Motley Fool Hidden Gems Investing - Motley Fool Money: 06.06.2014

Episode Date: June 6, 2014

General Motors CEO Mary Barra fires 15 employees in the wake of an internal investigation.  Pandora hits a sour note.   And Krispy Kreme serves up some not-so-sweet earnings.   Our analysts discuss those stories and share three stocks on their radar.  Plus, we talk about the business of soccer with Stefan Szymanski, co-author of Soccernomics:  Why England Loses, Why Germany and Brazil Win, and Why the U.S., Japan, Australia, Turkey--and Even Iraq--Are Destined to Become the Kings of the World's Most Popular Sport. Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill, joining me in studio this week from Motley Fool One, Jason Moser from Motley Fool Income Investor, James Early, and from Million Dollar Portfolio, Ron Gross. Good to see you, gents. We will break down the latest news from the telecom industry, the energy industry, and the donut industry. With the World Cup just days away, we will analyze the business of soccer. And as always, we'll give you an inside look at the stocks on our radar. We are taping a little early this week before the monthly jobs report is out, so we will not be starting with the big macro. Instead, let's start with General Motors.

On Thursday, CEO Mary Barra announced the firing of 15 employees who GM determined to have acted inappropriately in connection to the ignition switch defect that's linked to nearly 50 vehicle crashes and at least 13 deaths. And, Ron, the investigation concluded there was no deliberate cover-up. So my first question is, is this behind GM now? Interesting. I like the way Mary Barra has handled it. I know we spoke before the show. you think she could have even gone a little bit further. But I like the way she's handled it. It's over in the sense that they're going to come up with a program to compensate these

individuals. It's hard to say if it's only the 13 people that unfortunately lost their lives, is this going to go bigger than that? What I find really interesting is that the new GM is not the same as the old GM. It's actually a different entity. When they went bankrupt in 2009, a new entity was created. And the new one is not actually liable for things that happened to the old GM. And so lawsuits would probably not be successful here, although people can certainly try. So if they put together this fund, they compensate people accordingly, they apologize, they say, we really screwed up, which I think they've done. I guess they move forward. I think I was just looking for a little bit more of the buck stops here from Mary Barra,

because there was so much excitement around her being the first female CEO of a major automotive company. And, James, if you think back to that time earlier this year, you look at her resume, she's immensely qualified. To the extent that there was any inkling of, well, maybe they need someone from the outside to change the culture, it was just that. It was, well, she's great, and on paper she looks great, but she's not going to be injecting any fresh outside perspective in the way that, for example, Alan Mulally did when he went to Ford Motor. Yeah, she had an opportunity to be proactive, and that's what they needed, and she fell flat. I think that's what it comes down to. Jason, do you think that they need that? I mean, obviously, I'm not saying they need a new CEO, but that they need to go one step further because I think a lot of people are looking at this and saying, yes, GM handled this the right way.

This was an outside investigation led by a former U.S. attorney. They did everything by the book. And yet the culture at GM still maybe needs to be improved. No, I think I'm willing to give her a little bit of a pass here. I mean, I think she's done a great job of taking over what's really been just a crappy situation. I mean, we hear this word culture brought into play here a lot with GM recently. And I think that the issues that have been going on here are indicative of just a really poor culture that has been within this company for a long time. You don't change that overnight.

And so what we saw Alan Mulally do with Ford, I mean, he got there around 2006 or something. He really sort of – he changed the direction of the conversation there, got everybody focused on sort of – he got everybody on the same page, really. He encouraged people to point out the problems with the business, things they needed to correct. And I think that over time, you know, Barr is going to be able to do that as well. You see how Ford has done a great job of promoting from within, and now you have Mark Fields who will be taking over that CEO position. And I think that shows that culture will continue. And I think that really that's the biggest challenge for Mary Barr today is to really get that culture going there at GM. And it's just too early for us to really criticize her too much for that.

When you look at the stock, Ron, does it strike you as attractive? You know, I haven't done my own independent work on it, but our friends over at Inside Value, Motley Fool Inside Value, Joe Mager, has a buy on it, thinks it's worth about $44, stocks around $36, so we maybe have 20% plus upside. Shares of music streaming service Pandora dipped earlier this week when the antitrust division of the U.S. Department of Justice announced it will be reviewing songwriter rate agreements. The current ones were put in place decades ago, and Jason, people are saying one potential outcome, potential outcome, is Pandora ends up paying more to songwriters. This is already a company that's not profitable, and this potential outcome puts them even further away from that. I think that's a very good observation there. I mean, going through this company's income statement, that's the thing that really stands out is for all of the money they're bringing in on the revenue side, they still are not profitable. And I think the question investors have to ask themselves today, regardless of the fact that Pandora, I think, puts out a great product.

I mean, most people use it for free. They're not paying for it. Is this a company? Is this an investment from today that that can stand to do well over the course of time? I don't necessarily believe that it is because of, you know, the royalty issue there. I think that artists are the ones really getting screwed here. And I think they're starting to really make a bunch of noise about it. But also, I mean, from the pricing power perspective, you know, if Pandora shut its doors tomorrow or if they jacked up prices tomorrow, there'd be all sorts of options out there.

And there are already all sorts of options out there for us to go try. They're essentially the same thing. I mean, yeah, their music genome product project, I think, is certainly a good sort of a recommendation tool. But this isn't it's not the same kind of a Netflix model that you might see where, you know, they're bringing in subscriber fees all the time. And Pandora is based on advertising, and I think they're going to continue to be based on advertising because there's just nothing really compelling there to pay for a subscription to Pandora. So they've definitely got their work cut out for them. Apple held its annual Worldwide Developers Conference this week.

They unveiled software updates, a new programming language called Swift. James, CEO Tim Cook has got six months to make good on his promise of a new device by the end of 2014. Did we get any clues this week as to what that direction may be in terms of the device itself? We don't, but we got this programming language, which I think is noteworthy in and of itself. I mean, Apple has decided it's sort of big enough to be the successful Betamax, in other words, trying to monopolize this market. They're going to supercharge app development by, you know, one source explained it, like, by appealing to these 13-, 14-, and 15-year-old developers who are the future. I mean, they're basically taking a page out of Altria's playbook in that respect and marketing to these guys. But the screen is called a playground.

It's very user-friendly. So the more apps they get, the more this ecosystem grows. So it's a smart move for them. Another big deal is brewing in the telecom industry. Sprint and T-Mobile are reportedly looking to merge in a deal worth $32 billion. And, Ron, some consumers are excited at the prospect of a stronger sort of third alternative to AT&T and Verizon, but investors, at least in the short term, are not. When this story broke, shares of both Sprint and T-Mobile were dropping. Yeah, it's going to be interesting to see if this gets through the DOJ and the FCC.

On the one hand, you need a stronger third player to be able to compete with Verizon at AT&T, and Sprint and T-Mobile are much smaller than those two players. On the other hand, reducing the industry to three players instead of four does reduce somewhat the choices that people have, and it could reduce the competition on price. I've read that the DOJ has already said they're somewhat skeptical about a deal going through. I kind of have a feeling that in the end it does go through, although three years ago we know that the AT&T deal and the T-Mobile deal got killed. If I was going to bet, which I won't, but if I was going to, I think it goes through. As a T-Mobile customer, when I moved back from Asia, I had to get a new phone. So I got T-Mobile.

It has unlimited data or whatever. It sounds great, right, unless you try to actually move around farther than the mile square radius from D.C. Center. This would maybe give me a two-mile radius, so that's appealing to me. It does seem on the face of it, though, Ron, that this almost seems like a no-brainer, particularly when, yes, the FCC has – regulators have other bigger deals that they are looking at, Comcast, Time Warner. Those appear to be more marriage of monopolies than this. This is – when we talk about telecoms, these aren't just the third and fourth players in the space. They are the distant third and fourth players. Right, and I question whether they'll actually survive unless this happens.

So I think there is a good argument for it to go through. SoftBank owns 80% of Sprint. They're pushing hard for it to go through, and I think it gets done. Coming up, one of our favorite business leaders is back in the news. Stay right here. This is Motley Fool Money. as always people on the program may have interest in the stocks they talk about and the motley fool may have formal recommendations for or against so don't buy or sell stocks based solely on what you

hear welcome back to motley fool money chris hill here in studio with jason moser james early and ron gross guys it has been a great environment for raising money we've seen that with all the ipos And we're seeing it with executives raising money for their own ventures. And that's where our old friend Aubrey McClendon comes in. Yes, the former CEO of Chesapeake Energy has raised close to $9 billion to drill into the Utica shale. He is heading up a new company called American Energy Utica. James, first and foremost, this has to be yet another very bullish sign for the natural gas industry, don't you think? I mean, Aubrey's had good luck, yeah.

But, I mean, I would not say it's a bullish sign for his investors. You know, first of all, this guy's first priority needs to be staying out of jail. I mean, this guy is the Mary and Barry of the business world. If you guys know Mary and Barry, the former Washington, D.C. mayor, I mean, he grossly overpaid his board at Chesapeake so that they would, in turn, grossly overpay him. He has an SEC investigation, a DOJ investigation. He got kicked out of Chesapeake, basically, for various reasons and paid $35 million to leave. But I was looking.

I think there's a few articles describing his company. There's this American Energy Capital Partners, 11.65% front-end load. I mean, that is obscene. 2% fee every time there's a lease that he acquires, 1% disposition fee for a lease that presumably a bad deal that he wants to get out of. He charges his investors also. I mean, they're paying for his mistakes. So I would run far, far away from this guy. And yet, if only for my own entertainment purposes, I'm just hoping that this company goes public later this year.

Don't you, on some level, want Aubrey McClendon to once again be the CEO of a public company? Ain't going to happen. No. Entertainment value, yeah. Shares of Krispy Kreme donuts down 15% on Wednesday after disappointing first quarter sales. They also lowered guidance for the full fiscal quarter. Jason, they blame the weather. And I've got to give him a little bit of sympathy on that, because unlike auto sales, where if you don't go car shopping because the weather was bad, you're probably going to go back maybe the next weekend, a missed donut sale is lost forever.

Yep, you're right. I mean, it is lost forever. You're not going back there and doubling up on donuts the next day. But, you know, the weather, I think we've probably given everyone a pass on this past quarter. It was just something that really had a profound effect. It seemed across the country. But I think that Krispy Kreme's problems certainly transcend the weather. I mean, this is really – I remember growing up as a kid, you know, Krispy Kreme was the donut place to go to. It just seemed like it was such a popular concept that had such a great future ahead. And really, you look at it today, I mean, it's just a small fish in a really big pond that just doesn't really want their donuts, apparently. I mean, they sell, you know, a few of them, but they don't really have any kind of a brand that reaches, you know, from coast to coast.

You look at something like Dunkin' Donuts that does. You look at Starbucks that does, and it really obviously is very global. You look at Panera, and they continue to grow their footprint there. And Krispy Kreme, their store presence, it's 850 or so stores. It's just small in comparison. I don't see any reason why they should be able to really gain any share on those aforementioned competitors. Ron, do you eat Krispy Kreme or are you not a fan? I haven't had one in years and years and years.

Well, I think the key is here. Which is more of a Southern franchise, too. You get the Krispy Kremes when the students come by and they're selling them for a school sale. Or you find them in a gas station that just happens to carry Krispy Kreme donuts. You don't really go to a Krispy Kreme store to buy Krispy Kreme donuts at this point because there just aren't that many around. Whereas you seem to see a Dunkin' Donuts on every corner at this point. I'd be interested just to see the statistics of National Donut Day, how many donuts actually come from Dunkin' Donuts versus Krispy Kreme. I think that pretty much seals the deal right there, wouldn't you?

I think it does, yes. Friday, June 6th, National Donut Day, which I was very happy to see was not just this crass commercial endeavor. This was actually started in the 1930s by the Salvation Army to honor men and women who served donuts to soldiers during World War I. Now, you usually bring in donuts for us on Friday. Our listeners probably don't know that. Since we're taping early this week, will you still be bringing us donuts? No. Apparently he's not going to.

That's it? Coming to your house. I'm on my own. National Donut Day. I think a lot of places are going to be giving away free donuts. Let's bring in our man, Steve Brunner, from the other side of the glass. Do you have a favorite donut, Steve? Chocolate Frosted never does me wrong.

What donut has done you wrong, just out of curiosity? I'm not a big fan of anything pink or orange, usually. It's just food color. So you're not a seasonal guy, is what you're saying? Not really, no. Just Chocolate Frosted, we're done. Boston Cream? Not really.

Jelly? No, not a fan. Let's not run through every donut in the universe, shall we? Before we get to the stocks on our radar, I should mention, we are hiring here at The Motley Fool. You can find all our jobs listed on our culture blog, which is just culture.fool.com. That's culture.fool.com. We're looking to hire writers, people in our tech department, marketing, financial planners. We're looking for people in Canada and Australia as well.

So check it out at culture.fool.com. All right, Ron Gross, what's the stock on your radar this week? All right, this is just a radar stock, not a recommendation. Are we clear? Come on. The Children's Place, PLCE, Children's Specialty Retailer. It's a potential deep value investment, strong balance sheet, $195 million in cash, no debt, only a billion-dollar company, selling at five-time cash flow, good international expansion,

slowing down U.S. expansion. They've had some trouble, but they look like they're getting it right. Could be interesting. Steve, any questions about the Children's Place? Where do they acquire their children from? I don't think it's that kind of store. Wow. James Early, what's on your radar this week?

I'm going back to female health, which is an income investor recommendation, FHCO. If you don't want to be shopping at the children's place, you might use their product. It's a female condom. It's primarily purchased, though, by large, like USAID, the United Nations, various humanitarian groups to stop the spread of diseases among third world women. So those are the main – it's not like something that we would buy in the U.S., but the stock has gotten hammered. It yields about 5% now. It's a tiny company, just a couple hundred million dollar market cap, but they have very cyclical purchasing patterns because they're customers. So I think now might be kind of a trough, a good time to get in.

Didn't you recommend that like last week? No, no, at least the week before. No, no, it's been a few weeks before that. If you liked it at the slightly higher price it was at before, you're going to love it even more now. You're going to love it at the lower price now. Steve, question about female health? So, in this space, I'll phrase this gingerly, in this space, are governments dictating the success or failure of a product like this? This is the only – there are a few female condom makers, but Female Health is the only one that has a World Health Organization and an FDA-approved condom.

So, they basically get all those big purchases. Jason Moser, what are you looking at this week? I can't help but sense an underlying theme here. I love where Ron was going with the children's play. Steve, my pick. This is right for you, buddy, because I know you've got another child that's coming soon. And I'm going with Carter's, actually, very similar to the Children's Place. Carter's, ticker C-R-I, it is kids' clothes.

And, you know, I think that a few reasons why you really got to like these kids' clothing retailers. Number one, their market focus on, you know, kids 5, 6, 5, 6 years old and under. That means you don't have that same fashion risk that you see in your teen retailers, like your Urban Outfitters or your Aeropostales, because it's the parents that are calling the shots. And as we, you know, look out here over the course of the next decade, that population of children will continue to grow. It's about a population of children five years and younger today, about 24.5 million. It's projected to be about 26.5 to 27 million by 2023.

Steve, no doubt you're counted in on that. But, you know, you look at the distribution. As one of the contributors, not as one of the children. Yes, I'm sorry. Let me be very clear. But the distribution model I think they have is very interesting because not only do they have 17,000 points of wholesale around the country and target JCPenney's for now at least, They also have their own retail segment.

And so they have their own stores, e-commerce. And so for me, when I look at Carter's, it's a genuine opportunity there. Steve, question about Carter's? Should I worry that that model seems heavily based on discounting? So it's like, hey, everything at Carter's is on sale or this is the huge clearance rack. When we buy stuff, it's always on the clearance rack there. No, I don't think so at all. I think that pretty much you'll see that with most children's clothes except when you look at something like a Gymboree where you have a Gymboree and then like a Janie and Jax where that's sort of that higher price.

Most parents are focused on value, and those retailers do a pretty good job. They do a good job of making you think you've got a great deal. You can see their margin lines stay pretty healthy. Steve, Carter's, Female Health, The Children's Place, any of those stocks of interest to you? I do love Carter's. We get a lot of clothes there, so it's a joyous day to go into Carter's. All the fabrics feel great. Kid loves them.

Pick up a stuff sandal. That's kind of a sensual comment. It wasn't meant to be. It's a good-natured thing. All right, guys. Thanks for being here. Just in time for the World Cup, we will dig into the business of the world's most popular sport. This is Motley Fool Money.

Welcome back to Motley Fool Money. I'm Chris Hill. We are just a few days away from the start of the World Cup. Time to talk about the business of soccer. Stefan Szymanski is a professor of sport management at the University of Michigan. He is also the co-author of the book Soccernomics, Why England Loses, why Germany and Brazil win, and why the U.S., Japan, Australia, Turkey, and even Iraq are destined to become the kings of the world's most popular sport.

Stéphane, thank you for being here. Oh, it's a pleasure to be with you. Congratulations first on just an epic subtitle. That might be the longest subtitle of any book, of any author I've interviewed. But let me just begin my questions taking it right from the subtitle. Why do Germany and Brazil always seem to do so well when it comes to soccer? Well, I think in the case of Brazil, I think you can put it down to population. I mean, one thing is you need a very large population in order to have a lot of talented players.

I mean, if you think that there's a talent distribution out there and you only pick from the very top end of the distribution, then the more the the larger the total your total size of your population the more likely it is that you're going to get people at the very top end who are going to be world beaters and brazil is a very populous country more populous than than most of the other soccer playing nations in the world and that that conveys an advantage germany is also similarly uh particularly within europe it's it's the most populous nation so so they have that advantage but of course the other advantage that the Germans have is enormous wealth. And I mean, you need money to develop the talent that you have, you need to invest in facilities and so forth and training. And so we argue in the book

that that one of the one of the key factors in Germany's success has been has been its enormous wealth. England is not a poor country. Why is it that, again, from your subtitle, why does England always lose well part of our argument is that actually england don't lose that much more than you would expect given their population and wealth so you'd expect england to be one of the top nations and they are usually one of the top nations so england regularly appears in the top 10 in the fifa rankings they usually get to the finals of most of the competitions they usually get through the group stage, although they might struggle a little bit this year. And they usually get knocked out in the last 16, the quarterfinal or maybe the semifinal, which is really as far

as you'd expect a nation that's ranked in the top 10 to go. And, you know, as one of the top 10 wealthiest, biggest nations, that looks just about right. So bringing it closer to home, the United States, more than 300 million people, certainly a wealthy country. Why doesn't the U.S. do better in soccer? Well, obviously, the big point is that the cultural factor, which is that soccer has never been the biggest sport in the United States, as it is in almost every other country that plays the game. And again, you need to attract some of the top athletic talent into the game. And I think that's one of the points you make in the book is that soccer has been growing in popularity in the US for many years. And it's quite possible that in the future, more young

young kids will get drawn into the game and the united states uh performance will improve i i think the one interesting question is the the talent development system which again in american sports is very different because usually players go through uh the process of going to college and then they graduate from college they're drafted into the major leagues um that doesn't really work in soccer, players tend more to go in at the age of, they develop to the age of 16, 17 and start their professional careers then. And I think one thing, if the United States is to be competitive, it needs to some way mimic that system. You're listening to Motley Fool Money, talking with Stefan Szymanski, co-author of the bestselling book, Soccernomics. I want to talk about the

World Cup in a little bit, but let's get into the business of soccer. And let me start with something that is certainly playing out in the NFL here in the U.S., and that is the health issue, particularly concussions. And you see these stories more and more, Stefan, about not just football and the decline of participation in youth American football, but concussions and head injuries being a threat to soccer as well. And I'm curious if that is being viewed now as a potential business threat? Or is that really something that's just at the youth stage and at the professional stage, it is not a concern? Well, I think one thing that's always been problematic in the world of soccer is there's a high level of secrecy and often a lack of

openness and willingness to address problems. So I think there's good reason to think that concussions might be an issue when players head the ball um they that can cause can be very high impact and and we really don't know what the what the implications are for this doing this repeatedly over a long period of time um and so one would like to see the sorts of studies that we're starting to see based around the nfl and um if it was proven that there was long-term damage then maybe there would have to be changes in the way the game was played but but right now we're not seeing a lot of pressure to do anything about that. And I think some ways there will have to be some high profile casualties in order for us to really, in order for the football authorities to

really start to pay attention to this. Former Microsoft CEO Steve Ballmer just bought the LA Clippers in the NBA for $2 billion. Some of the big soccer clubs around the world have big money behind them billionaire owners as a general rule of thumb does money buy success in soccer yeah i i think the the the question of of uh the the spending two billion on the la clippers is something that has got people's attention uh going and a lot of people questioning whether a franchise could really be worth that much money um it strikes me actually that that it quite possibly could be um uh sterling played only 12 and a half million for uh for for the clippers when he bought them in 1981 and so that represents a compound annual uh growth of 16 and that's

without considering the money that he might have taken out of the franchise in in dividends which is a much better return than you'd have got say putting your money um into the dow or into regular common stocks and uh if that were to say bulma were to achieve the same level of appreciation in the next 20 years say and sell them in 20 years time they'd be worth 44 billion dollars so it's quite possible that these assets could be could be worth this much money but one thing that makes i think um basketball and the american sports different from soccer world where you have also some clubs that are valued at very high prices so forbes values real madrid at 3.4 billion dollars at the moment in soccer there are many fewer clubs that you would give that much

value to and one of the reasons the reason for that really is that the nba is the world's dominant league in basketball and that's not likely to change there's no there's a long history of other leagues trying to challenge incumbent leagues in american sports and failing whereas in soccer world there are actually several leagues so the biggest league at the moment is probably the English Premier League but you have La Liga in Spain you have the Bundesliga in Germany which is growing you have Serie A in Italy which was once the dominant league in Europe plus you have Brazil potentially as a growing league and who knows who else and so there's more competition in leagues which means that the clubs within those leagues are not necessarily going to be

such a good bet in the future. One of the things that we typically like to see at The Motley Fool when we're evaluating a company and thinking about that stock, one of the things we like to see is stable management. Because among other things, when you change management, that's a transition that is typically tough to pull off. So tenure does matter in the world of business. When you look at the management in soccer and i'm not talking about the ownership i'm talking about the coaches it seems like tenure does not matter at all because am i wrong or are coaches getting fired constantly in the world of professional soccer yeah i know you're absolutely right they are it's uh it's a it's a rotating door policy and uh so for example give you an example the

in in england which is not by no means the the worst the average tenure now is just about one year for for managers in the premier league um and to take a comparison for example uh average tenure of ceos in um in the in um american companies uh quoted on the stock exchange it's probably something like four years on average and in addition what i mean that's that's only the tip of the iceberg in a sense because ceos in american companies for example would typically have been on average 19 years with the company before they get to ceo so they're deeply experienced in the culture of the business on average whereas again the managers in in english soccer they won't have come up through the ranks so they've been drafted in from from somewhere else in order to

become the manager which really and you really want to question well what on earth can you possibly do in that with that shorter period of time can you really exert an influence and one of the things we say in economics is that um if you look at what uh what how we can account for success of to teams the major factor is how much money you spend on the players so in other words there's a very very high correlation between player salaries and team success and then people say well hang on the correlation and causation are not the same sort of thing and which is quite right of course but but then they actually you think about why player salaries might explain success is there is the the the soccer world conforms to almost the kind of ideal conditions

for a perfectly competitive market it's uh there are many buyers and many sellers um not just nationally but internationally um you observe very clearly the quality of the players because you get these repeated opportunities week in week out to watch the players perform and you see how effective they are and um not just one or two people watching but thousands and thousands of people watching so there's really not much debate in the end about the relative standing of the players And so, in other words, that means that when players are traded on a regular basis and when they trade, they could be traded at prices, which really reflect their abilities, at least relative to other players. We could argue whether absolutely it's justified, but we could say relative to the alternatives, the players have played roughly what they're worth, which ultimately leaves very limited role for the coaches. and we've been engaged in sort of something of a debate in the soccernomics between ourselves and

and the authors of the numbers game which is another book about thinking about how the economics and business of of soccer works and they argue that that residual that the managers account for is very important and and we and soccernomics we're actually fairly skeptical but that actually they make much of a difference and if they did if it did make much a difference Why wouldn't the managers get longer to try and implement their plans and policies? Coming up, more with Stefan Szymanski. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. I'm talking with Stefan Szymanski, author of Soccernomics, Why England Loses, Why Germany and Brazil Win, and Why the U.S., Japan, Australia, Turkey, and even Iraq are destined to become kings of the world's most popular sport.

Let's talk about the World Cup. I was recently talking with one of my colleagues who works in our office in London, and we were talking about the World Cup, and he told me that England fans, while they will obviously root for England in the World Cup, they will boo individual players on the team based on which Premier League team they play for. Does loyalty to one's Premier League team trump the loyalty to the national team? uh it certainly does for many people in england so um i for example so one of the things i mean the united kingdom is a funny place so we have four national teams england scotland wales and ireland uh northern ireland uh and so many people who live in in the united kingdom actually support a team from from a different country it's also a country of migrants relatively recent migrants and people who often still hold a loyalty to the countries they came from in india and pakistan or Caribbean islands

although that's probably more important in the national game of cricket but even so the idea of national loyalty is something slightly questionable and there are many players there are many people who say for example

the quality of the World Cup just think about the quality of play it's not really as good as say the Champions League which game will the World Cup final live up say to the quality of the Champions League final that we've just seen are very unlikely I think so many people would say that their club is more important to them and they really they're really only interested in the World Cup to make sure that the players on their team don't don't get

injured so this this the whole thing of nationalism in in England certainly is is not quite it doesn't play out quite the same way as it does say in the United States or for example take Germany Germany is a very nationalistic country where they they really care about the success of the national team much more than they care about the success of their clubs i am absolutely a casual fan when it comes to soccer i'm interested in the world cup for a number of reasons but i'll be honest the only person a month ago if you would ask me to name players on the u.s national team the only player i would have been able to name is landon donovan who did very well in the world cup for the u.s team four years ago he was left off the team this year and i'm curious

if the U.S. is not expected to do well in the World Cup, and they are not. I'm curious if anyone thought about the financial implications of leaving the best known star of the team off of the U.S. World Cup team, or if they just thought, you know what, we don't care about the financial implications. We're just going to go with the team that we want. Yeah, I mean, I think one of the things is say, well, we say what financial implications in the sense that, I mean, even if the united states wins were to win the world cup it doesn't necessarily it doesn't directly mean anything for uh that much for u.s soccer uh as as an organization or for um or even for um for major league soccer it would mean a little bit i mean one of what i think one of the issues here

is that that and one of the you know one of the fundamental problems about soccer in the united states is that i mean it's been growing in popularity for some years now i mean the the Major League Soccer is the 10th most attended professional soccer league in the world, which is quite something for something that only started in 1996. But the problem is that it's not really grabbing the attention on TV. And that's where, I mean, that's where sports leagues make money. That's where they become powerful and important leagues. And we've seen, for example, with the coverage of the English Premier League on NBC this year.

I mean, it's actually beating the MLS by some way. And really, to be honest, a foreign league shouldn't be outpacing the domestic league in terms of attention. And the problem is that, in my view at least, is that the MLS does not invest enough in player talent. So the salaries, the wage bill of MLS, which consists mostly of Americans, is only $4 million a team. Whereas, say, for example, in the English Premier League, it's $138 million a team. Wow. There are maybe 30 domestic leagues around the world that pay higher salary levels on average than Major League Soccer, including, for example, the Romanian National League. Now, no disrespect to Romania, but the United States ought to be able to field a better league than Romania.

And you can't if you don't pay for the talent. So because, again, go back to the point, there is a market for talent. You do get what you pay for more or less. It doesn't work perfectly. And there's some variance. And, of course, it's not exact. But nonetheless, you know, you don't get vast differences between salaries if there aren't vast differences in playing ability. And I think the United States is only likely to succeed as a national team once there is the investment in the domestic level, in the domestic league.

And so the United States generates the quality of players who can compete on an international stage. Final question, then I'll let you go. Malcolm Gladwell was on the show earlier this year, and he was talking at one point about underdogs and said that relentless effort can trump talent. and I'm wondering if you think to the the extent to which you think that is the case with soccer and in particular in the world cup I I I mean I have a lot of sympathy with what he's saying and and that ought statistically that ought to be true and if you think about again if you think about March Madness then uh you know you're out of the 64 teams to start occasionally a very small team can make it all the way to to the final but it's very very occasionally um and if you think about

the world cup how many uh small teams have ever have ever made it to to the final um and how many small teams ever succeed i mean the world cup is characterized by what brazil won it four times uh five times um uh italy won it uh what is it four times i think germany um four times we see Actually, what we see in the World Cup are serial dominance by big nations. The book is Soccernomics, Why England Loses, Why Germany and Brazil Win, and Why the U.S., Japan, Australia, Turkey, and even Iraq are destined to become the kings of the world's most popular sport. It is a New York Times bestseller, so definitely pick it up.

Stefan Szymanski, enjoy the World Cup, and thanks for being here. I will, and you enjoy it too. I hope you get into it this time. That's going to do it for this edition of Motley Fool Money. Remember, we're hiring, so if you'd like to work with The Motley Fool, check out our jobs list at culture.fool.com. That's culture.fool.com. The show is mixed by Rick Engdahl. Our engineer is Steve Broido. Our producer is Matt Greer.

I'm Chris Hill. Thanks for listening. We'll see you next week.