Party Like It’s 2023

Plus: Is Australia picking on French defense contractors? ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

January 19, 2023

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Morning Brief

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Semafor is buying out SBF.

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Party City is the latest casualty in a retail downturn.

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Get to the chopper, mate.

Media

Semafor Contemplates What to do With SBF’s Money

Sam Bankman-Fried may be confined to the well-appointed basement of his parent’s Palo Alto residence, but he’s still wreaking havoc across the country.

The latest victim caught in the ripples of FTX’s downfall? Semafor, the new media startup from former Bloomberg chief executive Justin Smith and former Buzzfeed News top editor and New York Times media columnist Ben “no relation” Smith, which took on the Bernie Madoff 2.0 of Web 3.0 as its top backer. Now, it’s got to figure out what to do with his money.

Filing a Semaformal Complaint

Before his crypto empire came crumbling down, SBF spread the influence of his FTX fortune far and wide, pouring money into everything from political campaigns to the naming rights of the Miami Heat’s arena, and giving away tens of millions of dollars in charity. That spending spree included investments and grants to a suite of media companies such as Vox, The Intercept, and ProPublica, as well as contributing to the seed funding round for Semafor.

The collapse of FTX and the alleged criminality of SBF’s actions have thus placed his favored media outlets in a lurch. Vox and ProPublica announced they would return his money following his arrest last month. The Intercept, meanwhile, had already received an initial $500,000 installment of a $3.25 million grant that was set to continue paying over several years. Without it, acting editor-in-chief Ryan Hodge says The Intercept now has a significant hole in its budget. The Smiths of Semafor have gone a slightly different route, initially saying they were awaiting guidance from the relevant authorities. But on Wednesday, the pair announced they are buying out SBF’s stake outright:

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SBF contributed roughly $10 million of the $25 million initial funding round for Semafor last year, according to a New York Times report, making him the venture’s largest outside backer. Still, the crypto magnate owned “no actual shares” of Semafor, according to Justin Smith, and his interest would amount to only a single-digit stake if it was converted into equity.

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Semafor now says it plans to repurchase SBF’s stake and place it into an account until authorities can figure out, presumably, which FTX creditors and customers need it most. The company is now exploring new investments to replace the $10 million, according to the NYT.

Don’t Bury the Lede: Any new investors now have the benefit of knowing how the outlet is actually faring. The site, which launched in October and has a staff of around 60 employees, is expecting revenues of around $15 million this year through a mix of paid events and advertising, sources tell the NYT. Sorry, Sam. At least you’ll always have Substack.

– Brian Boyle

Corporate

Party City Files for Bankruptcy

The party wasn’t all it was cracked up to be.

Party City, the retailer that since the mid-80s has provided millions of children with loose-fitting Halloween costumes and left beleaguered parents standing in long lines for Cookie Monster-shaped balloons, announced it will file for Chapter 11 bankruptcy. It’s not exactly party times for big chains in 2023, as the pending demise of Bed Bath & Beyond also makes abundantly clear.

Not Partying Hard Enough

Bankruptcy doesn’t mean going out of business. So for now, mom and dad, you’ll still have a place to buy cheap tablecloths and napkins and keep your kids reasonably amused. What it does mean is that the New Jersey-based company with $1.7 billion in debt has reached an agreement with stakeholders and secured $150 million in financing for a restructuring that allows its roughly 800 stores to remain open.

Despite its title as the largest US retailer for costumes, Party City missed out on its usual spooky season revenue influx last Halloween. With inflated costs of energy, gas, and food, many chose to make their costumes at home instead of shelling out $60 for a pink jumpsuit from Squid Game. Combine that with dwindling sales and — we’re not making this up — a global helium shortage, and it’s easy to see how Party City became desperate for cash.

While it’s still too soon to shout “retail apocalypse,” Party City likely won’t be the only major chain filing for bankruptcy this year:

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The Gap, the clothing brand that also owns Old Navy, Banana Republic, and Athleta, is quickly fraying, and not the fashionable kind. In 2020, the reliable home for denim announced it would shutter 350 stores, and last July it fired CEO Sonia Syngal after a brutal year that saw the company’s share price drop 75%. Companies like Rite Aid, Dollar General, and Kohl’s are also alarmingly wobbly.

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Moody’s, a credit rating firm, predicts that the global default rate will increase to nearly 5% in 2023. Senior VP Ed DeForest told CNBC businesses can no longer rely on low-interest rates and government support, which will lead to more bankruptcy filings in the near future.

False Alarm, Maybe: For all the doom and gloom, 2022 actually saw US bankruptcy filings fall to a 13-year low at only 391, according to S&P Global. That’s significantly fewer than the 828 total in 2010. And not everybody is ready to throw in the towel just yet. At this year’s National Retail Federation Expo, Lowes CEO Marvin Ellison acknowledged the rough state for shops but said, “I believe that even during retail apocalypse discussions that the biggest central competitive advantage of retail is, do you have brick-and-mortar stores, and can you connect those stores digitally to your online site.” Party on, Lowes.

–Griffin Kelly

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Military

Australia Spends $2 billion on Black Hawk Helicopters

(Photo credit: US Army/Flickr)

In squaring up to China, Australia may be making an enemy out of France.

Australia confirmed Wednesday it was following through with a purchase of 40 Black Hawk helicopters from Lockheed Martin. The order signals a move from French to American-made choppers, as Australia’s military previously relied on Airbus’ Taipan helicopters.

A Bird In The Hand

This isn’t the first time that Australia has dumped a French defense supplier. In 2021 the Land Down Under decided it needed a new partner for going underwater and ditched a €50 billion contract with French submarine supplier Naval Group. The move came shortly after Australia hatched a diplomatic deal with the US and the UK — called AUKUS — aimed at encouraging the three countries to share advanced technologies, a pact that included nuclear submarines. The subtext of the pact was clear: the three countries were banding together to counter China’s expanding military strength and ambition.

As if France’s pride wasn’t hurt enough, the deal also called attention to a spate of technical problems surrounding the Taipan helicopters:

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Australia had to ground its entire fleet in 2019 when it found a problem with their tail rotor blades.

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The doors on the Taipans also aren’t big enough to let soldiers leave the aircraft while the gun turret is being fired, meaning for some missions you’d need two helicopters instead of just one. Pas idéal!

It’s not you, it’s moi: Australian Defense Minister Richard Marles said he had given France plenty of forewarning. “The most important thing here is dealing with the French in an honest way,” Marles told ABC News. When Australia ripped up its submarine contract in 2021 then-Foreign Minister Jean-Yves Le Drian called it “a stab in the back.” At least this time they saw the knife coming.

– Isobel Asher Hamilton

Extra Upside

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The robots can throw stuff now, check out the latest Boston Dynamics updates.

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Hey kid, you wanna see a black hole eat a star?

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Put That Calculator Down: A life well-lived includes a healthy balance of adventure and relaxation — not agonizing over your portfolio day-by-day. Enter: working with a financial advisor. But choosing the wrong one (one who might not necessarily have your best interests at heart) could potentially wreak havoc on your retirement plans. Avoid these 7 common mistakes when working with an advisor, so you can get back to what matters most: living. Pro tip: try this free tool to get matched with up to 3 vetted financial advisors serving your area.

Just For Fun

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Walking on water.

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