There's money to be made in the New World
The summer of soccer isn’t over yet. Following in the footsteps of nearly rabid fan interest in the United States Men’s National Team during the World Cup, and record numbers of American viewers for the tournament, some of Europe’s best teams have landed here in search of pre-season competition — and pre-season earnings on ticket and merchandise sales.
Manchester United is one of eight teams that will contest the Guinness International Champions Cup against the likes of Inter Milan, A.C. Milan, AS Roma, Real Madrid, Liverpool, Manchester City and Olympiacos. The tournament features a tasty matchup between Man U and Real Madrid on August 2 at Michigan Stadium in Ann Arbor, Michigan — a.k.a. “The Big House” – that will break the U.S. attendance record for a soccer match in the U.S., given that all 109,901 seats have already been sold. Matches will also take place in Denver, Pittsburgh, Chicago, Toronto, Los Angeles and New York City, among other cities. The championship games will be played in Miami on August 4.
United warmed up for the tournament by tearing apart Major League Soccer’s LA Galaxy, 7-0, in a friendly at the Rose Bowl Stadium before a crowd of 86,432. This was not a trip that Man U’s new coach Louis van Gaal, even wanted to make. “But the tour was already arranged, so I have to adapt, I shall adapt,” he said. Better get used to it, Louie. Man U’s American owners, the Glazer family, like to bring their assets home for the locals to see.
Big teams have been making periodic visits to the States for decades, although the scale and scope of this year’s visitors is nearly unprecedented. In the past, it’s been more about reconnecting with immigrant fan bases. Napoli and Santos, with Pele, played to nearly 50,000 in Yankee Stadium in 1968, with the European team tapping into a huge base of southern Italians in the metro New York area.
But as the global game, and its glam teams, have become more visible in the U.S. via weekly television exposure, America has become a destination of choice for brand building and income generation. Why train at home or in Switzerland and play friendlies against local clubs when you can get North American fans to pay your team a premium for getting in shape? Top tickets for these games are as much as $250.
In the case of one of MLS’s newest franchises, New York City F.C., ownership, rivalry and brand building interests come home to Yankee Stadium, where Liverpool meets Manchester City on July 30. NYCFC is jointly owned by the Yankees and Man City, while Liverpool is owned by Fenway Sports Group, the same outfit, controlled by John Henry, that owns the Boston Red Sox. Can’t you just smell the hatred brewing?
Liverpool started its tour with a 1-0 loss in sold-out Fenway Park to another American-owned club, A.S. Roma, which is spending its third consecutive summer in the States with a two-week, four-match schedule. Arsenal, which plays a friendly against the MLS’ New York Red Bulls in Harrison, N.J. on August 2, is partly owned by American Stan Kroenke. And Arsenal knows that, as a global brand, it needs to build its fan base in the U.S. Indeed, Arsenal CEO Ivan Gazidis is no stranger to these shores, having served as deputy commissioner of the MLS before heading to London.
“I can tell you something I’m completely convinced of ,” noted Gunners boss Arsene Wenger on the team’s web site, “before people didn’t know who you were, but now every American guy I met knows Arsenal, knows England and knows the Premier League.” No reason then not to sell a piece of it to them.
A new study says the Rust Belt city is the second least happy metropolis in the United States. Quit whining, yinz. Pittsburgh's got too much going for it to be depressed
C’mon Pittsburgh, what’s your problem? Seriously.
It wasn’t all that surprising that some piece of convoluted research by the U.S. National Bureau of Economic Research concluded that New York City is the nation’s unhappiest city. Of course it is. Being domiciled here is designed to make you unhappy. Even furious. You take your life in your hands crossing the street because angry cab drivers are pissed off that you are using their roadway. And you return the favor as you slowly walk in front of them, glaring. Yesterday, my subway was halted by an announcement that someone needed medical attention. Passengers were annoyed that someone had the temerity to pass out on their train. There are eight million of us crammed into buses, trains and apartments. We pay $15 for a sandwich and have to argue for an extra pickle. It’s one seething metropolis, all right. We love it that way.
But the NBER is telling me Pittsburgh is the runner up in unhappy. You gotta be kidding me. Pittsburgh doesn’t know from unhappy. I’ve lived there. These are not people who behave as though they are miserable. Pittsburghers are so darn nice you could scream. You want to make a left turn against traffic? Go ahead, don’t even bother to stop because the driver opposite will be waving you across. Why? Because Pittsburghers aren’t in a mad rush to get somewhere. They don’t have to fight for anything. You want to go to a baseball game or a symphony? No problem, there are always tickets, and parking isn’t a hassle. Want to leave town? Easy. Pittsburgh has an airport that’s actually pleasant, if underused, while New York has three area airports that aren’t good enough to qualify as UN refugee camps.
You want to be unhappy, Pittsburgh, don’t let me hear about quality of living. Or the cost. Compared with New York, living costs are a bargain. You don’t have to inhabit $5,000 a month shoeboxes. There are plenty of green spaces and parks in which to frolic and you can buy a knockwurst and cheese sandwich at Primanti Bros. for $6.39. That’s about the price of a Hershey bar in midtown Manhattan.
This is not the criteria for unhappy. Sure, Pittsburgh has taken its share of hard knocks. The steel industry imploded in the 1980s, and half the population had to abandon the place. The city was broke. But since then other industries, including special metals, have restored some of its manufacturing base while high-tech firms and the medical industry have added to the economic base. Pittsburgh’s unemployment rate was 4.7% in May, according to the Bureau of Labor Statistics. What do you have to complain about? In New York City, the unemployment rate was 6.7%, unless you are in acting, where it’s 97%.
So listen up, Pittsburgh. I know you’ve got a chip on your shoulder. You always want to be No. 1 one in something. Yeah, Cleveland got the Republican convention and LeBron, but you look down on Cleveland anyway. They’re Midwesterners, aren’t they, and you think of yourselves as part of the East. But don’t even think about taking over our spot as the nation’s leading whiners. You’re too nice. Your city is too livable. Find something else to be unhappy about, and we’ll tawk.
Aeroflot still running daily flights from JFK to Tel Aviv via Moscow
Need to fly to Tel Aviv from the U.S.? While domestic carriers such as American, Delta and United continue to temporarily suspend air service to Ben Gurion airport due to rocket fire, there’s at least one European carrier that can get you there: Aeroflot.
Russia’s flagship airline is running daily flights from JFK to Tel Aviv via Moscow, as is another Russian carrier, Transaero Airlines, named “Most Improved Airline” in Europe last year. Flights are as low as $1214 round trip, according to the travel site Kayak.
While the Israeli government was upset by the Federal Aviation Administration’s decision to temporarily close off Tel Aviv’s airspace to U.S. carriers, Moscow apparently had no worries about security over Israel.
The Russian government does apparently have concerns about Ukranian airspace, though: both of Russia’s carriers are avoiding eastern Ukraine, taking a roundabout route between Moscow and Simferopol in Crimea, for example, according to flight data provided by Flightradar24.com.
Some flight routes takes planes over dangerous places
Malaysia Airlines Flight 17 was hardly alone in the skies over eastern Ukraine when it was apparently shot down on a route from Amsterdam to Kuala Lumpur, Malaysia. Airline routes are like highways—there’s a lot of traffic on them. And there were other flights from other airlines in the Ukraine corridor, including an Aeroflot jet that was making its way from Sheremetyevo to Moscow on a route that sliced a south-north path across eastern Ukraine. Within hours, though, the air control radar over Ukraine looked empty.
No aircraft belonging to any American carriers seem to have been in the area. Earlier this year, the Federal Aviation Administration had issued a security advisory warning U.S. airlines against flying over Crimea, the scene of a Russian takeover in that country’s dispute with Ukraine. But the Malaysian flight was north of that zone. Still, some airlines are already voluntarily deciding it’s a good idea to stay away from the spot Flight 17 went down. “Out of an abundance of caution, Delta is not routing flights through Ukrainian airspace,” Delta said in a statement Thursday, for example.
But why were so many others in a hot area in the first place? Because it’s a conflicted, crowded and mobile world. With increasing numbers of ever longer long-distance flights, commercial airlines are constantly crossing contested borders and territories. It’s not just Ukraine that has border issues. It’s Georgia and South Ossetia, and Moldova and Transdniester. And that’s just in one region.
U.S. carriers can’t avoid the friction, either. The airlines, as a rule, don’t comment on the specifics of their security programs. But they rely on the State Department and the FAA for security information to make their choices. For instance, Baghdad was once on the flight path of some India-bound flights, a route that would be adjusted based on conditions on the ground. Today, Tel Aviv is another airport that is obviously near a conflict zone, and no U.S. airline has stopped serving that market, so rerouting is fairly common.
“Our dispatch and security people are constantly looking at the troubled areas we fly through,” one pilot told TIME.
The downing of an aircraft at 32,000 ft. is a dimension not considered since Korean Air Lines Flight 007 was shot out of the sky by a missile fired by a Russian fighter jet in 1983. After that tragedy, U.S. carriers purportedly tested missile avoidance technology, but it’s not clear that any of them have gone beyond that. Malaysia Flight 17 may put the issue back on the radar.
It’s been a year of colossal mergers or proposed mergers among some consumer goods and services companies. Comcast wants to take over Time Warner Cable (not affiliated with TIME) to form the nation’s largest cable company. AT&T and DirectTV want to combine to compete against them. The market also expects T-Mobile and Sprint to hook up, further reducing competition in mobile phone service.
Now add to that the tobacco industry. Reynolds American announced a deal to acquire Lorillard Inc. which it values at $27.4 billion. It’s a combination of the second and third largest cigarette makers after Altria Group, which owns Philip Morris USA. As part of the deal, British American Tobacco Plc retains its 42% stake in Reynolds by providing $4.7 billion in funding.
That’s a lot of dealmaking for the Federal Trade Commission and the antitrust division of the Justice Department to bless or deny. The goal of antitrust statutes is to preserve competition in any industry segment. Trustbusters don’t care who provides that competition, just as long as enough of it exists. That’s the ongoing debate in the proposed cable combination. It’s axiomatic that when two dominant players mergers prices rise and consumers suffer.
The proposed tobacco merger has a similar competitive profile. Combining the second and third largest companies will certainly reduce competition, giving Reynolds a 34.1% market share after divestitures. Unlike the media mergers, though, this one takes place in a shrinking market, as smoking continues to decline. Consolidation in a declining market certainly makes sense from an economic point of view. And there’s a clever wrinkle in this deal, in that Reynolds will sell off the KOOL, Salem, Winston, Maverick and blu brands to Imperial Tobacco for $7.1 billion—the idea is to create a stronger No. 3 competitor to keep the antitrust forces at bay.
There’s one other big difference, though: the merger will allow these two companies to be more efficient in killing people with their products. In its merger document, Reynolds says the deal would produce $800 million in cost savings and produce double digit profit gains by the second year. Not that Reynolds is a laggard. The company had already doubled its operating profit margin to 36.7% since 2004. And its 10–year return to shareholders of 542.2% has dwarfed the S&P’s return. This is a profit machine, even if a lethal one. According to the American Cancer Society, about 224,210 new cases of lung cancer will be diagnosed this year and 159,260 people will die from lung cancer—that’s more than colon, breast, and prostate cancers combined, says the ACS.
The new company will feature brands including Camel, one of the top premium smokes, and Vuse, a fast growing e-cigarette, but the prize in deal for Reynolds is Lorillard’s Newport, now the No. 1 menthol brand. Newport now owns a 12.6% share of the entire cigarette market in the U.S. and it’s growing —33.7 billion menthol “sticks” were sold last year. According to the Reynolds’ presentation, Newport has an “attractive demographic profile.” That profile, says smokefree.gov, includes blacks, women, Hispanics and younger people, all of whom are higher-than-average consumers of menthol cigarettes. These very characteristics have put menthol under the regulatory spotlight, leading to speculation that the Food and Drug Administration might ban menthol. But Reynolds clearly doesn’t believe that the feds will make any such move. “While cigarettes are dangerous there is not a significant difference between a menthol cigarette and a non menthol cigarette,” noted Murray Kessler, Lorillard’s CEO. “And ultimately the science will prevail.”
The same science holds the view, which none of these companies disputes, that tobacco use is deadly. And smoking costs our health care system billions of dollars annually to treat smokers. Should the FTC or Justice factor public health considerations into the deal? For instance, if the FTC believes that cigarette prices will increase, would it still bless the deal because rising prices might help ration demand—force more smokers to quit. Conversely, would blocking the deal, and keeping the competitors in place, have the opposite effect and lower prices, thus attracting more smokers?
That’s not necessarily an analysis that antitrust regulators are willing to make. Typically the antitrust agencies look only at the competition effects. As a former FTC official told me: “The traditional view has been that if the health and safety regulators wish to impose conditions, that’s their call entirely.” Expect the FTC to stick to the economics, which will be great for the tobacco companies, and their investors. The customers are on their own.
Late goal by Mario Götze lifts team over Argentina
It was always going to take a moment of brilliance or breakdown to decide the World Cup final between Argentina and Germany, clearly the two best teams in the tournament, both tactically watertight from beginning to end. That brilliant moment would come in the second period of extra time, at 122:22, when German substitute Mario Götze ghosted behind Argentina’s central defender Martín Demichelis to collect a cross from André Schürrle — a substitute for a substitute — and direct the ball into the net for a 1-0 German win. It was Germany’s fourth World Cup title, its first since 1990, and ample reward for a team that had been rebuilding for this moment since 2000. Watch out, world, there could be more to come.
There would be no magic moment from Argentine star Lionel Messi, the four-time world player of the year who had hoped to make this his ultimate trophy and raise his profile to equal that of Diego Maradona’s, Argentina’s soccer deity. But Messi could only drag the ball wide on the two best occasions he was in on goal. And his last-gasp free kick floated miles over the bar as time ran out. A disappointing game without question for such a great player.
There was never any question that Argentina was going to defend deep and in numbers against a German team that routinely pulled opponents apart with its passing and swift counterattacks. Safety first is never a bad idea, particularly in a final and Argentina went 450 minutes without surrendering a goal. The idea was to defend with six or eight players and then have Messi run at the bigger but slower German defenders.
It could have worked. And it nearly did. Three times in the first half Messi unlocked the German defense with one pass, affording opportunities for Ezequiel Lavezzi and Gonzalo Higuaín to run on to. Higuaín even put the ball in the net in the 30th minute from a Messi-to-Lavezzi combination, but he foolishly charged ahead of the play and the goal was called back for offside. “The soccer gods gave them a bunch a gifts, which they squandered,” noted ESPN analyst Alexi Lalas. None was bigger than the one presented by German midfielder Toni Kroos, who put Higuaín alone on goal with a badly timed back pass. But Higuaín sliced the ball wide off his right foot, and Argentina’s best chance of the half went begging.
Germany would produce a great opportunity of its own at the stroke of halftime when Benedikt Höwedes slammed a header off a corner kick against goalkeeper Sergio Romero’s left post. The ricochet bounced off of Thomas Müller, but he was in an offside position. Danger avoided.
The game was full of intrigue even before it started, with Germany’s starting midfielder Sami Khedira pulling up lame in the warm-up. German coach Joachim Löw chose Christoph Kramer, who had played all of 12 minutes in the tournament, to replace him. In the biggest game of his life, Kramer would last 31 minutes, of which he was fully conscious for maybe 25. After taking a blow to the head from the shoulder of Ezequiel Garay, Kramer appeared wobbly but returned to the pitch — FIFA doesn’t have much in the way of a concussion protocol. Minutes later, Kramer looked as if he was on another planet and had to be helped off the field, to be replaced by Schürrle. For Argentina, its fleet winger Ángel di María, didn’t recover from a thigh injury, which surely changed the team’s tactical thinking.
Although Germany had come closest to scoring, Argentina had been the more dangerous side for the first 45. And Argentina coach Alejandro Sabella tried to increase the danger by withdrawing Lavezzi and introducing Kun Agüero at the half. Within two minutes, Messi had a golden opportunity with the ball on his favored left foot, but his chance for glory would go harmlessly wide. And in the 74th minute, running right to left, he unleashed another bending shot that also went wide.
As the game progressed, the space began closing down, and in the 88th minute, Löw brought Götze on for Miroslav Klose, who closed out his German career admirably. Argentina would once again have a chance to win the game in the 97th, when sub Rodrigo Palacio settled under a pass into the box, only to misplay it momentarily and then rush a lob wide of Manuel Neuer’s net.
Argentina’s moment had gone by. And Germany’s was about to present itself.
Lionel Messi doesn’t take up much space on the field, given that he’s all of 5-ft.-7 in. tall, if that. Then again, he doesn’t need much. Messi is one of those performers who, like a sunbeam splitting through thickening clouds, produces a moment of brilliance when things are getting dark. He did it against Nigeria, Iran and Switzerland to keep Argentina marching toward the final.
Argentina is likely to need such a Messi moment to be able to win its third World Cup title in this, its third World Cup final against Germany. The Argentines won 3-2 in 1986 on the chubby legs of Diego Maradona, equal parts devil and delight in that tournament, delivering the pass that created his team’s winning goal, and enshrining himself in his nation’s history.
Four years later, a fading Maradona and Argentine team got rolled by a multitalented German team that included current U.S. coach Jürgen Klinsmann. It was a match widely considered to be one of the worst finals ever because Argentina went into a defensive shell, never to emerge. Too bad only one team came to play, noted the acerbic German coach Franz Beckenbauer after the game.
You couldn’t blame current Argentina coach Alejandro Sabella one bit if he were tempted by that approach this Sunday at the famed Maracanã stadium. Given the way Germany stormed past Brazil 7-1—with multiple scorers and multiple points of attack— taking shelter could prove the wiser strategy than throwing caution to the wind.
Please don’t, Alejandro. This World Cup final deserves both teams on full display at both ends of the pitch. We certainly know that Argentina can defend. Against the Netherlands in the semifinal, a Javier Mascherano-marshaled back line repelled Arjen Robben, Wesley Sneijder and Robin Van Persie as if they were tropical mosquitos, leaving Dirk Kuyt to launch clueless crosses to nowhere.
That was by design.
“They think about what they’re doing and they’re not easy to break down,” noted the French great Bixente Lizarazu, a World Cup winning defender about the Albiceleste. “Their forwards’ speed, liveliness and technical ability are impressive, but what has struck me the most about them is the way they break up their opponents’ rhythm.”
Without Angel di Maria in the lineup against the Netherlands due to injury, Argentina clearly lost some of its own rhythm. The Dutch supplied Messi with a pair of escorts whenever he got on the ball and Germany will pay similar attention. DiMaria’s ability to exploit defenders with his speed down the flank has to be respected–which could yield the little man a little more breathing room. If di Maria isn’t available, the return of a fully Sergio Agüero will also make things easier for Messi.
“But we can’t burden him with all that responsibility,” said Argentina’s Maxi Rodriguez. “We know he’s a game changer, but we have to support him. The upside is that the group is well drilled: everyone knows their role, “
Argentina might profit by considering the two teams that gave Germany fits in this World Cup: Ghana, which drew 2-2 with them in the group stage, and Algeria, which went out 2-1 in extra time in the round of 16. Both teams shared a go-flat-out philosophy of pressuring the Germans all over the park, and attacking wide and furiously. It worked so well that Germany coach Joachim Low had to change formations and move Philipp Lahm back into defense from midfield.
This approach for Argentina would not be without risk. “The German outside wingers will track defensively for the entire match,” says former Iranian assistant coach Dan Gaspar, whose team lost 1-0 to Argentina. “My concern about Argentina is that when they fly forward their tendency is not to have the same willingness to recover as the Germans. As a result, Argentina may find itself down in numbers defensively.”
And that, notes Gaspar, is a very bad thing.
In scoring four goals against Portugal and seven more against Brazil, Germany’s midfield trio of Mesut Özil, Thomas Müller and Toni Kroos demonstrated how quickly it converts defense into attack. At the same time Miroslav Klose was able to set the World Cup career scoring record. Germany is about options, all of them good.
“I think Germany can and will contain Messi,” notes Gaspar. “And they will be able to pierce the Argentina midfield and defense through the middle unlike the Dutch, who only seemed to play from the wings in the semifinal”
But like a lot of fans, he’s also pulling for La Pulga, the flea, as Messi is known. The four-time world player of the year will always be one of the greatest players the game has known. But there’s nothing like a World Cup trophy to confirm it.
Update: Two weeks ago, TIME’s Bill Saporito used the lens of the global bond market to accurately predict that Germany (arguably the world’s best-run economy) would be facing off this weekend against Argentina (one of the worst) in the final of the World Cup. We’re resurfacing his piece in the belief that readers would want another look at Saporito’s prognostication prowess. Here it is:
In soccer, Argentina is a global power. Ranked 5th in the world and featuring among its host of stars the world’s best player, Lionel Messi, it is one of the teams that can threaten Brazil’s march to the World Cup title.
In financial circles, on the other hand, Argentina is to a functioning economy what the Faroe Islands are to football. A bit of a joke. A doormat. Indeed, last week the U.S. Supreme Court slide tackled Argentina as it tried to dribble past some American investors who are demanding to be paid, in full, the interest due on their Argentine bonds. Having convinced other creditors to go along with a deal—part of a broader effort to right the economy after years of mismanagement–the Argentinians wanted to force the American investors to eat some losses as well. The Supremes blew the whistle on that.
This raises a question, albeit one more likely to be debated in bars off Wall Street than on the beaches of Rio: Are you better off betting on a country’s bonds, or on its soccer team? With Argentina, the answer seems clear: The country’s chances of paying off its sovereign debt in full appear to be inversely proportional to the odds of its football team winning the World Cup, where it was a 4-to-1 pre-tournament favorite in Las Vegas. Argentinian debt, meanwhile, has a yield of about 13%, reflecting a risk premium that only Nigeria approaches among World Cup finalists. In short, betting on Messi may be the saner play.
With global interest rates so low in a world awash in liquidity, you’d think more global investors would reach a similar conclusion — but in many cases you’d be wrong. Investors ought to be yellow-carded: Their quest for yield is leading to crazier behavior in the market than on the pitch. Italy is a prime example. Punters pegged Italy, one of footballing’s great nations, as a 20-to-1 long-shot to win the World Cup. They got it right, too, considering Italy’s early exit after a controversial loss to Uruguay. But the Italian economy is a lot worse than the Azzurri. It’s still mired in its economic past, and where young people are stifled in finding work. Still, Italy’s bonds offer a measly 2.92%, only about 30 basis points higher than the 2.61% for U.S. Treasuries.
The place where the football bettors and investors correlate more closely is Germany: The former had 5-to-1 odds early on, the latter a 1.38% yield. True, German economic history is not untroubled, but today it is Europe’s champion economy — the strength of which goes a long way toward explaining why European bond rates in general have remained so low. Germany is, in effect, propping up the rest of the European economy. After today’s shutout against the U.S., however, it looks clear that die Mannschaft won’t do anything of the sort on the soccer pitch. If the form plays out, one of the world’s best-run economies will face off with one its worst.
Explaining the Banco Espirito Santo SA problem
You don’t have money deposited at Banco Espirito Santo SA. You probably don’t own its bonds, or its stock. Or stock in Espírito Santo Financial Group SA, which apparently controls the bank or in Espirito Santo International SA, the Luxembourg holding company that issued the now-faltering commercial paper that is at the center of all this. You probably have never even heard of Banco Espirito Santo, which has been described as one of Portugal’s leading financial institutions, which would be significant if Portugal’s economy was significant. But that nation’s GDP of $220 billion makes it bit player in the European zone. Even Greece is bigger.
Still, troubles at Banco Espirito Santo have spread to other segments of the European banking system and then reverberated across the pond to Wall Street, sending the Dow down 180 points in Thursday morning trading. So even if you owned the bluest of blue chip stock with no exposure to European banking, you still lost money.
How does that work? It’s just another reminder that everything financial in the world is connected in one way or the other. So a seemingly containable problem in a Portuguese bank can quickly find a way into your pocketbook. “The event has hit European financials like a torpedo and has revived investors’ darkest nightmares about Europe,” the Financial Times quoted one equity strategist as saying.
The issue for investors is to decide whether this is a one-off problem or a hint of bigger troubles in Europe, whose economic recovery has lagged that of the U.S. While some are looking for other evidence, others aren’t waiting to find out. They headed for the exits, pushing gold higher and the yield on ultra-secure German bonds lower. Portugal’s stock market took a hit as Banco Espirito Santo’s shares tumbled 17%. Shares of Spanish and Italian banks fell sharply, too. Spain and Italy are bigger economies than Portugal but they’ve had similar problems. So bond yields on Italian and Spanish debt rose and Greece, not surprisingly, finds the market for its own bonds shrinking.
And if a trader for an institution held a long position on Spanish and Italian debt, say, he might forced to sell some other assets to cover that position. Those other assets might be U.S. stocks.
It’s a Portuguese problem, but it’s now your loss too.