Breaking down Income Inequality

November 17, 2015 by Alexa Ritacco Leave a Comment

By Alexa Ritacco

“Income inequality” is a phrase that has been popping up all over the place lately. Personally, I’ve been hearing it pretty frequently in the current race for the White House. It has been brought up in multiple debates, democratic and republican, and it’s clearly something that the public is concerned about. Of course by just looking at the two words, the average person could probably guess what it means. There’s something unequal about incomes in the U.S. Despite having heard the phrase so many times, I still don’t quite understand what it is, what it means, why it exists or how/if it can be fixed. So I decided to begin to delve into these questions for this week’s blog post.

So first and foremost, why has it become such a hot topic? Well, as I discovered, it all dates back to the 1970s. Around then is when, after decades of stability, income inequality began to increase significantly, meaning that higher income households began receiving a higher share of the nation’s total income. The gap between the rich and everyone else has grown steadily by every statistical measure over the past 30 years or so. And just to clarify, income encompasses revenue from wages, salaries, interest on a savings account, dividends from shares of stock, rent, and profits from selling something for more than you paid for it.

30+ years of rapid growth equates to a whole lot of inequality, especially when you compare the US to other countries. Currently the US ranks around the 30^th percentile in global income inequality. This is pretty bad. 70% of countries around the world have a more equal income distribution than the United States. I personally find this shocking.

Of course The Great Recession of 2007-2009 had negative impacts all across the board, with everyone from the richest man to the poorest man taking a huge hit from the crash. The increases in income inequality most definitely slowed, but post-2009, things began to increase at an even faster rate. As the effects of the recession reversed, the gap only grew wider. In 2012, the wealthiest percentile saw incomes rise around 20%, while the income of the remaining 99% rose only 1%.

People are frustrated. People are angry. People want to know why this is happening and how it can be stopped. So naturally, it has become a partisan issue. Democrats tend to believe that action can be taken to slow this growth and potentially redistribute some of the wealth of the 1% among the other 99%. Republicans tend to be more skeptical, arguing that redistribution would interrupt the natural flow of the economy. But in a recent effort to connect with more middle class voters, republicans have taken a more vest interest in the income inequality gap. This, as well as more about the democrat views on the issue, is something I plan to explore more in my personal presentation, so stay tuned!

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html?countryname=United%20States&countrycode=us&regionCode=noa&rank=41#us

https://www.cbo.gov/publication/49440

http://inequality.org/income-inequality/

What Retail Looks Like this Holiday Season

November 17, 2015 by Tera Novy Leave a Comment

Since holiday shopping is about to begin, it’s important to know that consumer spending accounts for about two-thirds of GDP. This demonstrates that American consumers are a powerful force for the economy. However, large retail sectors are seeing shares crash. The occurring situation makes the holiday spending season a must needed event, even though it does not look that positive.

An article from the Business Insider called Here’s a Simple Explanation for Why the Retail Business is Brutal went into detail about the recent stock drops in high end retail stores. Macy’s stock fell 14% on November 11^th and Nordstrom’s shares were down as much as 16%. Both these company’s earnings widely missed expectations and the future outlook is disappointing.

So why are these drops occurring? Well the retail business is a tough one to maintain and retailers are having to fight harder than ever for their share of consumer dollars this holiday season.

The article also mentioned why retail is a brutal business. “Retail has high fixed costs, high working capital intensity, fickle customers, low barriers to entry,” they wrote, calling the sector a case study for the worst-possible business”. It also mentioned that fixed cost are numerous for retail companies. It has to have the physical space, inventory, personnel, and supply chain to keep the whole system running.

Over time these costs change, usually becoming more expensive. In order to maintain a company profit, it needs to keep moving profits back into the business.

It mainly depends on the consumers and what they want to buy. It could be American Eagle one year and H&M the next.

On a positive note, another article from the Business Insider called 5 Retailers that will Dominate this Holiday Shopping Season lists five retail stores that are ready to strive on sales this holiday season.

Victoria’s Secret- This store is buzzing for the holiday season thanks to innovative products like a new push-up bra. Also, the store is not seasonal because women need under garments all year long. This puts Victoria’s Secret ahead of other retail stores that rely on sweaters and coat sales like Macy’s and JCPenney.

Lululemon- The high end sportswear company is expected to grow sales as much as 12% this holiday season, according to Morgan Stanley. The new brand’s designs differ from other athleisure brands. Menswear is also beginning to gain attraction from Lululemon.

Ross Stores- The discount outlets Ross provides makes consumers and their wallet happy. According to Morgan Stanley, the decline in gas prices will give the middle class more spending power, which will benefit the brand.

Nike- With $28 Billion in annual sales, the company is the biggest player in athletic apparel market. Nike wants to focus on a few key demographics, such as women, runners, and student-athletes, which will help the company grow even larger. Morgan Stanley analysts expect the holiday season to drive growth.

Best Buy- New technology is growing and it is more popular than ever. Some new products will drive sales up. Best Buy has better customer service than others, which benefit the company.

The Trans Pacific Partnership and what it means for the econonmy

November 16, 2015 by Sally Huang Leave a Comment

The world had not seen a big multinational trade pact for over 20 years. After 7 years of negotiations, United States and eleven other Pacific Rim nations reached a final agreement on 5th October 2015. Now after all the meetings between world political leaders, the final step lies in Obama’s hands: Securing approval from Congress.

Obama has pledged that the TPP would open new markets for U.S. goods and services and establish rules of international commerce that give “our workers a fair shot at the success they deserve.” Congress however is more skeptical. The deal now faces months of scrutiny in Congress, where some bipartisanship opposition was immediate.

Assuming that all goes well and Congress approves the TPP, what would be the likely effects of the new trade agreement on the economy and on America’s influence throughout the world?

The Economic Impact on the TPP is Exaggerated

Progressives and labor unions rally against the bill think that it will be the end of manufacturing jobs and worker protections in the United States. Conservatives and corporations think that the bill will drive tremendous economic growth in the country. Neither is correct.

Two of the nation’s leading economists, Paul Krugman (left) and Nicholas Gregory Mankiw (right), both agree that the trade agreement will increase domestic income of all the nations involved by 0.5% by 2025. In the United States this amounts to little over $80 billion, certainly nothing to irrelevant, but nothing that will spark tremendous economic growth. The problem is that trade is relatively free throughout much of the world. Borders have been liberalized. The average good traded between these twelve countries has only a 1.4% tariff on it There just isn’t a whole lot to be gained by removing these tariffs.

Growth prospects might be limited however there are other aspects to consider — primarily the interests of US businesses and multinational corporations.

First, intellectual property rights. The US is trying to enhance protections for pharmaceuticals drugs and Hollywood movies. In many of these developing countries that are part of the TPP (Vietnam, Malaysia, Bruinei) knock-off drugs and films are sold to consumers. The TPP would put stricter regulations in place in these countries, ensuring this does not continue.

Agriculture producers also have a lot to gain from this deal. The United States currently produces a surplus of food, and much of that food goes to waste. Opening up international markets could be a huge boon for the agricultural industry.

Against China’s Power

Many of the potential benefits from the trade agreement concern the relationship the United States has with China. Importantly, China is not part of this trade agreement, but they are working on their own trade agreements in the region with many of the same countries in the TPP. China also won’t push for the same environmental regulations and worker protections the United States is currently pushing for.

This is an opportunity for the United States to expand it’s influence in the South Asian region and prevent these countries from falling under China’s influence.

Sharing is the new buying

November 16, 2015 by Sally Huang Leave a Comment

Why pay excessive prices for goods and services when you can rent it more cheaply from a stranger online? That is the principle behind a range of online services that make it possible for people to share accommodation, household appliances, cars, bikes and other items, connecting owners of underused assets with others who are willing to pay for them. A growing number of businesses, such as Uber, where people use their car to provide a taxi service to paying passengers, or Airbnb, which lets people rent out their spare rooms, act as matchmakers, allocating resources to where they are needed and taking a small percentage in profits in return.

Such peer-to-peer rental business is beneficial for several reasons. Owners make money from underused assets. Airbnb says hosts in San Francisco who rent out their homes average a profit of $440 (after rent) some neighborhoods snagging upwards of $1900 a month. Car owners who rent their vehicles to others using RelayRides make an average profit of $250 a month; some make more than $1,000. Borrowers, meanwhile, benefit from the convenience and pay less than they would if they bought the item themselves, or turned to a traditional provider such as a hotel or car-hire firm. And there are environmental benefits, too: Renting a car when you need it, rather than owning one, means fewer cars are required and fewer resources must be devoted to making them.

The internet plays a vital role in this business. It makes it cheaper and easier than ever to provide accurate supply and demand information. Smart phones with global tracking services can find a nearby room to rent or car to borrow. Online social networks and review systems help develop trust; internet payment systems can handle the billing. All this lets millions of total strangers rent things to each other. The result is known variously as “collaborative consumption,” the “collaborative economy,” “peer economy,” “access economy” or “sharing economy”.

The model of the sharing economy works for items that are expensive to buy and are widely owned by people who do not make full use of them. Bedrooms and cars are obvious examples, but you can also rent fields in Australia, washing machines in France and camping spots in Sweden. As proponents of the sharing economy like to put it, access trumps ownership.

How Did We Get Here and Why Now?

The world is at a turning point. The urbanization of populations continues to rise, and Millennials, are beginning to impact the economy as they enter the work force and start making economic decisions. These changes are most prevalent in big cities and new business have already begun to adapt.

The consumer is changing. The Millennials generation, born in the 1980s to early 2000s, experienced incredible uncertainty, having lived through the 2008 – 2009 financial crisis and struggles with increasing student debt. These financial pressures lead to demand for a more efficient allocation of resources – and that, means they want to own less, be more connected with others and be a part of something bigger than their individual selves.

Social media and social connection is an important aspect of the new lifestyle. A significant percent of modern day free time is spent browsing the social media accounts of our friends, family, celebrities, etc. Now, instead of seeking advice from our personal networks, we have access to the world. Trust and dependency in strangers and technology is a crucial aspect in the success of the shared economy, without the two, we would be stuck in the past

While the classic American dream is to own everything, the millennial’s version is to move to an “asset light” lifestyle. These trends have sparked massive innovation, created new marketplaces and potentially holding the keys to the future.

Premium on Ownership Disappears

Let’s travel back to 1999, when the millennials were still children exploring the internet. Many children took advantage of Napster, a website that enabled users to download songs for free. Illegal? Sure. But no one, except record companies, really cared. There are profound differences between the millennial peer-to-peer downloading and that of their parents or even people five years their senior. From the very beginning the experience of acquiring and consuming media content was based on the premise that access to content should be easy and free.

Now, back to 2015, access to media content is essentially free. Want on-demand access to whatever music you want? Spotify has got you covered. On-demand access to movies and TV shows? Netflix. On-demand access to videos of anything you want to watch? Lose a few hours on YouTube. Of course some of these services require a subscription fee so they are not truly free.

But this is what happens in the shared economy. It emerges when the access to goods and services, such as media streaming, becomes cheap, satisfactory and reliable enough that the premium on physical ownership has disappeared. There is hardly any reason to purchase these goods and services aside from personal habits (for example collecting vinyl) or peculiar requirements.

Ten years ago, to watch a movie released on DVD, there were two options: purchasing or renting.

Of those options, renting was the inferior. Even though it was more expensive to own these DVDs, it was preferred since people had the freedom to watch movies whenever they wanted and prized their DVD collections.

Today, that premium has disappeared. Streaming a movie on Netflix isn’t inferior to owning a DVD the same way that renting was. And ever since then, the extensive access to cheap and easy media content, has lead to new kinds of behaviors have emerged like binge-watching. Similarly, the rise of music streaming services has enabled behaviors such as sharing playlists, a process that used to be time-consuming and effort-intensive. When nobody buys music but still has access to it, social sharing of music emerges as a natural and human behavior.

Obstacles on the road to Success

To truly grasp the scale and greatness of the sharing economy, consider the following data. Airbnb averages 425,000 guests per night, totaling to more than 155 million guest stays annually – nearly 22% more than Hilton Worldwide, which serves 127 million guests in 2014. Five-year old Uber operates in more than 250 cities worldwide and as of February 2015 was valued at $41 billion – a figure that exceeds the market capitalization of companies such as American Airlines and United Continental. According to PwC’s projections, the sharing economy (including travel, car sharing, finance, staffing and music streaming) has the ability to increase global revenues from $15 billion today to around $335 billion by 2025.

It is not hard to find evidence of successful sharing economy but not everyone is as delighted by the rise as its participants and investors. Taxi drivers in America and now Europe have complained loudly (and in the case of Paris, violently) about the intruders who, they say not only are unqualified but also under insured.

Uber has always been plagued with problems with regulation and taxi unions around the world. In 2014, a court in Brussels prohibited drivers from from accepting passengers through UberPOP or face a €10,000 fine.

It is not just car-sharing services that have run into legal problems. Apartment-sharing services have also fallen victims of regulations and other rules governing temporary rentals. Many American cities ban rentals of less than 30 days in properties that have not been licensed and inspected. Some Airbnb renters have been served with eviction notices by landlords for renting their apartments in violation of their leases. In Amsterdam, city officials point out that anyone letting a room or apartment is required to have a permit and to obey other rules. They have used Airbnb’s website to track down illegal rentals.

On top of legal regulations, issues with customers have also become obstacles for sharing businesses. In 2011, Airbnb suffered a rash of bad publicity when a host found her apartment trashed and her valuables stolen after a rental. After some public relations, Airbnb eventually covered her expenses and included a $50,000 guarantee for hosts against property and furniture damage.

Peering into the Future

The sharing economy can be compared to online shopping, which began in America 15 years ago. In the beginning, people were not too sure about the vendors and didn’t trust the services. However with time and perhaps a successful purchase on amazon or two, people felt safe buying from other vendors too. Now consider Ebay, a company started as a peer-to-peer platform, now is now dominated by professional “power sellers” (many of whom started as ordinary Ebay users).

Big corporate companies dominating the market are getting involved too. Avis, a car rental firm has shares in Zipcar, its car sharing rival. So do GM and Daimler, two car manufacturers. In the future, companies may follow a hybrid business model, listing excess capacity on Peer-to-Peer websites. In the past, new ways of doing things online have put the old ways out of business. But they have often changed them.

We will have to wait and see which on-demand services start to gain traction with mainstream markets and which wont’t. It is not likely that in thirty years time our whole lives will be on demand and we won’t hold ownership. But a major possibility is products and industries most likely to be disrupted by the sharing economy would be things that we possess but not necessarily own. An example would be Airbnb. It has disrupted the demand for owning vacation homes (something you possess) and tourist hotels (something you don’t possess but is still “yours” in a way that an Airbnb isn’t).

Uber takes a bite out of the Big Apple

November 10, 2015 by Alexa Ritacco Leave a Comment

By Alexa Ritacco

As a college student in LA, Uber has become an essential way to get around, especially when it comes to nightlife. It even has its own verb now: “Oh yeah, let’s just uber.”

Founded in 2009, Uber now exists in sixty countries, and over three hundred cities. In just six years Uber has become a globally used and extremely well-known app. But global success does not necessarily mean global acceptance. Resistance to the ride sharing service has come about from all angles. Some consumers think the service is sketchy.

There have been numerous reports of harassment, extortion, and sometimes even robbery, and Uber’s response to such reports have been pretty mixed. In a few cases, in response to reports of sexual harassment, Uber offered users a small credit. They typically do not release any type of statements in response to reports against them, and have been criticized in their slow response to release names of drivers in said harassment scandals. But some view Uber as the lesser of two evils.

“I would much rather hop in an Uber than a taxi cab,” said NYU student Elizabeth Gurdus, “Taxi drivers are so incredibly rude, and never take the route that I want to go. Uber drivers have a rating incentive to make the experience at least somewhat pleasant, and generally, that’s been the case in my experience.”

While consumer perception has been an issue, the most resistance to Uber has come from city taxi cab drivers, as well as local city legislation. New York City, a place known for its thriving taxi sector with the instantly recognizable yellow cabs, has seen quite a bit of controversy surrounding Uber and other ride-sharing services.

Uber launched in New York in May of 2011. Since then, the service has exploded, having given millions of rides to New Yorkers, and employing over 30,000 drivers. And it has been driving the NYC taxi drivers absolutely insane. Many drivers claim to be taking a hit financially, and feel that it is completely unfair that Uber just waltzed in one day and began stealing customers. They feel betrayed by New York City for letting this go on.

For so long, they were the only ones on the market for private transportation around the city. If a New Yorker wasn’t taking the subway, bus or personally driving themselves, chances are they were taking a taxi. And really, that was their only other option. Now, suddenly, the consumer has quite a few options when they’re strapped for a ride. Rather than stepping out onto the sidewalk and hailing a cab, they very well may be whipping out their phone and calling for an Uber or a Lyft. The transportation market has changed completely, and now taxis are dealing with some very hungry competitors.

For decades, New York City has controlled the number of taxis by limiting the number of medallions, which is required to legally operate a taxi. Introduced in 1937 by Mayor Fiorello H. La Guardia, the medallion system was created to remedy the overflow of cab drivers that the city was facing at the time. It set limits to the number of cabs licenses that could operate in the city.

This caused prices for medallions to shoot through the roof over the years, seemingly posing as what would prove to be a good investment for anyone who acquired a medallion. The price of medallions has gone as high as one million dollars, and currently, medallions listed for sale online range from about $500,000 to $700,000. Generally, people that own the medallions do not drive the taxis; the medallions are leased to drivers who are then responsible to pay money back to the owners, or the company of the owners.

One of the reasons that the price of medallions has risen so high in the past is because of scarcity. For so long, this is how the taxi market survived and prospered. But the rise of ride-sharing services like Uber and Lyft have totally threatened this. Taxi drivers and taxi companies are required to pay heavy taxes and fees in order to operate legally. Uber has managed to get around this, creating a completely uneven playing field. Medallion owners are essentially watching their investments plummet as Uber rises in the ranks. The question of fairness in the market has become a big issue. Most taxi companies, medallion owners and drivers feel completely blindsided. The entire industry is being threatened.

Taxi medallion owners have put a lot of pressure on Mayor Bill de Blasio’s administration to help them and act in their favor. Satwinder Singh, a NYC Taxi Medallion owner gave this analogy in a New Yorker article, “The city is the father and mother. They created the yellow cab as the baby. Now they’re refusing to take care of it!”

Another owner, Lal Singh, continued the analogy citing, the fifty cent tax that is charged on cab fares that goes directly to the MTA. “We’re giving them eighty-five million dollars a year! And yet everybody accepts Uber is the stepfather and all the politicians are the stepsons!” he said.

After much badgering, de Blasio pushed to start regulation and capping on Uber in NYC in the late Spring of 2015. The legislation would basically limit the amount of Uber drivers that could be in New York City at all times, and prohibit any further growth of the company in the city.

This launched Uber into full-on defense mode. They put out countless adds dissing taxi cabs, attacking their well-known racist stereotyping practices, as well as pushing all of the different types of services they offer, ranging from Pool to Lux. They rallied support from consumers in the form of petitions and protests, and even got a few celebrity endorsements via Twitter, including Kate Upton, Neil Patrick Harris and Ashton Kutcher.

It came as no surprise to many when de Blasio decided to halt his efforts to place a cap on Uber while further studies were conducted to see really just how hard Uber is hitting the transportation market. Obviously, this infuriated NYC cab drivers and launched them into a series of protests. Some of the leaders of these protests have gone as far as to suggest emulating what cab drivers in Paris did in response to Uber, which included blocking major intersections and entrances to airports. But until something drastic happens, for now, it looks like Uber will not be leaving New York anytime soon.

Since Uber is still a private company, it is pretty difficult to tell just how much of an impact hey are having on the transportation market. But by looking at employment numbers, leaked reports and the cab side of things, it is pretty easy to tell that Uber has made a giant mark on the Big Apple. A New York Post article reported that as of October 2015, 30,000 Uber drivers are employed in New York, and that they could be making an average of $40 per hour. Forbes reported that the number of Uber drivers has nearly doubled every six months over the last two years. The growth of the company, from every angle, appears to be unstoppable. In November of 2014, it was leaked that Uber was set to generate $350 million in revenue for that year. It could have only grown since then.

Business Insider recently noted that the number of abandoned taxi cabs in Brooklyn outside of dispatcher offices has been on the rise. Many drivers have reported that they jumped ship for Uber. By doing this, they lose the worry of paying the lease on their cab, and the countless other fees that cab drivers that do not own their own medallions have to pay.

The next step in this big move from taxi driver to Uber driver is purchasing a car. The question of cost comes into play. In a Neon Tommy article where a Los Angeles based cab driver who switched to Uber, it is illustrated that car payments end up being way lower payments than leasing a cab. Plus, they are getting a personal vehicle out of the deal.

Based on all of these factors, there is no doubt that Uber has taken a large bite into the transportation market in New York City. So will this mean the end of taxi cabs in NY? Of course not. But this situation has forced taxicab companies to start thinking towards the future. It has been reported that they have been developing apps similar to Uber for cab drivers to being using. Features would include GPS based fares as well as a possible rating system.

Uber has awoken what was otherwise a sleepy transportation market in New York. It is most definitely worth recognizing some of the disparities in the fairness of the situation in this war between Uber and taxis. While Uber may be the cool new kid in town, taxis are still an integral part of the city, and most likely will always be. Only time will tell what will come of the industry, and if these two competitors will ever be able to peacefully coexist.

Sources:

http://www.forbes.com/sites/briansolomon/2015/05/01/the-numbers-behind-ubers-exploding-driver-force/

http://www.neontommy.com/news/2014/03/why-did-l.a.-cab-driver-switch-to-uberx

http://money.cnn.com/2015/07/21/news/companies/nyc-yellow-taxi-uber/

http://www.theatlantic.com/technology/archive/2015/04/he-said-she-said-how-uber-relied-on-data-in-an-assault-dispute/389811/

https://www.washingtonpost.com/news/wonk/wp/2014/06/20/taxi-medallions-have-been-the-best-investment-in-america-for-years-now-uber-may-be-changing-that/

http://www.businessinsider.com/uber-revenue-rides-drivers-and-fares-2014-11?op=1

http://www.businessinsider.com/proof-that-uber-is-obliterating-new-york-citys-taxi-industry-2015-8

http://www.newyorker.com/magazine/2015/08/03/revving-up

http://newyork.cbslocal.com/photo-galleries/2015/09/17/medallion-taxi-drivers-rally-against-uber-drivers/

http://www.capitalnewyork.com/article/city-hall/2015/09/8577153/uber-fight-city-hall-overshadows-congestion-hearing

http://nypost.com/2015/10/07/there-are-more-than-30000-uber-drivers-working-in-nyc/

https://nextcity.org/daily/entry/number-of-uber-drivers-in-nyc

http://www.nydailynews.com/news/politics/n-y-taxi-drivers-rally-uber-article-1.2363707

http://www.cbsnews.com/news/uber-defends-surge-pricing-with-nyc-case-study/

<rdf:RDF xmlns:rdf=”http://www.w3.org/1999/02/22-rdf-syntax-ns#” xmlns:dc=”http://purl.org/dc/elements/1.1/” xmlns:trackback=”http://madskills.com/public/xml/rss/module/trackback/”> <rdf:Description rdf:about=”http://j469.ascjclass.org/?p=1399″ dc:identifier=”http://j469.ascjclass.org/?p=1399″ dc:title=”Uber takes a bite out of the Big Apple” trackback:ping=”http://j469.ascjclass.org/wp-trackback.php?p=1399″ /> </rdf:RDF>

Big markets, small wines

November 7, 2015 by Tujia Pallaste Leave a Comment

Making wine is California looks like an easy and enjoyable business. The owners of the small Sonoma winery called Rebel Coast Winery drive a yellow van, party on the beach and drink their own wine out of plastic cups. At least that is what they do in the pictures they post on social media and on their website.
The founder of Marketta Winery in Napa is a middle-aged Finnish lady, and her website offers a glimpse to the owner’s rustic and elegant home where she matures and blends her wines wearing a cotton apron. With an endearing smile at her face, she invites customers to come over.

Easy and enjoyable images are well calculated attempts to stand out as winemakers.
The number of wineries in California doubled in past ten years. In 2005, there were 2,275 of them. Now, the number is 4,400.
More wine brands mean more enjoy for wine lovers, but for the winery owners, it means more competition.

In statistics, Californian winemaking is blossoming.
From 1994 through 2014, the volume of the total wine production of the U.S. went up from 35.2 million gallons to 116.9 million gallons. The same time revenues to wineries went up from $196 million to $1,494 million.
This has brought wealth mainly to California, as 90 percent of the U.S wine is made in the sunny and mountainous west coast state.
From the year 2005, the U.S. wine exports have grown as much as 122 percent in value. Exports to Asia have doubled. Although China’s ongoing austerity campaign has a negative impact on sales, the emerging Asian markets are still very promising. The wine industry lobbied strongly for the Trans-Pacific Trade Agreement and expects it to enforce the exports to Asia further.
Japanese buy less Californian bulk wine but more premium California wine.
And the Americans themselves show more and more interest in wine – and in the quality of wine.
“The premium wine segment – $10 and above – is strong and with excellent prospects for continued growth over the next few years,” estimated wine industry consultant Jon Fredrikson of Gomberg, Fredrikson & Associates in his report of year 2014.
The U.S. is now number four in wine production and number two in wine consumption in the world. In consumption, the U.S. seems to be bypassing France – the world’s biggest wine producer and consumer – any time soon.
In per capita consumption, the U.S. is, however, still only 23rd in the world, while France is the second, after tiny Luxembourg. This means it should be possible to sell much more wine to the Americans than what wineries are now selling.
That’s good news for aspiring wine makers. Now wonder the number of Californian wineries doubled in ten years.

“In California, you have to to market aggressively,” says Marketta Fourmeaux, the owner of Marketta Winery.
She worked for French wine industry for decades before moving to California and knows the differences between the old and new world of wine. In France, you need to have prestigious history. In California, you have to make your brand known.
The sales of alcohol beverages are strictly regulated, and if a Californian winemaker wants to sell her wine outside the state, she needs a distributor. In that case, she needs to make an impression on distributors.
Fourmeaux did not feel comfortable in marketing her wines to the professionals.
Earlier her wine was sold to her home country Finland, but the weakening Euro along with trade barriers made the trade all the time less profitable.
”Cheap dollar helped the exports for many years”, says Fourmeaux.
She withdrew from the interstate and international markets and decided to keep the volume of her production very small. She now matures and blends only about 100 cases per season and sells her wine straight through her website.
She is testing and marketing – mouth to mouth and on her website – a new service related to wine. Groups can book an event at her home to taste wines, blend their own wine and design the etiquette.
As a board member of Wine Institute and as a president of Alliance Francaises in Napa, Fourmeaux has excellent networks in California. Good connections are a big advantage when bringing a new product into the market.

The prohibition law of the 1920s and 1930s had a long lasting and depressing effect on the wine culture of the United States. It swept away many old vineyards, and quality grapevines were replaced by lower-quality vines that grew thicker-skinned grapes. These thick-skinned grapes were suitable for gigantic industrial wineries.
Even today, seventy-five percent of Californian wine is produced in the Central Valley where bulk, box and jug wine producers like Gallo, Franzia and Bronco Wine Company operate.
But with the revival of premium wine production and all the new entrepreneurs, the majority of wineries of California are again family-owned businesses, reports Wine Institute, the largest advocacy and public policy association for California wine.

The “family” behind Rebel Coast Winery are three friends – aged 26, 27 and 30 – who studied winemaking together.
They wanted to get rid of the last effect of the prohibition law and make wine associated with “laughing, loving and friendship”, as one of the founders, Kate Seiberlich, puts it.
“We started out in 2012 and decided to target our wines to millennials”, she explains.
They put up the winery with the help of investors. After three years, they earn “as much as interns earn”, says Seiberlich, but they are determined to grow.
“Every single dollar is dumbed back to the company.”
They now produce up to 18 000 cases of wine per year in their Sonoma winery and sell and market it from their office in Palos Verdes.
They expect growth of 300 percent next year thanks to change in their supply chain. They have a new deal with a distributor, who presents their wines in 25 U.S. states and in Canada.
The Rebel Coast winemakers market their wines themselves in social media – they have accounts in Instragram, Twitter and Facebook – and they do a lot grass root and querilla marketing.
“We have to be mean with every penny so we have found our own ways of advertising.”
They have 17 people promoting their wines mostly without formal contracts. They are friends and friends of friends who appreciate wine.
The owners’ personas are key element in advertising. They appear in the promotional photos and videos, and they also attend parties and events in distinctive outfits. The two guys of the company, Chip Forsythe and Doug Burkett, have huge mustache – which are also pictured in their bottles.
“We want to draw natural attention. Our wines are expressions of myself and my business partners.”

As a joke, they started to put their cell phone numbers on the corks of their wines so that people could call and give feedback. This became a permanent practice.
Seiberlich says that wine distributors are “notorious of being slimy and greedy”, but they managed to make a deal with one “who has extremely good reputation” and only quality wines in his portfolio. “He appreciated three kids who started their own company.”

The Rebel Coast Winery has managed to sell their wines, but not quite to those who they thought.
Instead of millennials, women aged 25 to 45 are eager to buy Rebel Coast’s wines.
“There are lot’s of moms. Kind of soccer moms,” says Seiberlich.
These moms have money in their pocket to buy medium price wines. Seiberlich is happy.
“We sell to people who are young at heart. We offer them wild and even inappropriate experience in a form of quality wine. We say that ‘let’s not take it so seriously’.”

Sources: The Wine Institute, statista.com, Alcohol and Tobacco Tax and Trade Bureau, Wine America, GFA Wine

The Jumpstart Stalls: How the JOBS Act is Missing on Crowdfunded Equity

November 3, 2015 by Dale Legaspi Leave a Comment

Signed into law on April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act aimed to energize startup businesses by leveling the investment playing field. By eliminating a number of the barriers that had previously prevented startups from formally seeking capital be selling equity, the investment game would, theoretically, become a more level playing field—no longer a realm solely inhabited by wealthy venture capitalists.

One problem, though.

The Securities Exchange Commission (SEC) has gotten through six of the seven titles in the JOBS Act, essentially removing all the barriers that had previously prevented startups from selling equity as a means of funding. However, the agency has been unsuccessful in giving individuals the most logical method of investing—funding portals. Consequently, the rest of the act remains in a holding pattern, waiting for potential investors to have a way to access these companies that are now able to seek funding in exchange for equity at any time.

Crowdfunding and Venture Capital

Spawned by the same so-called “collaborative economy” that produced a host of well-known peer-to-peer (P2P) businesses such as Uber and Airbnb, crowdfunding platforms are online portals that (as their name implies) enable startup companies or sole proprietors to seek funding from the masses. Aspiring entrepreneurs to set up pages to market their idea to the public in hopes that enough people want to contribute any amount of funding to help get it off the ground. The big-picture idea behind them is to democratize entrepreneurship by giving all startup businesses the same chance at raising funds, but strictly by donation. Those who contribute to the business venture get nothing in return.

Contrast that model with venture capital, in which these same aspiring entrepreneurs go straight to big money organizations that decide whether or not they will invest large sums in exchange for some measure of control over the company. VCs will own a significant percentage of the new company in exchange for funding, often times taking prominent seats on boards as another method of exercising ongoing control over day-to-day business operations. Of course, when one of their companies hits and goes public or is sold, VCs turn their shares into large sums of cash.

Background on the JOBS Act

Signed into law on April 5, 2012 (SEC), the Jumpstart Our Business Startups (JOBS) Act aims to promote economic growth by easing certain securities regulations and encouraging more funding of small businesses. As is usually the case with any sort of legislation, it led to legal wrangling and a stepped implementation that is still not complete today—more than three years after the act was initially signed. Titles I, V and VI essentially opened up new capital opportunities for job creators and were passed right away.

Titles II, III and IV—all of which involve crowdfunding in some way—have proven to be more problematic.

Title II, which was the first to allow early-stage companies to solicit investments without being listed publicly, went into effect September 23, 2013. Essentially, the SEC removed the gag order that previously prevented startup businesses from leveraging the capabilities of the digital age to broadcast to the masses that they’re looking for funding and could sell equity to get it. No longer do they need to be public companies.

Commonly known as Regulation A+, Title IV expanded Regulation A of the Securities Act of 1933 into two tiers: one for offerings up to $20 million over a 12-month period and one for offerings up to $50 million over a 12-month period. The SEC released its rules for Regulation A+ in March of this year, and the modified Regulation A became effective June 19, 2015. Essentially, a company’s funding goal no longer has to be so outrageous that it prices crowdfunding out of the question and requires VC money to participate.

Title III would enable crowdfunding platforms such as Kickstarter and Indiegogo (which the SEC refers to as funding portals) to become startups and equity crowdfunding, but it remains in a legislative quagmire (SEC Q&A).

Potential Impact on Startup Funding

While the JOBS Act has not yet seen all of the equity crowdfunding provisions come to fruition, two of the three major titles related to it are in practice today. Startup businesses are allowed to announce they are seeking funding and can raise up to $50 million in a calendar year from any investors—accredited or not.

From the investor’s standpoint, anyone now has the opportunity to purchase equity in any private company that makes it known they’re seeking funding. While they’d be doing so on a much smaller scale than that of traditional VCs, these individuals no longer face the requirement of making more than $200,000 of income of having $1 million in assets. In short, the entire process has (theoretically) been opened up to the 99 percent (Forbes).

Title/Party of Three

Many of the arguments the SEC was forced to navigate in approving Titles II and IV had to do with protecting investors, since they were altering or removing policies that had long been viewed as safeguards against bad investments. Legislators were skittish about removing the separation between small companies seeking funding and individuals who may or may not have known enough to make informed decisions about investing.

Perhaps paradoxically, Title III involves the funding portals that, in addition to being the enabling platforms behind these investment transactions, could also provide that sort of third-party guidance. Of course, they could also become de facto gatekeepers, deciding who “gets to” invest in certain companies. As the debate continues, the two most prominent potential funding portals watch from the sidelines, waiting to see what shakes out but with very different levels of interest.

Per an August article from gaming publication Polygon, Kickstarter expressed no plans to enter the equity crowdfunding fray. Indiegogo, however, has expressed interest since the SEC released its Regulation A+ rules early this year. While the two are direct competitors in “traditional” crowdfunding, Indiegogo positions itself as being broader in scope. Therefore, it is willing to be more aggressive in its methods for enabling entrepreneurship any way and anywhere.

“Indiegogo will have done its job when Silicon Valley is no longer perceived as the epicenter of entrepreneurship,” co-founder Danae Ringelmann said. “It’s not, and our job is simply to catalyze the entrepreneurial spirit that exists everywhere.”

The company is also more aspirational when it comes to this idea of democratizing funding. Ringelmann’s co-founder Slava Rubin didn’t shy away from the idea of leading the crowdfunding equity charge when reacting to the SEC’s Regulation A+ announcement last March (Fast Company).

“The balanced regulations announced yesterday will not only protect investors but allow anyone to invest in the ideas they believe in,” Rubin said. “Our mission at Indiegogo is to democratize finance, and we are continuing to explore how equity crowdfunding may play a role in our business model.” (Crowdfund Insider)

Unfortunately, until Title III finds its way into practice, Indiegogo’s vision for completely open, equity crowdfunding will remain solely aspirational.

Wider Economic Implications

With the country only a few years removed from its worst financial crisis since the Great Depression and employment numbers still lagging, the JOBS Act passed through Congress with nearly full bipartisan support. Small businesses (defined as having fewer than 500 employees) accounted for half of all US employment in 2012 and were clearly seen as the key to continued economic recovery.

Locking half of the economy out of being able to draw on peers for funding doesn’t seem to make much sense when the goal is growth. Furthermore, when more than 70 percent of the country’s GDP is based on consumption, while investment accounts for a little over 10 percent, opening up more opportunities for people to invest their money seems like a no-brainer.

Additionally, with the Fed keeping interests at their current levels, spending and investing is exactly the type of activity the government is encouraging. Federal regulators want investment in small business because it’s leading the economic recovery.

Yet, the current implementation of the JOBS Act still doesn’t include the one piece that is likely to organize this more open investment environment into a viable alternative to the current, VC-driven establishment. But if it does come into practice, there appears to be a challenger on the horizon, brandishing a bright magenta logo and millions of potential investors.

The 99 percent is ready to change the game as soon as the SEC can get out of the way and let them. Same old, same old in the startup game…today.

Money, Ethics, and College Athletics

November 2, 2015 by Tera Novy Leave a Comment

College sports are an important component of most universities. Football and, to an extent, men’s basketball are the two sports that are responsible for generating about 90% of the revenues for an entire athletic program. Universities receive millions of dollars in revenue from television broadcast deals and merchandise sales from these two sports. Without those powerhouse athletics, other less popular teams like soccer, tennis, and volleyball would have no chance in succeeding financially. However, the extraordinary amount of money universities and the National College Athletic Association receive from these television and marketing deals have current and former athletes concerned about the use of their names, images, and likenesses. These athletes want to be compensated for their success.

One man who stepped up and voiced an opinion is former UCLA basketball star and NBA player, Ed O’Bannon. In July of 2009, O’Bannon filed a lawsuit against the National College Athletic Association, arguing the organization violates antitrust laws by using former and current players’ images, names, and likenesses for commercial purposes. What sparked O’Bannon’s file suit was seeing his image in an Electronic Arts video game that he was not compensated for. The O’Bannon v. NCAA case insists players should be compensated a fraction of the millions of dollars college athletics generates from its huge television contracts. After six years the case has caused much controversy for the NCAA and universities. But just recently, some court decisions have impacted the case.

According to the NCAA website, it is a membership-driven organization dedicated to safeguarding the well-being of student-athletes and equipping them with the skills to succeed on the playing field, in the classroom and throughout life. With this in mind, the NCAA has created multiple rules to keep college athletics as amateur sports and control the eligibility standards for athletes. The division of a school determines the rules that follow the overarching principles of the NCAA. In this case, as an amateur sport, athletes are not allowed to be compensated for the use of their name, image, and likeness while attending the university. Punishments for infractions can be anywhere from losing playing time to being kicked off the team. For instance, during the 2014 football season, University of Georgia player Todd Gurley was suspended from the team for four games because he made money off his own autograph.

The NCAA believes college athletes should not receive compensation beyond their scholarship because it would ruin the amateurism status of athletes and goes against “eligibility” rules. The Ed O’Bannon case is fighting against this notion. One major concern among those who want to keep the current system in place is whether or not universities could generate enough money to pay athletes while also supporting them and contribute to other less popular sports. To run an entire athletic program for a competitive Division one school is over a 100 million dollars annually. Though universities may receive millions from conferences and television contracts, it does not all go to football, but to salaries, game expenses and facilities.

Recently some major decisions have been ruled in the O’Bannon v NCAA case. In June of 2014, a federal judge ruled that the NCAA cannot stop players from selling the rights to their names, images, and likenesses. This conclusion hit hard on the NCAA regulations, which prohibit student-athletes from receiving anything more than a scholarship. The court mandated that money generated from television contracts be put into a trust fund that college football and basketball athletes would receive after eligibility. The cap for the money would be up to $5,000 a year, and the most a player could make is $20,000 after four years. The NCAA of course disagreed with the ruling and fought against it.

On September 30^th, 2015, The Ninth Circuit of Appeals confirmed the district court’s decision that the NCAA amateur rules violated antitrust laws. This of course was a big gain for O’Bannon but was not a complete victory. The court went against the injunction that would have forced universities to pay athletes up to $5,000 dollars a year. However, schools now must cover full cost of attendance, which is food, rent, books, etc., on top of scholarship. Which means universities must add anywhere from a $5,000-$20,000 addition to scholarship which will cover student-athletes attendance. An article from Sports Illustrated claimed that Judge Jay Bybee, one of three judges out of the panel, expressed concerns that cash sums beyond educational expenses would transform NCAA sports into “Minor League” status. However, many still believe the cost of attendance is not enough for college athletes whose universities negotiate million-dollar TV contracts.

The situation does not end there. Even though O’Bannon did not win the trust fund debate, the lawsuit is far from over and he is not the only one striking down on the NCAA. Shawne Alston, Martin Jenkins, and two dozen other former and current college and professional basketball and football players argue that the cap of athletic scholarships and cost of attendance are not enough and violate antitrust laws. They are fighting for a different compensation to go towards student-athletes. If the cap was demolished, universities may be forced to pay student-athletes market hyphen price scholarships, which could extend up to seven figures. This litigation will be heard in the U.S. District Court for the Northern District of California soon. That being said, let’s look at the possible financial decisions college athletics and universities would be forced to consider if athletes were required to receive money.

To help understand the current situation better, I sat down with USC Sports Information Director Jeremy Wu to discuss the conditions that have athletic departments in dismay.

According to Jeremy, the new ruling that declares that universities must pay full cost of attendance, food, rent, books, and more, is the first strain on schools financially. Some schools already provide this for football, such as USC, because they can afford it, but now are required for all sports. Other major and smaller universities are in the process of making this transition.

The money for funding full attendance does come from the ‘millions of dollars’ schools receive from television contracts. But what a lot of people have a hard time understanding is the money received from these contracts are not just supporting football, but an entire athletic program. “A lot of schools even with TV contracts don’t make more money than they lose,” Wu said, adding, “Even though contracts are huge, such as millions of dollars, funding a full athletic department is a lot and it is covering more than just football, but all the sports.” Wu also mentioned the money generated from TV contracts pays coaching staffs for all teams and buys necessities for the sports.

To help understand Wu’s argument better, here are some athletic financial examples. According to U.S.A Today, the University of Texas athletic program’s total expenses are $154,128,877. The Longhorns have the highest athletic expenses in public universities. It also receives $161,035,187 in total revenue which means the program generates over 6 million in revenue. Then there are universities like Coppin State whose athletic program’s total expenses are $3,953,265 but only receive $3,304,284 in total revenue. The university also receives $2,467,870 in subsidies, which illustrates that smaller programs lose money in athletics.

An article called Cracking The Cartel, discusses where the money for football is going. $156,647 is the median amount a division one school spends on a scholarship football player each year as of 2013. It is this high because of food, travel expenses, gear, education, exc. It also states that in 40 States, football and basketball head coaches are the highest-paid public employees. Alabama having the highest paid coach at 7 million.

If college athletes were to receive payments from universities, here are some of the worst case scenarios.

In order for the majority of universities to provide payment for athletes they would have to make some changes. The process would start with cutting smaller sports from athletic programs, such as golf or tennis. This leads to job losses not only for the people who coach the sport, but maybe a couple of strength coaches, a nutritionist, and perhaps academic advisers.

Colleges could decide not to try and cut athletic programs all together. The programs which are most likely able to perform this financial strain are the so-called Power Five conferences (the ACC, Big Ten, Big 12, Pac-12, and SEC), but even some say it may be too much and schools slowly would drop down to Division II. Jeremy discussed how small schools like South Dakota State, that don’t generate enough money off their athletic programs, would have no choice but give up its sports teams.

Even Title IX plays a heavy role and universities must still obey the rules that are enforced by it. If one women’s sports team is cut, then three men’s teams are cut as well. Title IX provides a unique experience for young female athletes to receive an education and achieve an athletic career. Financial struggles to pay athletes would not only take this opportunity away from women, but men as well.

As a student-athlete myself, this situation has me concerned. Though it is apparent that the NCAA needs to make some rule changes, paying college athletes certainly would revolutionize intercollegiate athletics. If universities were to act on the most dramatic possibilities from this event, college athletics as we know it, would cease to exist.

MMM

Money Marks & Media - Spring 2014