🎙️ Share the Wealth

Between dazzling stock charts and flashing price quotes, it’s easy to forget that corporate earnings are what fundamentally drive stock returns over time.

On that front, fourth-quarter earnings are looking great: Of the roughly 360 S&P 500 companies that have reported earnings, 58% have “substantially beat” estimates (i.e., by at least one standard deviation), according to Goldman Sachs.

💭 Meanwhile, as our Chart of the Day shows, it’s a particularly good time to be in the sports-betting biz like Draft Kings — its stock is up over 150% in the last year as Americans spend more than ever on online gambling.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss:

• A big investor’s private equity plea

• Wawa billionaires bet on the South

• LeBron James’ booming business

All this, and more, in just 5 minutes to read.

Chart of the Day

In The News

💬 Big Investor Argues Private Equity Should Share More Profits With Workers

Private equity (PE) doesn’t exactly have a stellar reputation for treating employees well. Instead, buyout deals usually spur strict cost-cutting and layoffs, providing strong returns for investors in PE funds.

Pressuring PE firms, then, to extract fewer profits and instead share more earnings with the employees of firms they acquire would seem like a naive endeavor.

• Probably true. But there are a few folks who can catch the ear of the private equity industry. At the top of that list is Christoper Ailman, the outgoing investment chief at CalSTRS — the California State Teachers Retirement System.
  

• This $327 billion pension fund carries major sway with PE firms, given that 16% of its massive portfolio is allocated to private equity.

Why it matters:

Ailman recently told private equity executives to “share the wealth” they create with workers at the companies they buy.

• He added, “It’s great they (PE firms) make money for our retirees — who are teachers…But they need to also share the wealth with the workers of those companies and with the communities they invest in.”

Walking the walk: Of course, that’s easy for him to say, with private equity-backed companies now employing over 12 million Americans. But it’s not all talk.

• Ailman says CalSTRS has been directly pressuring PE investment managers like Blackstone and KKR behind the scenes.
  

• And more than two dozen of the largest PE firms have committed to a plan called “Ownership Works,” which aims to generate more than $20 billion in wealth for workers by 2030.

As Ailman prepares to “pass the baton” to his successor at CalSTRS, it seems that some PE firms are, despite the potential ding to returns, hoping to keep their largest pension fund clients satisfied with efforts to better treat employees at their portfolio companies.

Read more

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🥪 Wawa Billionaires Bet on Taking Chain South

One of Harry Styles’ favorite things about Philadelphia is moving South. 

Wawa, the popular convenience store, has cultivated a devout following, particularly in the Philadelphia region. 

• The chain opened in 1964 by a family that just wanted to sell milk from its family dairy. Today, it’s up to 1,000 locations and $18.5 billion in annual sales. The family that owns Wawa, a private company, is worth around $6 billion. 

Big dreams: Now, Wawa has embarked on an ambitious strategy to grow its national footprint, opening up to 280 new stores over the next 10 years in Florida, Alabama, Tennessee, Georgia, North Carolina, Ohio, Indiana, and Kentucky, which its CEO described as “the most aggressive growth” in company history. 

Wawa offers common convenience store items as well as gas, hoagies, coffee, pretzels, pizza, and other snacks. Many loyal fans bond over the “family vibe” of the place. As one big fan noted, “People will go out of their way to go to Wawa for the experience of going to Wawa.”

• The chain operates in Pennsylvania, New Jersey, Delaware, Maryland, Virginia, Florida, and Washington, DC.
  

• Wawa will open one store weekly or so in the coming years and hopes to ramp up to 100 new locations annually.

“There’s some that say, ‘Wow, that feels like too much growth,’” the CEO said. “The reality is, if you look at the size of our business, we’ve been fairly conservative with our growth.”

Why it matters:

Competition awaits Wawa in the South, and catering to regional tastes will be key. While its New Jersey fanbase loves hoagies, southerners will likely expect fried chicken, a convenience store staple. 

Employee ownership: Wawa launched an employee stock plan in 1992. Now, it’s one of the 10 largest nationwide, and employees own 38% of the company. 

• Wawa is encouraged that its Southern bet will pay off partly because of how many drivers stop at its Petersburg, Virginia location, the last Wawa until Florida. Customers have said they stock up before heading south or make it their first stop on the drive north. 

Watch more on why Wawa is successful

More Headlines

📈 Coinbase shares surge after posting first quarterly profit in two years

🏀 Why buying sports tickets has become so unaffordable

⛓️ Putin critic Alexei Navalny dies in Artic Circle jail

🛒 Big shift: What retail could look like in 5 years

💪 Immigration could add $7 trillion to the U.S. economy over the next decade

🎥 OpenAI reveals new tool that transforms text into videos

🏀 LeBron James’ Booming Business

Three days after delving into the finances of NFL star Patrick Mahomes, it’s time to dissect those of basketball legend LeBron James following a splashy profile in The Wall Street Journal. 

James, the basketball superstar who has won four MVPs and four NBA titles, reached billionaire status two years ago — an inspiring story for James, 39, who grew up with his single mother in a public housing project in Arkon, Ohio. 

• Forbes has estimated he’s since earned “upwards of $900 million in income from endorsements and other business ventures,” in addition to his current $48 million salary with the Los Angeles Lakers.
  

• James earns nearly all of his wealth off the court through lucrative endorsements, including Nike, AT&T, and GMC. He earns over $30 million annually from the Nike deal alone. 

Streaming game: James’ company, SpringHill, plans to grow internationally. It’s also contemplating launching a free, ad-supported streaming channel and looking to acquire video game and animation companies. 

• He owns SpringHill, an entertainment company that produces movies. Next could be a reality series following five NBA players, including James — a show destined for Netflix. He’s also starting a men’s grooming line with Walmart.

Business savvy: James wants to grow SpringHill even as many streamers pull back on spend amid heightened competition. He also has garnered questions about whether his company is worth the $725 million valuation it was given during a funding round in late 2021, the peak of the streaming boom. 

• Most of SpringHill’s $200 million revenue comes from its studio biz, plus advertisers that hired the company to make sponsored short videos for social media.
  

• Example: Toyota hired SpringHill to make a short video about why historically Black colleges and universities (HBCUs) are critical. 

Why it matters:

James isn’t the first uber-wealthy athlete, but he’s a trailblazer in launching a media company to control his narrative, influence culture, and build a sustainable business. 

• Fellow athletes Kevin Durant, Megan Rapinoe, Giannis Antetokounmpo, and Naomi Osaka have emulated his approach.
  

• Other athletes who have created lucrative business careers include Michael Jordan and Magic Johnson, who are also billionaires. Johnson has built most of his wealth through investments in insurance companies, movie theaters, and sports franchises.

Watch more

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Quick Poll

Yesterday, we asked: Do you prefer emerging market funds with China or ex-China?

— One reader who voted “Including China” said, “Chinese companies have an average P/E ratio of ~11. They’re undervalued. I don’t see them shooting to the moon anytime soon, but it’s hard to argue that it’s not a good time to invest in a Chinese-comprised ETF.”

— On team Excluding, one wrote: “Too much uncertainty with the government.”

— Added another: “Bullish on India.”

See you next time!

That's it for today on We Study Markets!

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