LA Dodgers Raising The Bar

MEHYAR AFKARI

Can Magic Johnson possibly justify the jaw-dropping price he's about to pay for the Los Angeles Dodgers? There's a price tag of $2.15 billion on the MLB franchise, which is two-and-a-half times more than what the Chicago Cubs sold for just a few years ago and over 50% more than the soccer giant Manchester United recently sold for. Guggenheim Baseball Management, an aggressive boutique group that includes former Los Angeles Lakers star Magic Johnson and longtime baseball executive Stan Kasten, placed a bid that is $700 million higher than the next highest bidder, Steven Cohen, the American hedge fund manager who founded SAC Capital Advisors.

Where is $2.15 billion coming from? The former CEO of Bear Sterns, Alan Schwartz, is currently the executive chairman of the investment banking firm Guggenheim Partners. He says the firm and its clients, partners, and investors are a source for "a lot of the money for this purchase." It's still pretty unclear as to where these dollars are coming from, but they certainly amount to a figure that the Dodgers couldn't turn down.

Today, the Dodgers said they are on track to exit bankruptcy as planned on April 30. The April 30 date is part of a settlement between the Dodgers and Major League Baseball; It coincides with the deadline for current owner Frank McCourt to pay $131 million to his ex-wife, Jamie, as part of their divorce settlement. Although sports teams are often perceived as vanity purchases, at some point, Magic Johnson and company will want a return on their investment. The question now is: will they even get one?

The Eurozone Tragedy: Part Four

In the never-ending tragedy that is the Eurozone Crisis, Spain is now the next country to have the dubious honor of stepping into the world’s spotlight. As its ability to pay back its debts gets called into question, Spain is seeing its debt yields rise to almost 6% for a 10-year bond. In the past, countries have asked for a bailout at 7%.

It is surprising to see the reaction from those in the media and around the world. Clearly after Greece, Portugal and Ireland, Spain was could not be too far behind? Just a quick look at Spain reveals an unemployment rate of over 20%. This figure stands at almost 40% for youth aged from 16-24. With unemployment benefits fit for kings and a younger work force that has remained almost perpetually unemployed for a few years now, who would work?

Spain’s new government definitely has a lot of work to do. They have revealed a budget proposal that would utilize €27bn in spending cuts and tax increases to counter the projected contraction in Spain’s GDP. However, the ECB has said that there will be no bailout for Spain. Now that is by no means the final word, but how long will the ECB be able to keep their poker face on. This is a dangerous game they are playing and frankly, the outcomes do not seem to be in anyone’s favor. The Spain episode of the Eurozone Crisis is ramping up, so stay tuned!

On a more positive note, Spain has three teams in the UEFA Semi-finals. If only the economy could be solved by playing soccer.

Norman Bae

Are we finally recovering?

Recent reports by ADP are reporting positive news on the employment front where 200,000 new jobs were created in the private sector. The news was welcomed as stocks on Wall Street fell the second day in a row, while the Spanish bond auction was ill received by investors. Don’t celebrate too soon because hours after the report surfaced, Yahoo Inc. released news that it will be cutting 2000 jobs from its current work force. The cuts were made in light of declining revenues and intense competition, and hopes to stimulate growth.

Other grim news on the market include a second wave of foreclosures as banks start to play catch up. Unlike the housing crisis not too long ago, these involve everyday hardworking Americans who were able to pay down their prime mortgages previously. Because of the financial meltdown from sub-prime mortgages, everyone was affected, and many lost their jobs. In addition, residents now find that they owed more money to the bank than what their homes are worth. Homeowners are feeling the heat and can only brace themselves for what is to come. The near future doesn’t look too peachy to me, and I’m graduating in a year – God help us all.

- Rui Shan Chin

Issues with Groupon Continue

There has been a slew of controversy surrounding Groupon since its IPO this past November. At that point, many people were in awe at how this new and unprofitable ($420m loss in 2010) company could attain a near 17 billion dollar valuation. But, more important than this valuation were the accounting issues surrounding it at the time. In a portion of its S-1 reserved for quarterly results, it had included the total number of customers ever buying a Groupon leading to many complaints that investors had been misled.

This past Friday, Groupon is again showing accounting issues as it revised its first quarterly earnings report and widened its fourth quarter loss of $37million by an additional $22.6million. This sent the stock plummeting 17% on Monday and has led to another wave of bad press for the Daily Deals distributor. What was the reason for this large revision? The company was unprepared for the number of consumers deciding to refund their purchase.

Two opposing views of this revision are currently being proposed. The first is that its current issues stem from the rapid growth that the company has experienced. This argument that the company is seeing “growing pains” leads many to believe that the company can and will solve these accounting issues. Therefore, Groupon remains a very relevant force in the market. The second argument claims that these accounting issues are clear signs that the company lacks internal control. Its inability to manage refund risks adds to the argument that the company lacks a long-term strategy. Combining this with the continuous doubts that Groupon can reach profitability has won over many investors who are losing faith in the company.

No matter which side you believe, it is clear that Groupon will not be able to operate if it continues to experience these problems, and will need to take its accounting much more seriously in the future.

-Kyle Cameron

Rim Looks Grim

Research in Motion (RIM), the maker of the popular Blackberry mobile phone, has seen sharp declines in sales over the past quarter. Due to sharp declines in sales and the rise of its competitors, the company is now faced with two options of survival: to focus on smaller and cheaper markets or to find a willing buyer.

Subscriber growth rate has fallen from 8% to about 3% from the previous quarter. This, along with recent exits of high ranked officials, has painted a bleak picture of RIM’s future. Though young CEO Thorston Heins announced a new operating system and new Blackberry phones to be released later this year, investors have not been convinced. With a market capitalization of over 7 billion, only the biggest companies would be able to afford the acquisition. Potential buyers include Microsoft and Nokia, who previously considered a joint purchase last year.

If not successfully bought, RIM would have to focus on a different market such as smaller and more affordable phones. This would most likely be the case as there does not seem to be a hint of any large purchases in the near future. Expect the Blackberry to continue to lose market shares to the Apple iPhone and the Android. Research in Motion needs a savior now or else it will only continue to decline.

- Jesse Chai

FS UPCOMING EVENTS

Firefly Partners: An Introduction to Hedge Funds & Case Study

Date: Monday, April 2nd, 2012
Time: 6:30 pm - 7:45 pm
Location: Tisch LC-25

Join the Finance Society for an introduction to hedge funds, value investing, and an overview of the different roles of an analyst working on the buy-side vs. the sell-side! We will be welcoming Charlene Neo, currently an analyst at Firefly Value Partners, a New York-based hedge fund. We hope to see you there, because this is an event that you do not want to miss!

Margin Call: Q&A with Director J.C. Chandor

Date: Wednesday, April 4th, 2012
Time: 6:30 pm - 7:45 pm
Location: KMEC 1-170

Join us this Wednesday evening as we welcome JC Chandor, director of the Award Winning film Margin Call. JC will talk about his inspiration for the story and some of the characters in the film as well as his perspective on the state of Wall Street today.

Citigroup: Global Transaction Services

Date: Thursday, April 5th, 2012
Time: 12:30 pm - 1:45 pm
Location: Tisch 200

Join us this Thursday as we welcome professionals from Citigroup's Global Transaction Services division. Through a case study presentation, this event will offer students a great chance to learn more about an integral part of the financial services industry. Following the presentation, students will have the opportunity to network with professionals.

Largest Jackpot in World History Won

As most of you know, the Mega Millions jackpot of 640 million dollars was won by 3 ticket holders in what appears to the largest jackpot the world has ever known. I contributed 3 dollars to the 1.5 billion dollars that Americans spent on this lottery, hoping for that 1 in 176 million chance of striking it rich. If everyone, including me, were to use that kind of money on more worthy causes, think of all positive change 1.5 billion dollars could create.

According to the Associated Press, 1.5 billion dollars is enough to feed 685,000 families for one year. So many problems plague the country. Even right here here in NYC, people are quick to spend a few bucks on an almost inconceivable chance of winning a lottery but will often hesitate to give a dollar to a homeless person who will 100% benefit from that dollar. It seems like so many issue plaguing the nation could be remedied with just a fraction of the amount American spent on the Mega Millions Jackpot in a course of a couple days.

Despite this small inconvenient truth, history was made last Friday. Each person who bought a ticket was part of history. Several radio stations used social media to share images of their lottery ticket, promising to split the jackpot with everyone who shared their picture to raise awareness of their brand. Personally, I am happy to have played my infinitely small role in history's biggest payout, but that money may be put to better use in the future.

-Smit Purohit