I was on the panel once again, for the second time this month (no more until November though!), now discussing the latest inflation numbers and the 50 bps rate cut by the Fed. Like all panels, I got to speak about a couple of other topics too.
- Rogers acquiring Maple Leafs Sports Entertainment.
With this, Rogers becomes the majority owner of the company, acquiring it from Bell. It gives them one of the most popular platforms for marketing in the country, and in the US as well, increasing brand recognition (through the Raptors). Interestingly, to avoid competition inquiries, Bell will have the option to renew their broadcast agreement at “fair market value”, including 50% content rights for the team’s games. However, this move gives Rogers though a near-complete control of the sports rights in Canada. They already own the Toronto Blue Jays, Rogers Centre and Sportsnet, plus many other investments in teams across the country.
From Bell’s point of view, this eases financial pressures the group has been feeling for a while now, following their plan to streamline operations. Bell wants to focus on tech and comms, nothing else. This deal really showcases the value of Canadian sports teams. The Maple Leafs are the NHL most valuable team, but the Raptors are also the 10th most valuable team in the NBA.
- Inflation and the Fed Rate Cut
We are seeing that inflation is at a low point now, both in terms of the base-year effect (comparing it to a very high price last year) and momentum in the economy slowing down. Gas is the main reason the CPI has slowed down so much. That one is both seasonal and base-price effect. If you adjust by seasonality, the CPI rose a little bit. The biggest contributors are housing costs (both rents and mortgages). As interest rates are coming down, people on variable rates are having a lower cost, so mortgage costs increases are moderating (“only” 18.8%, coming down from 30.9%), but they are still very high in comparison to a few years ago. Rent costs are still high with no sign of slowing down, which has more to do with landlords passing the higher mortgage costs onto renters, and the very tight housing market we know they are in. Another interesting movement is the drop in clothing and footwear. Normally, August sees price increases, but demand has been very slow for these products, leading to a decrease in prices. Most likely, the lower disposable income that families have is starting to permeate across the economy.
So, what does this mean? It means the economy keeps slowing down, now at a lower pace than even the BoC likes. The question is what does the BoC do in October. There is still one more report on inflation next month, so if we see this slow down is persistent and remains below their target, they may consider giving a boost to the economy, in the form of a 50 bps instead of 25 that the market expects. The last important topic is what the Fed behaviour means for Canada. The BoC started with rate cuts a lot earlier, we are already on our third, so, while there cannot be much disparity between our rates and the US’, we are nowhere near that. We should keep our monetary policy independent of the US’ now. If anything, this supports the BoC decision to start cutting rates early.
The company declared Chapter 11 bankruptcy, so this means it will probably not die completely, but restructure and come back in a different form. Tupperware is a multi-level marketing company. These companies depend on the considerable labour force that they have. Over to 465k collaborators worldwide. They make a very limited amount, though, like all MLM companies. The average collaborator (“consultant” as they call it) made US$ 525 per year. The FTC said in 2008 that 99.7% of all consultants lost money when selling their products.
Several factors led to the company’s woes: Their business model not adapting to the 21st century online dynamic, a poor supply chain, and the commoditization of their wares (the moat as it’s so trendy now to say). This even happened as the market for plastic containers has kept growing, it’s just split far more. Over CAD $2b in sales last year. That’s 18% more than before the pandemic. However, competition and the fact that their product is a commodity by now (a Generic Trademark), really impacted their bottom line. After having been acquired in part by private equity, they had to fight being sold in pieces.
To me, this also shows the failure of the MLM business model. Which maybe is a good thing. MLM schemes are not really economically sound business models for the collaborators. There are even internet forums and websites dedicated to calling them out.
