Motley Fool Money - 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

Hi everyone, I'm Charlie Cox. Join us on Disney Plus as we talk with the cast and crew of Marvel Television's Daredevil Born Again. What haven't you gotten to do as Daredevil? Being the Avengers. Charlie and Vincent came to play. I get emotional when I think about it. One of the great finale of any episode we've ever done. We are going to play Truth or Daredevil.

What? Oh boy. Fantastic. You guys go hard. Daredevil Born Again official podcast Tuesdays and stream Season 2 of Marvel Television's Dead Devil Born Again on Disney Plus. Everybody needs money. That's why they call it money.

From Fool Global Headquarters, this is Motley Fool Money Radio Show. It's the Motley Fool Money Radio show. I'm Chris Hill, joining me in studio this week for Motley Fool 1. Jason Moser for Motley Fool Income Investor, James Early, and for Million Dollar portfolio, Ron Gross. Good to see you, Jens. Good to see you, Chris. 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.

as 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 Barrow 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 it's 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 happen 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 Malali 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 passer. 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 Malawi 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, you know,

he got everybody on the same page, really. He encouraged people to, you know, 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. in, 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, it's 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 Magar 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 in. 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 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 direct? 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, you know, who are the future. I mean, they're basically taking a page out of Altria's playbook in that respect in marketing to these guys. But the screen is called the 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 Team 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 Team 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 choice. 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, 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, has unlimited data or whatever. 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, you know, 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, you know, 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 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 Full 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 MacLendon, comes in.

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? No. I mean, I would not say it's a bullish sign for his investors. You know, first of all, this guy's first priority is needs to be staying out of jail. I mean, this guy is the Mary and Barry of the business world. If you guys know, you know, Marion Barry, 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. You know, got kicked out of Chesapeake, basically, for various reasons and paid $35 million to leave. But I was looking, I think there was a few articles describing his company. There is 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 presumably a bad deal that he wants to get out if he charges his investors also.

I mean, they're paying for his mistake. 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 McLendon to once again be the CEO of a public company? Ain't going to happen. Intertaining 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 got to give them 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, I mean, we've, 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 that seemed across the country.

But I think that Krispy Cream's problems certainly transcend the weather. I mean, this is really, I remember growing up as a kid, you know, Krispy Cream 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. And you look at something like Dunkin' Donuts that does. You look at Starbucks, it does, and it really obviously is very global. You look at Panera, and they continue to grow their footprint there.

And in Krispy Kreme, their store presence, it's 850 or so stores. It's just a it's just small in comparison. I don't see any reason why they should be able to really, you know, gain any share on those aforementioned competitors. Ron, do you eat Krispy Cream 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 Creams.

You get the Krispy Creams 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 Kris Cream store to buy Kris Cream donuts at this point because they're 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 is 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 donuts. I think a lot of places are going to be giving away free donuts. Let's bring in our man, Steve Brutter, from the other side of the glass.

Do you have a favorite donut, Steve? Chalkin' 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, as much I'm saying. Not really, no.

Just chocolate frosted, we're done. Boston cream? Not really. Jelly? Yeah, 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.com.

That's culture.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.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? 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 it 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. just 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 purchase. 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. Didn't you recommend that like last week?

No, no, at least a week before. No, no, it's been a few weeks before that, I think. If you liked it at the slightly higher price it was out before, you're going to love it even more now. You'll 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 her product like this? This is the only, they, 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 a children's place. Steve, my pick, this is right for you, buddy, because I know you've got another child. They're coming soon. I'm going with Carter's, actually. Very similar to the children's place. Carter's, ticker CRI.

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, five, six 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 aeropostals because it's the parents that are calling the shots. And as we look out here over the course of the next decade, that population of children will continue to grow. It's about 20, a population of children five years and younger today, about 24 and a half million. It's projected to be about 26 and a half 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. As one of the children. Yes, I'm sorry. be very clear. But the distribution model I think they have is very interesting because not only they 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, and 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 you pretty much you'll see that with most children's clothes, except when you look at something like a jimberie, where you have a jimberie and then like a Janie and Jacks, where that's sort of that higher price. Most parents are focused on value, and those retailers do a pretty good a job. They do a good job of making you think you 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 you? I do love Carter's. We get a lot of clothes there, so it's a joyous day to go into Carter's and all the fabrics feel great. The kid loves them. Think of the stuff. sale. It's kind of a sensual comment. It wasn't meant to either. 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 Samanski is a professor of sport management at the University of Michigan. He is also the co-author of the book Soccernomic. 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. Stefan, 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 larger the total size of your population, the more likely it is that you're going to get people at the very top.

top end who are going to be world beaters. And Brazil is a very populous country, more populous than most of the other soccer-playing nations in the world. And that conveys an advantage. Germany is also similarly, particularly within Europe, it's the most populous nation. 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 one, one of the key factors in Germany's success 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's 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 kids will get drawn into the game and the United States performance will improve. I think the one interesting question is the talent development system which again in American sports is very different because usually players go through the process of going to college. and then they graduate from college. They're drafted into the major leagues. That doesn't really work in soccer. Players tend more to go in at the age of, they developed 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 Samanski, co-author of the best-selling

book, Socceronomics. I want to talk about the World Cup in a little bit, but let's get 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 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 that can cause, can be very high impact. And we really don't know what the implications are for doing this repeatedly over a long period of time. And so one would like to see the sorts of studies that we're starting to see based around the NFL. And 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 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 think the question of spending $2 billion on the LA Clippers is something that has got people's attention going. And a lot of people questioning whether a franchise could really be worth that much money. It strikes me, actually, that it quite possibly could be. Sterling played only 12.5 million for the clippers when he bought them in 1981. And so that represents a compound annual growth of 16%.

And that's without considering the money that he might have taken out of the franchise in dividends, which is a much better return than you'd have got, say, putting your money into the Dow or into regular common stocks. And if that were to, say, Balma 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. So it's quite possible that these assets could be worth this much money. But one thing that makes, I think, 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 Rail Madrid at $3.4 billion. at the moment. In soccer, there are many fewer clubs that you would give that much value to. And one of the reasons for that really is that the NBA is the world's dominant league in basketball,

and that's not likely to change. 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, in Germany, which is growing. You have Seria R 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 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. It's a rotating door policy.

And so, for example, give you an example, in England, which is not, by no means, the worst, the average tenure now is just about one year for managers in the Premier League. And to take a comparison, for example, average tenure of CEOs in America, companies quoted on the stock exchange, it's probably something like four years on average. And in addition, 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 English soccer, they won't have come up through the ranks.

So they would have been drafted in 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 with that shorter period of time? Can you really exert an influence? And one of the things we say in Soconomics is that if you look at how we can account for success of 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 we which is quite right, of course.

But then you think about why player salaries might explain success. It's there is the soccer world conforms to almost the kind of ideal conditions for a perfectly competitive market. There are many buyers and many sellers, not just nationally but internationally. 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 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 can be traded at prices, which really reflect their abilities, at least relative to other players. We can 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 country. coach it. And we've been engaged in sort of something of a debate in the Sokonomics between ourselves and the authors of the numbers game, which is another book about thinking about how the economics and business of soccer works. And they argue that that residual that the manager account for is very important. And we in Sokonomics, we're actually fairly skeptical, but that actually they make much of a difference. And if it did make much a difference, why wouldn't the managers get longer to try and implement their their plans and policies.

Coming up, more with Stefan Samanski. This is Motley Fool Money. Welcome back to Motley Full Money. I'm Chris Hill. I'm talking with Stefan Samanski, author of Socceronomics, 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? It certainly does for many people in England. And so, 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, Northern Ireland. And so many people who live in the United Kingdom actually support a team 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? Very unlikely, I think.

many people would say that their club is more important to them and they're really they're really only interested in the world cup to make sure that the players on their team don't get injured so this this the whole thing of nationalism in in england certainly is it's 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, would have win the World Cup, it doesn't it doesn't directly mean anything for that much for U.S. soccer as an organization or for or even for major league soccer. It would mean a little bit. I mean, one of the issues here is that and one of the fundamental problems about soccer in the United States is it, I mean, it's been growing in popularity for some years now. I mean, 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, that, you know, a foreign league shouldn't be out. outpacing the domestic league in terms of attention.

And the problem is, is that, in my view at least, is that the MLS does not invest enough in player talent. So the salary, 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. And 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 extent to which you think that is the case with soccer and in particular in the World Cup. I mean, I have a lot of sympathy with what he's saying. And statistically, that ought to be true. And if you think about, again, if you think about March Madness, then, you know, you're out of the 64 teams to start. Occasionally, a very small team can make it all the way to the final. But it's very, very occasionally. And if you think about the World Cup, how many small teams have ever made it to the final? And how many small teams ever

succeed? I mean, the World Cup is characterized by what Brazil, won it four times, five times. Italy have won it, what is it, four times, I think, Germany, four times. We see, actually what we see in the World Cup are serial dominance by big nations. The book is Sokernomics, 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 Samanski, 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, of the Motley Fool. Check out our jobs list at culture.fool.com. That's culture.com. The show is mixed by Rick Engdahl.

Our engineer is Steve Broido. Our producer's Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.