Month / September 2017

by Frank Maduri

Bring Hope To The Isolated: Puerto Rico Hurricane Relief

Hurricane Maria brought fierce destruction to the island of Puerto Rico, a U.S. territory home to about 3.4 million people. The island has no power, and the situation there is worsening by the day. Our fellow Americans are at risk of malnutrition, dehydration, disease, and death from the conditions at this point.

The images of the destruction in Puerto Rico are disturbing. The situation is almost apocalyptic. The power grid is down, the generators need gasoline to run, gasoline is scarce, the ATM machines are running out of cash if they even work, and water is scarce. Those effected need to bring in enough water to bathe and also it takes about one gallon of water to flush a toilet which needs to be brought in to apartments in high-rise buildings that could be twenty floors up.

I put myself in their shoes, in that situation, and I have to try to do something besides just sending in some money, which is a good start. However, this is a much larger effort and something has to be done. The federal government has to get some emergency funds allocated since FEMA is so stretched from the other recent hurricanes in Texas and Florida, and that has to be a top priority.

I have seen certain drives for fundraising or for gathering gifts-in-kind (supplies) taking place in New York City, Atlanta, Washington D.C., and other cities. We need more of those types of events from a grassroots level.

I know it can be difficult to determine how to trust that the charity will allocate your money to the actual relief effort in Puerto Rico. I know that the island territory feels isolated and cut off from the world. These people are our sisters and brothers. They are fellow Americans, and we must act to help them.

Here are some charitable organizations that have active operations there:
Convoy of Hope : www.convoyofhope.org
Samaritan’s Purse: www.samaritanspurse.org
Salvation Army: www.salvationarmyusa.org
Food For The Poor: www.foodforthepoor.org

These organizations are highly reliable and transparent. Please donate whatever you can to help in the efforts of relief for what is a dire situation in Puerto Rico.

Some other ways that you, your family, or your community can give:
1. Organize a local fundraiser and send the funds to these charities
2. Collect donations at your workplace, job site, or office these charities will provide written letters of receipt for your donation
3. Start a fundraiser or supply collection (food drive) at your local church or community center or with an organization you may be involved with
4. Contact your local representatives in Congress and ask them what I call the two questions: What are you doing Senator X or Rep. Y to help with aid to Puerto Rico? What can I do to help aid in this effort?
5. Contact your local organizations: Lions Club, Knights of Columbus, Rotary, Elks Club…and find out if they have a fundraiser you can help with.
6. Get your friends from school together or work together on social media and decide on an event you can create and promote locally and then send those proceeds to the relief effort.
7. Pray for the people there and pray for guidance on how to best serve and help them in this time of great need.

In the event that you have relatives, friends, associates, or colleagues in Puerto Rico and you have not heard from them; please call this number: 202-778-0710 and keep trying because it might be busy. This number will allow you to get the latest information and check on the status of your loved ones there on that ravaged island.

In my own life, I have visited Puerto Rico on a cruise during my honeymoon. I have very fond memories of the cobblestone streets of Old San Juan, the Fort (El Morro), and the white sand beaches. Those places are decimated, the people there are living in very dangerous conditions. They could survive the storm and die of malnutrition or starvation. The children on that island are the most vulnerable as are the elderly.

I ask you to put yourself in their shoes, and search your soul. We are all capable of doing something, and the time for action is now. Please help the people of Puerto Rico. Thank you and God bless you and God be with the people of Puerto Rico.

by Frank Maduri

“Straight Talk” T-Mobile & Sprint Merger Talks Intensify

The reports out of Wall Street on Tuesday were that two wireless telecommunications giants, T-Mobile and Sprint, were in negotiations on a potential merger. The reporting from CNBC has been great on this topic, and according to that trusted news source, there has been no exchange ratio determined to this point.

That is an indication that talks are still in an early stage but CNBC also added that the negotiations on the term sheet had begun. The period of term sheet negotiations can lag for a while or move relatively quickly depending on the parties involved in the potential merger. I have covered mergers where the meetings to figure out the parameters of the term sheet could get contentious, obviously much of that is centered around the valuation of given assets in the deal.

These two particular companies have discussed joining forces at least a few times in the past several years. The difference between those prior attempts and this potential merger opportunity is that the current proposal is expected to be an all stock transaction. The prior attempts at merging the two companies involved cash which brings in other variables around valuations of certain other operational components.

The main reason that these two mobile phone service providers are seeking to merge is one of the usual reasons: cost synergy. That rationale has come up often in my prior writing on M&A activity, and this deal stands to provide billions of dollars of cost savings due to the synergies involved in these businesses.

T-Mobile and their parent company, Deutsche Telecom, would become the lead party in the combined company. This translates to the average person to mean that if the two companies did link up – the combined company would be known as T-Mobile. It is too early to know, and it is unclear whether it will change, that they will keep the two names in the marketplace operating essentially as different brands with the same parent owner.

Sprint and their parent company, Softbank, expressed interest to work a deal with T-Mobile again earlier this year. The sources around the negotiations state that the understanding is that the CEO of T-Mobile, John Legere, would lead the combined company.

However, it is also being reported that the top guy at Softbank, Masayoshi Sun, wants a position of significant input into the daily operations of the potential combined entity. This scenario, in my experience covering mergers, always presents a whole other set of complications to the deal being completed.

In addition, it should be noted that the personnel involved in researching this type of transaction at T-Mobile has not begun their review of the balance sheet at Sprint. This review could (and very often does) change the terms of the structure of the deal. It also could become a factor in T-Mobile backing out of the process if it is determined that the current financial picture at Sprint is not advantageous for M&A activity.

Furthermore, the other variable which cannot be underscored is the anti-trust situation. The regulatory aspect from the federal government entities involved in a merger of this magnitude can frequently create several hurdles that could sidetrack a potential deal to the point that it never materializes.

In this case, we are dealing with a significant alignment of the third largest and fourth largest mobile telecommunication companies in the United States. The scrutiny from the federal anti-trust regulatory authorities is going to be significant. That level of scrutiny usually causes one side of the potential merger to disband the process. The possibility that T-Mobile could bow to the pressure exerted by federal regulators and pull the plug on this deal is one potential outcome of this situation.

The motivating factor for both T-Mobile and Sprint is a common one: remain competitive with the top two players in the industry, Verizon and AT&T. Those two behemoths keep getting larger and more diversified in their holdings with Verizon recently acquiring Yahoo and AT&T obtaining more media companies to go along with their blockbuster merger with DirecTV.

The pricing, network coverage, and service options (AT&T bundles services with DirecTV packages, Verizon bundles cell phone plans with FIOS TV packages) makes for competitive disadvantages for T-Mobile and Sprint. It is my belief that if T-Mobile and Sprint joined forces that the branding message would be crafted around their focus on mobile devices and the fact that they are not involved in other businesses in media.

It is very early in the process for this potential merger, anything could break one way or another with regard to the probability of it being carried to fruition. The fact remains that beyond all the “straight talk” the companies are engaging in at this point with the term sheet, is that this merger has several boundaries to overcome.

The stock valuations on the term sheet, the fact that both holding companies do not totally own all of the companies they are trying to consolidate, the role of John Legere versus Mr. Sun and his “seat at the table” demands, the balance sheet health of Sprint, and the anti-trust pressures; are all factors that could derail this deal off the tracks at any point.

The average consumer should keep tabs on this merger because it could further limit the competition and the competitive balance in the cell phone marketplace. This could lead to unfair or burdensome cost increases to the consumer and a lack of choice in their carrier. It effects an area that hits close to home to a great majority of the American public: their cell phone.

In the end analysis, it is going to come down to the same set of factors that most M&A activity revolves around: is the cost savings from the synergies obtained from consolidation worth the effort, headache, and manpower hours needed to complete the merger. The next few months will provide many of those answers as T-Mobile and Sprint move forward in this long process that merits the attention of the consumer.

by Frank Maduri

The Strategy Behind Building Sports Arenas

The conclusion that I have come to over the past four and a half years of writing pieces centered on the topic of sports arenas, is that a strategy exists in getting these deals done that is far more intricate than many would believe. These strategies involve the team ownership, the league office, as well as political and business leaders.

These strategies could involve a real estate developer if they are not already involved as part of the ownership group, and they can involve civic groups or environmental groups depending on the project.

These arena development agreements for sports can be complex and involve tax payer dollars, or they can be privately financed which inherently leads to other issues in that circumstance.

The strategy behind the building of a sports arena was on full display over the past two days with the situation in Seattle. The lack of an updated venue that met current NBA or NHL standards was the main reason why the Sonics moved out of the city about nine years ago. The city had been working with a developer for a proposed new sports arena in the SoDo neighborhood, which was proving to have too many cumbersome hurdles.

The city shifted their priority to the old Key Arena at Seattle Center and fielded development proposals to renovate, expand, or rebuild a new arena on that site. The Oak View Group had the winning proposal, and on Tuesday, the city government announced the agreement of a newly renovated and expanded world class arena on the Seattle Center site built entirely with private funds.

The residents who pined for the return of the Sonics, and the sports fans that dreamed of an NHL expansion hockey team in the Emerald City, rejoiced because they had finally a light at the end of the tunnel with this news. The last, and most important, major hurdle for the city to gain at least one, if not two, new major league teams was seemingly cleared.

The old adage: “you never know what tomorrow will bring” is certainly true in Seattle; where residents woke up the next morning to learn that the Mayor of Seattle announced his resignation amid an alleged sexual misconduct scandal, and that the arena plans for Seattle Center were put on hold indefinitely.

In addition, in a related story, Wednesday brought the news that the Calgary Flames and their new arena negotiations with municipal officials were broken off with no resolution. This situation has been brewing for several months with proposals and counter-proposals being made by both sides, with no substantive progress being made toward a functional plan.

The surprising element of this situation is that the incumbent mayor, Mayor Neshi, was publicly acting as if the new sports and entertainment arena was part of his vision for the future of the city. The Flames management held a Wednesday press conference to refute that vision by stating that Mayor Neshi has not advocated at all for a new arena, and was insinuating to the public another stance in order to win the votes of hockey fans.

The NHL league office sent a strongly worded message to the Mayor, and the components of these arena deals are riled up north of the border. This news that the Flames had put $200 million on the table toward the development of the new facility and then even changed the site from one end of the city to the other, immediately bowed to speculation that the team would relocate to either Seattle or Quebec City.

The Flames management stated that they will continue to play in the second oldest arena in the NHL, while the other teams enjoy the advantages from better revenue streams achieved by playing in a new facility. However, they also insinuated that they will keep the relocation option on the table. The Mayor does not have to change his stance because polling shows that the people in Calgary do not want to use public money on a new arena.

The relocation to Quebec City is always going to be a hot topic, as they took an entirely different approach and pulled out all the stops to build a new arena a few years ago with no guarantee of an NHL team coming there either through expansion or relocation. The NHL passed them over for expansion in this last cycle, choosing Las Vegas to expand the league into, citing the weak Canadian dollar at that point in time.

A group of NHL players were surveyed recently and the majority of them selected Quebec as the place they would like the league to expand to in the future. This was ahead of Seattle and Houston on the list of choices. Quebec will always be a popular spot because of their history in the league with the Nordiques, and the nostalgia that hockey fans have for that team and for the rivalry with Montreal to be reinstituted.

Quebec took the step of making the most difficult hurdle in gaining a new franchise, the arena, the easiest step by building it. The residents, business leaders, and politicians were all on board with getting an NHL team, now they will wait to see if that maneuver will provide the desired end result.

The New York Islanders are involved in a new arena quest as well. The main issue is that when the team moved from Nassau Coliseum to Brooklyn, they underestimated the significance of the Barclays Center being built for basketball and the impact that would have on the hockey fan experience.

The sight lines for hockey at Barclays are terrible, the scoreboard is off center in the orientation to the rink, and the ice conditions are awful because the arena does not have the right pipes to adequately keep the water temperature low enough. It is a total debacle and the team is looking at two potential sites in Queens: one near Aqueduct Racetrack, and the other next to Citi Field where the New York Mets play baseball.

The league office has completely shut down any potential for the Islanders to return to Nassau Coliseum (which was renovated completely and is now a smaller seating capacity) and pursuing the Queens options. Many people in recent polling believe that the Islanders arena, another new arena in the NY metro area is unnecessary, so it will be interesting to see how this situation works itself out.

The New York metro area is one of key significance for the NHL and with the Rangers and the New Jersey Devils, the league has three franchises in the region and has a vested interest in making sure that all of them are given the best possible opportunity to remain profitable.

The scenario with the Islanders searching for a new home is similar, yet different, to the Arizona Coyotes and their ongoing struggle to find a new arena closer to the population center of the Phoenix market. The Coyotes have had issues for years on the business side, and the dispute with the Glendale municipal government involving the arena lease terms are just the tip of the iceberg.

The ownership group of the team appeared to have a deal in place with Arizona State University for a new arena being built in Tempe, but that deal fell through in February 2017. The focus now is on a few other sites in the East Valley and this boondoggle for a new arena will continue for the foreseeable future, as will the inevitable relocation rumors.

However, relocation seems unlikely as the NHL is unbalanced and needs more teams in the West, they would not move the Coyotes to Quebec, and the situation in Seattle is murky at best. The league remains bullish on keeping a team in the Phoenix area because they are enamored with the media market size.

The Phoenix Suns are also seeking a new arena to replace their current aging home court, and the NBA league office is, of course, willing to back the team up on getting the public funds squeezed out of the government to get that accomplished.

The state and municipal level governments in Arizona are looking at a scenario where the Coyotes, Suns, and the MLB team, the Arizona Diamondbacks; are all seeking taxpayer funding for public/private arrangements to build new sports venues. The resulting idea within the state assembly there is to build a sports arena in downtown Phoenix that would be shared by both the Suns and the Coyotes in order to save the outlay of total public funds.

However, the reports out of Phoenix are that the Suns ownership is not on board with sharing a facility and want their own facility in the downtown area. The Coyotes are in a different situation, they have stayed publicly mum on the shared arena concept, largely because they would probably play anywhere other than in their current arena in Glendale. It is a situation that is complex, has a ton of moving parts with proposed arena sites on Native American tribal lands, and a host of other issues that merit watching in the weeks ahead.

The Carolina Hurricanes are the final situation with arena management and potential relocation that will be explored in this analysis. The team is about to be sold from Peter Karamanos to Chuck Greenberg but the sale is not completely finalized yet.

The arena lease is key to the sale because the team has been the source of relocation rumors for the past four or five years. Carolina does not have the corporate sponsorship opportunities of other, larger markets. The Hurricanes have not had much on-ice success in recent years which has put a subsequent drag on attendance levels.

The current arena lease between the group that controls the arena and the Hurricanes is seen as one of the most favorable lease agreements from the perspective of the team as far as being a tenant in a building. The PNC Arena is in need of some renovations and improvements which many believe will be done once Mr. Greenberg affirms that the team is staying in North Carolina.

The consensus from some within the NHL circles is that the team could relocate to Quebec, but in many ways that may not make sense from a business perspective. The ownership, in this case Greenberg, would have to pay a steep relocation fee to go to Quebec. In this case, the ownership could use that money as their portion of a public/private agreement to construct a new arena in North Carolina.

The case for a sports arena is dependent upon so many variables and involves many shifting priorities and calculated interest groups from politicians, to team owners, to the league office, and local business leaders. The case studies, individually must be taken on balance, I understand all sides of the situation.

The owners feel that the municipal governments stand to make a lot of money on the ratable tax revenue from the arena, the public feels that they should not have tax money go toward the construction of a facility of this type, and the cities that do not have a new sports / entertainment venue miss out on the latest acts or could lose a team over it. All of these variables are valid, and all of the scenarios I laid out will continue to develop from Seattle to Phoenix and beyond in the months ahead.

by Frank Maduri

Oversaturation Point: The Uncertain Future Of Amazon

The financial news is buzzing with the analysis of the earnings reported from Amazon and the trendline toward potential trouble in the waters ahead. The recent acquisition of Whole Foods and the expenses on the balance sheet compared to the offset from the investor and the average consumer portends a future that is uncertain for the mammoth online retailer.

The question I find myself asking, from the perspective of one who has covered mergers and other financial news, is: has Amazon reached an oversaturation point?

The investment analysts on Wall Street are stating that investors are fatigued with the process of shelling out huge sums of money for Amazon stock shares. The consumer side of the business also seems to be displaying signs of fatigue as well. The company is starting to find out that it is difficult to grow your base membership business when the Prime subscription cost is $99 per year.

The question that Amazon should ask themselves is: should we put in place a tiered subscription structure to widen the potential consumer base of the business? The answer to that question will go a long way toward the determination of the future direction of their business.

The other solution they could determine is that they could market the Prime membership differently: instead of focusing on the $99 per year cost, they could break it out into a monthly cost. This type of marketing strategy might appeal more to a younger demographic and to families that are feeling the budget squeeze.

The stock value analysis of Amazon seems to indicate troubled waters ahead. The blue-chip stocks traded on the major indices all have “breaking points”. The averages for stock performance whether by month, by quarter, or the most common: the 52-week average; all provide a snap-shot of the financial picture around the given stock valuation for a company.

The “breaking point” on Amazon is a staggering figure of $925, according to industry analysts. That point seems to be approaching unless the trend lines change. The long- range forecast for the company, and the analysis around their balance sheets, suggests that the expenses stemming from the consolidations of Whole Foods and other businesses will impact their overall outlook.

The reaction from industry analysts and those within the financial markets has been mixed overall with respect to Amazon and their future path. These groups include a faction which maintains that the Amazon purchase and consolidation of Whole Foods will eventually have a negative impact on the company from both an expense and strategic perspective. The variables of external factors that could impact their profit margins now increased exponentially with the inclusion of a retail grocery business.

The reality is that no company is “bulletproof”, no company is immune to the outside forces driven from marketplace supply and demand. Amazon will still remain one of the most influential companies in the world, but everyone goes through a slump. The average consumer will still enjoy the convenience that their shopping experience provides, while another group of consumers will choose another site for their shopping, and still yet another group will shop primarily in brick and mortar stores.

In my view, Amazon is heading toward an oversaturation point. They should adapt, like any other business, with a strategy that addresses ways to reinvigorate their core customer base. They also need to determine ways that they can attract new customers in younger demographics both now and in the future.

The company continues to be a leader in both technology and convenience in the way we can obtain or consume a huge range of products. However, the Whole Foods acquisition has changed the overall public perception of Amazon into a type of “grim reaper” for American small businesses and the jobs that they create.

A stroll through your local Whole Foods store today will invariably include an “end cap” shelf space selling the Amazon Echo, which is a stark departure from what Whole Foods built their brand imaging around over the years. These types of changes could serve to alienate the core customers of the Whole Foods brand in the short term.

In addition, Amazon continues to grow, especially in certain states such as my home state of New Jersey. The first-hand accounts that I have been told about the negative quality of life impact that the Amazon distribution center expansion has had in the area outside of Trenton, are incredible. The constant rumbling of trucks and the increased traffic congestion and noise are just naming a few of those adverse impacts.

Those negative effects are followed by accounts of the working conditions at the New Jersey distribution centers as well as the corporate office roles which support those sites. The company culture has been exposed as one where the employees are pushed beyond their limits and that working conditions need improvement.

Amazon will have to contend with this image problem amid a rising tide of expenses as well as a potential stock sell-off if the share price drops below that breaking point. The oversaturation of Amazon in the marketplace has begun, the repercussions will have a significant impact on the retail industry space, the consumer, and the economy in the future.