What Did You Do in the Subsidy War, Daddy?

Plus: Sorry, Dolly, no one is down on Music Row nowadays. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

April 3, 2023

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TOGETHER WITH

Good morning and happy Monday.

When he’s not playing in the occasional rock show, Madison Square Garden owner James Dolan likes to play things close to the vest. The entertainment mogul’s MSG Sphere arena in Las Vegas has racked up a more than $2 billion construction tab, and court filings allege Dolan hid the rising cost from shareholders, The New York Post reported.

In 2021, MSG Entertainment (the venues) merged with MSG Networks (the cable TV operation). Court documents say because Dolan kept the Sphere’s increasing price tag a secret, he shortchanged investors during the share swap. An $85 million settlement was already reached with MSGE shareholders, but Dolan could also have to cough up $200 million of his own money to MSGN investors. And with Kathaleen McCormick presiding over the case — the judge who made Elon buy Twitter — Dolan’s chances of victory look even smaller than a Knicks championship, however improved they’ve been on the court this season.

Morning Brief

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This means (subsidy) war.

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Is this the end for Bed Bath & Beyond?

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Music City ain’t singing the blues.

Policy

US at Risk of a ‘Carbon Subsidy War,’ Canada says

(Photo Credit: Michael Fousert/Unsplash)

There’ve been cold wars, trade wars, proxy wars, and now possibly a subsidy war.

With the US ready to dole out hundreds of billions of dollars in government funds and tax credits for clean energy projects, its allies are feeling resentment. This weekend, Canada’s natural resources minister told the Financial Times America is leaving little room for competition and getting on the wrong side of its closest friends.

The Green Monster

The goals of the Inflation Reduction Act are not too different from what most developed countries are trying to accomplish. But the Biden administration’s $370 billion green infrastructure pledge has other nations, especially Canada and those in the EU, feeling outgunned. Plus, for the most part, under the IRA, companies must source from and build their products — electric vehicles, solar panels, microchips, etc. — in the US. That creates the potential for foreign businesses to reduce their presence in their homelands and put down stakes in America.

“(The IRA’s) very significant subsidies had created an unlevel playing field for the Europeans and for Canada,” Jonathan Wilkinson, a senior member of the Canadian Prime Minister’s cabinet, told the FT. “We don’t want to get into a subsidy war with the Americans and neither do the Europeans and Japanese.”

And while Washington DC has been trying to reassure its allies and that the IRA will not create rivalries, Wilkinson is just the latest dignitary to criticize the US’ exorbitant spending:

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In December, French President Emmanuel Macron said the IRA could “fragment the West.” And during a closed-door meeting with Congress, he bluntly referenced the possible loss of French jobs, saying, “Perhaps this law will solve your problems, but it will make mine worse,” according to a person who attended the event.

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In January, Belgium’s Prime Minister Alexander De Croo even accused the US of actively luring European companies to American soil: “They are calling firms, in a very aggressive way, to say ‘don’t invest in Europe, we have something better.’”

They’re Playing Catchup: Even so, the Europeans aren’t exactly slacking off either when it comes to government handouts. The IRA will pay out over the next decade, but the EU has already spent roughly $74 billion in green subsidies each year since 2015, according to a report from the European Commission. The EU provides an amount that “is at least comparable to the amount of money that the Americans are putting on the table,” EU climate chief Frans Timmermans said. It takes green to go green.

– Griffin Kelly

Retail

Bed Bath & Beyond is Staring Down Bankruptcy

It’s now or never if Bed Bath & Beyond wants to avoid a trip across the big box retailer river of Styx.

After months — if not years — hooked up to life-support, the end seems closer than ever for Bed Bath & Beyond. The company now finds itself racing against a three-week countdown clock to cobble together some $300 million to stay alive. But even the meme stock traders are turning their backs on their one-time favorite strip mall staple.

Beyond Repair

It’s been one half-measure and hare-brained scheme after another to keep BB&B from going the way of K-Mart and Sports Authority. Its 2020 decision to excommunicate national brands in favor of in-house private labels only lasted two years — and backfired spectacularly. Meanwhile, its c-suite has seen more shake-ups and overhauls than your mom’s living room after a going-out-of-business firesale on home goods.

In January, the company finally admitted to shareholders that bankruptcy is a discrete possibility, and sought to raise $1 billion to avoid such an event. It was able to scrape together some $360 million in emergency funding from hedge fund Hudson Bay Capital Management, but BB&B terminated the agreement — and chances of further fundraising — last week out of anticipation it would not be able to meet conditions. That leaves selling $300 million of common stock in the open market before an April 26 deadline as the company’s last real chance of survival. It’s not going well:

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In the past two weeks, retail investors have sold the stock more often than buying it, according to Vanda Research data seen by Bloomberg. Shares closed the week trading below 50 cents while the company was likely attempting to dump new shares on the market.

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Complicating matters even further is BB&B’s fraught relationship with its banks. After defaulting on its most senior debt in January, the retailer made a deal that requires it to send all of the income from sales to its banks before it can borrow the cash back to run its business.

“Even retail investors are throwing in the towel on the stock rather than seeing this as an opportunity to double down and get behind the name as they did in the past with other meme stocks,” Vanda’s Marco Iachini told Bloomberg.

Empty Shelves: The most obvious reason (and there was a lot of competition here) not to invest in the company right now: It has no products to sell. Suppliers don’t trust it can make payments, leaving its shelves only 46% stocked compared to a year ago, according to retail data firm DataWeave. We always suspected the definition of “Beyond” included an afterlife, if not necessarily a good one.

– Brian Boyle

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Labor

Sunbelt Grows Stronger in WSJ’s Annual Job Market Report

“I Love This Town,” Bon Jovi once sang about Music City. And so do job-seekers today.

This weekend, The Wall Street Journal published its annual ranking of the hottest metro area job markets in America. Nashville, Tennessee topped the list, followed by Austin, Texas in the runner-up spot — with the rest of the top ten reading like a concert touring schedule through America’s southeast.

I Hate New York

Gone are the days of moving to the big city as the only way to find big opportunities, at least according to WSJ ranking, which uses Moody’s Analytics study of 2022 Labor Department data to weigh cities by unemployment rate, labor-force participation rate, changes to employment levels, the size of the labor force, and wages. That had the Big Apple ranking 54th out of 56 cities with populations of over 1 million, meaning if you can make it there you really can make it anywhere. Los Angeles came in 49th, Philly 41st, and Chicago 25th.

If the report tells any story about America’s shifting preferences, it’s that expensive coastal cities are on the outs, sunshine is in, and the pandemic is disappearing in the rearview mirror:

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The hospitality and experience economies in America’s hottest jobs markets are booming, with music venues and restaurants driving growth in top-ranked cities like Jacksonville (3), Atlanta (6), Orlando (7), and others.

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“These are lower-cost areas, they are growing rapidly, there’s an increasingly large critical mass of young, educated people,” Moody’s economist Adam Kamins told the WSJ. “The affordability is really appealing to families as well.”

Tech Support: The biggest of tech titans may be undergoing massive layoffs, but that hasn’t hit traditionally tech-heavy metros too hard — at least not yet. San Francisco came in 18th, Seattle 17th, and San Jose 14th, while emerging hubs Denver and Miami hit 10th and 11th, respectively. But remember: A year from now, we’ll get to see if Silicon Valley’s looming AI revolution makes or takes jobs.

– Brian Boyle

Extra Upside

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Au revoir: Paris votes overwhelmingly to ban e-scooters.

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Eggs too expensive? Paint a potato for Easter instead.

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Arrivederci, AI: Italians can no longer access ChatGPT.

Just For Fun

Interesting friendship.

Perspective shift.

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