely wanted to have this groundswell of support and they launched this whole video campaign, but now we're so far removed from 2020. So none of that goodwill is kind of around anymore.

So it is just mostly an antitrust trial without all the pomp and circus. that Epic wanted. So I do think that lends a whole different dynamic to it. Plus, I do think the jury versus having it be a bench trial, in the original case against Apple, they just had to convince a judge. And now there's a jury involved. So maybe some of that groundswell, David versus Goliath approach could work better. I mean, I'm speculating here, but I do think that adds a different dynamic to this trial. While we are talking about Epic games, we have to talk about Fortnite. It's Crown Jewel. What the heck happened this weekend? They brought back the OG Fortnite map after six years, and so many people played, including yourself.

Yeah, nostalgia definitely sells. It was a very big game. I saw it all over social media. So I think maybe they are making a play right ahead of this trial, getting people involved in it, even though the jury should be in a news bubble. Yeah, they broke records. 44.7 million players were on Fortnite on Saturday, which was the most ever. So Epic is bringing it back ahead of this trial. Meanwhile, Google, we didn't even talk about this. But Google, Google has a much bigger, really, antitrust trial going on versus the DOJ for its search and advertising business, which brings in the lion's share of its revenue. So Google is being pulled in multiple directions.

Sundar P. Cha is being testifying in California. He's testifying in D.C. when he really should focus on making his chat bot a little bit better. All right. Before we get lost in Google land forever, we're going to take a quick break. It's Tuesday, which means it's time for Toby's trends where I, a young and strapping Gen Zier, who can't grow a beard, educate you a wise and elder millennial who's honoring no-shaven on a recent trend I've had my eye on. In today's trend is that workers aren't quitting enough.

Yes, that was the headline the Wall Street Journal ran yesterday in a piece talking about how too few people are voluntarily leaving their jobs. Their turnover rate at some large employers has declined so much that a lot of companies say they are overstaffed on certain projects leading to budget overruns, and a lack of vacant roles makes it harder for high performers to move upwards internally. This year, 73% of workers say they plan to stay at their jobs, according to a survey from staffing firm, Adeko, up from 61% last year, and the quit rate sits at just 2.3% down from a high of 3% in April. But, Neil, this piece from the Wall Street Journal, specifically framing this trend the way they

did, received a ton of backlash. Remember in 2020, we were getting headlines on how no one wanted to work, then that shifted to nonstop talk about the great resignation in 2021, which changed into quiet quitting the next year, and now suddenly it's being framed as no one wants to quit anymore. Just a kind of weird way of describing what has probably been one of the best and hottest labor markets of the last 40 years. I mean, we've had 33 consecutive months of job gains dating back to early 2021, and people are staying put in their roles, and now that's getting framed as a bad thing. It's odd to say the least. Bosses will always find something to complain about, and the Wall Street Journal will always write about bosses complaining.

But it does speak, I guess, the lack of attrition here, the lack of people quitting, speaks to maybe the attitudes towards the job market, which has slowed significantly. There was the jobs report for last month that came on Friday, and we have the day off on Saturday, luckily, so we did not talk about the jobs report, but it did show that the number of jobs created was sliced in half last month to 150,000 jobs created the unemployment. rate ticked up just a little bit. It's still super low. So maybe I have employees saying, you know, very different than the past few years saying like, hey, maybe my job's pretty good and I don't necessarily, I might not necessarily be able to find something better elsewhere. I may not be able to get a huge raise elsewhere with wage growth slowing down as well. So maybe it speaks to the broader macroeconomic trends of a cooling job market. Yeah, definitely a cooling job market. And just also to zoom out again, it isn't actually

a bad thing for the economy to have a cooling job market a little bit because remember, the Fed has been fighting against this hot labor market that has been heating up the economy for months now. And so stocks actually rebounded on Friday when that jobs report number came out, even though it was a lot softer than previous job reports. So I just think it's crazy, though, how you can frame anything in a way. I mean, this is good for workers. Like, you want stability your job. If employers are hanging on to their employees, that means culture is probably coming in the right direction.

So there's a lot of good parts of this trend. And yet it was framed as bosses are. or mad that employees aren't quitting anymore. So people got riled up. The Morgan Stanley CEO was like, I guess we should feel flattered. But as a boss, you do want to have a low constant level of attrition to get people in and get people out. High performers. Yeah, you want a low simmering level of attrition.

I guess that's basically gone to zero. All right, we have to move on. Bumble is losing its queen B. Whitney Wolf Hurd, the founder and CEO of the dating app, and now she's stepping down at the end of the year. And Lydia Jones, the CEO of Slack, will take her place. It's hard to imagine Bumble without Wolf Hurd, who revolutionized the dating app sector when she launched the app in 2014. Bumble was different than anything else on the market at the time, requiring women to make the first move in an attempt to create a more empowering and safe online dating space for them.

When Bumble went public in February 2021, Wolf Hurd became one of the youngest self-made female billionaires. But unfortunately for her, this intro doesn't stop there. Since trading at more than $70 a share on its opening day, Bumble's stock price has plunged to below $14, and the dating app market more generally is facing headwinds with declining paying users and people generally feeling fatigued about using them. This is a mature industry, and dating apps are clearly finding it difficult to find new revenue streams.

Now, at least, it's not Wolfhird's problem. I know. Okay, some of the numbers around the dating app scene right now are crazy. According to an Axios Generation Lab poll, 79% of respondents, which were college and graduate students around the country, said they don't even use any dating apps even as infrequently as once a month. That is a crazy high number for a world that used to kind of rely a little bit on dating apps a little bit, but a lot of people are just saying, I'd much rather meet in person. And I think one of it, one of the reasons for this could be that there's a shift in values. 37% of respondents said that beliefs are the most important factor when considering potential partners. And they even ranked it higher than professional goals. And they even ranked it higher than professional. or even looks, and I think that's hard to convey via an app. So a lot of people are just relying more so on this interpersonal, the old-fashioned way, just meet someone in person, meet through friends, and not going through these apps anymore.

Yeah, but I don't know. If Beliefs is very easily communicated on a dating app, if I go up to you at a bar, how am I supposed to know what you believe, what, you know, what your politics are? If I'm swiping, one of the first thing that says on Hinge is Democrat or Republican or liberal or conservative. So I think it's very easy to match up beliefs. But I think these dating apps should not be going after the younger people. I think they should be going after the boomers.

And we talked about this last week, but the boomers are driving the economy right now. And as of 2019, only 6% of singles 65 and older. We're using online dating. These people have money. There's going to be an increasing share of them. The number of 65 plus singles is going to expand from 26 million last year to 34 million in 2030. So if I'm Bumble, if I'm Hinge, if I'm Tinder, I'm going after the boomers. Or if I'm Whitney Wolf heard, I'm launching Bumble for elders, yeah.

Or not for elders, for boomers. Also, I'm glad you mentioned HINS though, because Hinge is still looking pretty good. It's under the Match Group portfolio. The company says it expects HINZ to deliver at least $100 million in direct revenue next year. So even while Tinder is kind of leveling off and it maybe has saturated the market to a point, HINGE does seem like one app under the Match Group portfolio that is doing well. You got to go after the 1% of users, the power users. They are very under-monetized.

That's why Tinder launched a $500 a month. Premium. I don't even know what to say. Premium, premium, premium plan plus plus, plus to get those 1% of users to pay more because this is a small industry, $2.6 billion in revenue across the entire industry. I feel like they're not making as much money as they could have, despite the fact that, you know, over a third of Americans use it. For our final story today, I want to talk about Barbara Streisand's memoir.

My name is Barbara. It comes out today, but has been hanging around the bestsellers list for months now due to pre-sales. Now, this is partly because Barbara has the voice of an angel, and partly because she is writing the wave of celebrity memoirs like she's Cody from Serfs Up. Streisand's autobiography follows on the heels of books from celebs like Viola Davis, Jeanette McCurdy, Matthew Perry, Pamela Anderson, Jada Pinkin, Smith, Britney Spears, and of course Prince Harry. Those last two sold like gangbusters.

Brittany's The Woman and Me is the most recent one to come out and sold 1.1 million copies in its first week on sale in the U.S., which means she joins Mary Trump, Prince Harry, and Barack and Michelle Obama, as the only authors to hit that one million books in sales that quickly. As for why we may be living through a book boom, some biography experts think that a lot of celebrities use the pandemic to kind of reflect on their personal lives, which led to this outpouring of memoirs. Also, as the numbers show, the public clearly has an appetite for them. So, Neil, are you going to cop the Strison book? The only word of caution I'll offer, it's 992 pages. Yeah, it is a beast. I want to do a deeper dive into Strise andan's work. I've got to say a lot of her, at her peak fame was before I was born, but I know she's a total

legend. I was surprised she wasn't an EGOT. No, I think she is a GATT. She's not win a Tony. Really? Yeah. I guess she could have if she wanted to. Yeah.

But she won, you know, a bunch of Grammys and Oscars and things. like that, but not a Tony. So I was surprised by that, but she's obviously a legend. I want to, I want to, like, consume more of her work before I read the book. But this is a celebrity memoir. I would definitely read, even as intimidatingly long as it is, just because she's been so – first of all, she's been very private about her life for many years. And she's just been intertwined with so many, just so many of the biggest stories of the

past – of the late 20th century. Yeah, she is just absolutely a force. I was reading an NPR kind of review of the book, and it said that, By the time that American woman were just fighting for the right to open a credit card without a husband, Strison had already founded two production companies, so it just goes to show how big of a presence she was in kind of this era. Also, one of my favorite stories is that she heard that Siri, the voice assistant for Apple, was pronouncing her name wrong. So she called Tim Cook and got him to personally change pronunciation of it. And she kind of smiles while she's telling the story and saying, like, I like solving problems.

So it just goes to show you what kind of person she is. And I do think this book will do well because she's lived a heck of a life. I think one reason why celebrities are writing memoirs a lot right now. And it's not, I'm not saying this is what Streisand is doing is because it generally leads to an uptick in all of your other projects. Yeah. So Britney Spears releases this memoir. All of a sudden, wow, her music streams are up 20% over the course of that week.

And that happened to Mariah Carey when she released her memoir as well. So it's kind of like celebrities getting there. name out there again and refocusing the public on all the other stuff that they do to make a little more money. Prince Harry, I mean, did you say when you said why? Because they make a lot of money. Prince Harry got a $20 million in advance for spare. So even if you're a celebrity, you want to make more money. Yeah. We have to wrap up the show there. If you have thoughts, questions, concerns, send us a note at Morningbrewdaily at Morningbrew.com. We got a ton of emails yesterday, and I'm going to kick it to Toby to explain why. Yes, I want to apologize. I said that.

GROC, the word that Elon named his AI after, is from Hitchhiker's Guide to the Galaxy, written by Robert Heinland. What I should have said is that the name GROC comes from Stranger in a Strange Land written by Robert Heinlein, but its rebellious persona was inspired by Hitchhiker's Guide to the Galaxy, which, of course, is written by Douglas Adams. So thank you to everyone who emailed or commented yesterday for keeping me honest. We got a lot of sci-fi fans out there. Yes, it was a total revenge of the nerds moment.

Okay, we got to roll the credits. Emily Miliron is our editor and producer. Samantha Velas is our associate producer. Euchennawa Ogu is our technical director. Billy Minino is on audio. Hair and makeup is on their way to vote. What a model citizen. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil.

Let's run it back tomorrow.