As with essentially every industry, the ways in which we consume sports are consistently refined by technological innovation. Radio, as well as broadcast, satellite and high-definition TV have raised the profiles of baseball, football (both kinds) and basketball. The Internet, too, modified the ways we watch sports, with the ability to analyze information no longer through merely a television screen or that morning’s newspaper. With the web fully entrenched in basic society, new streaming services offer consumers real-time information essentially whenever and wherever they want it, decreasing the need to be in front of the television for a particular program — except for sports, live content’s last bastion. These changing dynamics in streaming, doubtlessly, will further upend the model of sports consumption and threaten the viability of broadcast networks in favor of newer technology companies.  

The standard over the past few decades has been for sports leagues to sign “media rights deals” with content providers, who pay to broadcast their games and content throughout the nation and the world, primarily on television [source]. Technological advancements and the practice of economic globalization have enlarged the population of sports consumers; the “rapid rise in sports costs is consistent with supply/demand theory,” creating a “constant imbalance in favor of the … nearly permanent supply shortage of top talent [while] … there are more potential bidders for their services” and content featuring the minuscule number of superstars [source]. So, the value of the sports leagues’ content has leapt and will continue to leap, because the “number of competitors is relatively large … generating continuous high demand” [source]. To date, the majority of these sports media rights deals have been with television companies, which broadcast the sporting events and highlights into homes. As Mark Leibovich, author of the book “Big Game: The NFL in Dangerous Times,” notes: “60 percent of [NFL] revenues [come] from TV over most of their history, and the ratings are going down” [source]. The leagues are paid handsomely for their content, now at the level of billions of dollars per year. To illustrate, the NBA signed its most recent national TV deal in 2014, a $24 billion, nine-year contract with Disney (through its media networks ESPN/ABC) and Turner Sports, which took effect in 2016 at a rate of $2.667 billion per year [source]. To make revenues and account for the rising costs of producing live events such as sporting events, the operators charge a fee to consumers for the channels that show it.

The research firm SNL Kagan has estimated that in 2017, “$18.37 out of the typical cable subscribers’ [$103] monthly bill was allocated just to sports networks like ESPN and Fox Sports” [source]. Sports – live content – is king. Where pay-TV providers charge more for regional sports networks, it is even higher, as much as “$20 to $25” per month. This is a raise of over five hundred percent since the start of the millenium [source].

However, simultaneous with rising fees over that time period to help pay for the increasing sports rights came the new streaming services and technological advancements that have allowed people to access content, such as movies on Netflix or sports, in a mobile manner. Young people especially are not watching cable anymore; according to Pew, 61% of adults ages 18-29 use streaming services as their primary way to watch content traditionally only available on a television [source]. Choice is king for the people who are going to be consuming content for the next generation. These “a la carte” services, claims NBA Commissioner Adam Silver, are the future of how the majority of people will watch sports [source]. This season the league has started selling not just slices of the 82-game season on a game-by-game basis but also parts of games as well, in order to provide more “customized experiences to meet the needs of NBA fans” [source]. A la carte offerings are perfectly suited for the mobile-first methods of the digital natives, who will come to dominate the consumer base of the media industry.

As a result, they are the main “target in the push to increase TV-anywhere options. Unlike older viewers, they were brought up in the internet age. For them, spending a significant monthly fee on cable TV isn’t a necessity,” especially when they are paying for dozens of channels they never watch [source]. Paying as much as $25 monthly just for sports deters many from shelling out their hard-earned money, because they could pay that much to watch just the shows they want [source]. Why pay $100 for a buffet if out of three dozen items, you are only going to eat two, which cost a fraction of the buffet?  

As an executive at a top streaming service company said, the industry is changing rapidly [personal conversation]. Streaming and a la carte choice options are revolutionizing how we watch content and as a result the traditional cable and network companies need to adapt.

Because the “typical cable TV regional sports network (RSN) recoups less than 30% of its total revenue from advertising” they are desperate to retain as many subscribers as possible, who account for “the vast majority of revenue” [source]. National TV providers take in a similar level of revenue from subscriber fees, according to the FCC as well as an ESPN executive [personal conversation].

As sports rights rise, the companies charge more in fees to help break even; at $7.21 per subscriber, ESPN is now the most expensive single cable network available in one’s cable/satellite bill [source]. While the total subscribers is indeed falling, demand is not: because it is the one place live content still rules, where advertisers can be sure that people will tune in during the event, ESPN can afford to charge that much (to people who want to pay for it). For the people who want to buy the cable buffet because that is the only way they can watch their local teams or get blacked out, it is presently worth it [source]. As Rich Greenfield of BTIG wrote, “Sports is … the only content that is holding its audience viewership-wise and in turn supporting the $70 billion TV ad industry” [source]. However, the number of homes paying for ESPN declined over ten percent in the last five years, from 100 million in 2012 to just 87 million last year.

As 23 percent of U.S. households have either cancelled cable or never signed up in the first place, according to a 2016 PwC survey, the trend ESPN is facing should only continue [source]. Now more than ever, cable networks must extend or renew their TV rights to attractive sports programming. As PwC’s sports industry outlook notes, sports are essentially “the only thing keeping the lights on at the networks” [source], especially at ESPN, whose business model is solely based on 24-hours-per-day sports content. They literally cannot function without the content that has made them a behemoth in the industry.  

So, cable networks are jumping headfirst into the over-the-top and streaming game, threatened by new media’s rise and the decline of their own subscriber base. To survive and continue to have success in this changing media landscape, they cannot be satisfied with their current subscribers. Like Ariel in The Little Mermaid, the networks need to be “part of that world … where the people are” [source] — which in this case is streaming and “pay-anywhere TV.” Disney is spending millions of dollars on “ESPN+”, CBS on “CBS All-Access”, Turner on “B/R Live” – their attempts at creating streaming services. It remains to be seen whether the promulgation of streaming services (along with another Disney service to be launched next year, HBO, Amazon, Hulu, Netflix…) will cause a glut of menu items for consumers, which may be where we are heading in the near future as companies look to hoard their own intellectual property and control sports rights [source]. However, in sports, the possibility of a large media or technology conglomerate claiming access to a near-entirety of a league’s offerings could lower consumer angst. NBA Commissioner Emeritus David Stern wonders about the “unique possibility to have one buyer on a global basis. It could be Apple, Amazon, Hulu, Facebook, Google, AT&T—could be almost anything” [source]. The current battle over regional sports networks will perhaps be a test case.

In 2002, the New York Yankees developed the Yankee Entertainment and Sports (YES) regional sports network to strengthen the value of its content for local consumers and develop new revenue streams. Major networks such as ABC or FOX had only broadcast select numbers of games per season to people around the country; regional networks proffered the opportunity for viewers to watch nearly all their home team’s games. The Bronx Bombers’ enterprise introduced the RSN epoch: many teams in MLB and the NBA now have launched their own networks to take advantage of local revenues; in the MLB, these contracts are worth anywhere from $1.5 billion (Arizona Diamondbacks) to $3 billion (Los Angeles Angels) over twenty years [source]. Markets like Los Angeles or New York have greater demand and numbers of viewers for the same content as Arizona, therefore those media rights deals rake in as much as double the revenues (and is a key reason why the Angels changed their city name from “Anaheim” to “Los Angeles”) [source]. These dramatically different local media rights deals also affect competitive balance and league health: The Los Angeles Lakers’ local media deal dwarfs any other NBA franchise’s by about $25 million; they were the most profitable team in the league despite missing the playoffs for five consecutive years [source]. Moreover, in MLB, owning significant portions of these extra revenue streams has helped teams like the Red Sox and Yankees dominate free agency and acquire the “star talent”, like Alex Rodriguez, who drive content values high [source].

Over the last two decades, Fox acquired in exchange for a “yearly licensing check” majority stakes in 22 RSNs, the value of which has now ballooned to $44 billion due to all the exclusive premium sports content, according to Guggenheim Securities [source] [source]. And so it goes that Disney’s recent acquisition of 21st Century Fox will reshape not just the movie industry (decreasing the number of major studios from six to five) but also sports content [source]. Fox’s regional channels serve around 61 million subscribers around the country, a godsend to cable operators and a would-be boon to technology companies looking to seize market share and eyeballs from one another. The 22 RSNs that Fox owned will have to be divested as a result of the deal, to prevent “cable television subscription prices from rising even higher … and ensure that sports programming competition is preserved in the local markets,” according to Makan Delrahim, assistant attorney general and head of the Justice Department’s Antitrust Division. “American consumers have benefitted from head-to-head competition between Disney and Fox’s cable sports programming” [source].

The competition will only get fiercer, as more players enter to gain direct consumer attention, arguably the most valuable market good there is. The forthcoming battle for sports media rights will truly be the “ultimate test of the supply/demand equation, an underlying principle of the free enterprise system and free market economy” [source]. Fox’s 22 MLB regional sports networks is now up for grabs, and who is bidding for them will be a harbinger of the coming battle for sports content come the next decade once deals expire for the major leagues — and for viewers in the future of the 21st century. Consistent with supply and demand economics, the values of sports rights will rise, with the same amount of content, the escalating emphasis of live programming for advertisements, and more possible buyers. This could drive vicissitudes of fortune for traditional broadcasters. A Defcon 1 scenario would be if a traditional broadcaster loses out entirely on a sports rights deal. Amazon, Twitter, Alphabet’s YouTube, and Facebook have each already made forays into paying for live sports, streaming NFL Thursday Night Football, NBA games, and MLB games, respectively, via their over-the-top services. The Financial Times notes that these moves are “part of a wider shift toward so-called “skinny bundles”, whereby consumers are offered a smaller range of channels for a fraction of the price of a full cable package” [source]. Amazon has already put in a bid for the RSNs, if not merely to drive up the cost for another winner, then to implement them into Amazon Prime services similar to their actions with Thursday Night Football on the chance they end up claiming the networks. “It [would increase] digital advertising opportunities for Amazon, which is growing its market share against Facebook and Google. Perhaps most importantly, it brings even more people into the Amazon tent, exposing them to all of the products and services Amazon offers,” according to CNBC [source]. On another front, no less than Fox chief Rupert Murdoch has said that “Facebook is coming for sports;” Dan Reed, a Facebook executive, says that “sports is a natural fit” [source]. Having dipped toes into the water, the large technology companies are going to dive wholeheartedly into the sports media business in the near future. Even if tech companies do not win this RSN test run, they will no doubt be major players in the bidding for the future sports rights, 16 major auctions of which are coming worldwide over the next half-decade, according to GroupM [source]. Claiming some if not all of those rights and shoring up their relatively nascent streaming services will reshape media offerings.

The tech giants’ enormous capital reserves [source] that could drive up the bidding to an exorbitant level ($4 billion for the NFL? $2 billion per NBA season?) probably won’t destroy the financials of some traditional broadcasters by the early 2020s, but that combined with growing rate of subscriber drop-off (could only 50 million homes be cable subscribers in five years?) will hamper networks’ abilities to spend as much on rights the next time around. It is quite a possibility that there could be an internecine battle between broadcasters, resulting in a pyrrhic victory for the winner. Already, rights have gotten so expensive that ESPN could not win the bidding for the Champions League and accentuate its investment in MLB rights [source]. Come the second wave of these types of deals in the late 2020s, the costs could deter some broadcasters from seriously bidding for them. Perversely, over the long term, rights deal valuations may fall as broadcasters drop out, although other technology companies could enter the fray and stabilize or even drive up pricing. As David Stern literally said today, “you have to look to the future or you die” [source]. Because broadcasters are slowly coming around to reality out of dire necessity, they may survive in the short term. In another decade, in 2030, though, we may all be watching sports through the services of our Amazon or Alphabet overlords, ironically with more customizable options.

 

Sources:

http://home.bt.com/tech-gadgets/internet/streaming-explained-what-is-it-and-how-does-it-work-11363860639261

https://business.comcast.com/about-us/our-history

https://www.crunchbase.com/organization/yes-network#section-overview

https://digiday.com/media/what-is-over-the-top-ott/

https://money.cnn.com/2017/07/19/investing/apple-google-microsoft-cash/index.html 

https://www.digitaltrends.com/movies/too-many-streaming-services-netflix-amazon-disney-att/

https://www.cnbc.com/2018/11/20/amazon-threat-to-buy-sports-rights-should-freak-out-media-companies.html  

https://adage.com/article/media/pwc-report-sports-m/311578/

https://mashable.com/2015/07/23/nba-league-pass-new-deal/#pRXrKXEIJgqz

https://www.washingtonpost.com/business/2018/12/06/david-stern-built-modern-nba-now-he-wants-change-how-we-consume-sports/?utm_term=.0ffeb77a5167

https://www.forbes.com/sites/bobbymcmahon/2017/08/18/turner-sports-uefa-champions-league-strategy-a-nod-to-the-long-tail/#5738b00d4594

https://variety.com/2018/digital/features/olympics-rights-streaming-nbc-winter-games-1202680323/

https://www.businessinsider.com/sports-media-rights-revenue-poised-to-grow-2017-12

https://www.forbes.com/sites/barrymbloom/2018/08/28/yankees-intend-to-buy-back-yes-network-after-fox-sale-to-disney/#5b70b9db161d

https://www.21cf.com/news/21st-century-fox/2014/21st-century-fox-acquire-majority-stake-yes-network/

https://www.ocregister.com/2015/01/07/los-angeles-angels-of-anaheim-10-years-later-how-big-of-a-deal-was-the-name-change/

https://www.theatlantic.com/business/archive/2017/05/espn-layoffs-future/524922/

https://www.youtube.com/watch?v=SXKlJuO07eM

https://variety.com/2018/biz/news/disney-21st-century-fox-justice-department-approval-1202859241/

https://www.forbes.com/sites/maurybrown/2017/05/08/why-espn-hemorrhaging-subscribers-will-impact-the-next-wave-of-national-tv-deals/#54aad835bf4f

https://finance.yahoo.com/news/youtube-amazon-fighting-sports-streaming-supremacy-114738861.html

https://www.theguardian.com/media/2018/may/14/streaming-service-dazn-netflix-sport-us-boxing-eddie-hearn

https://www.latimes.com/business/hollywood/la-fi-ct-disney-fox-sports-nets-espn-20171206-story.html

https://www.si.com/tech-media/2018/07/12/fox-regional-sports-networks-potential-buyers-comcast-disney

https://www.theatlantic.com/entertainment/archive/2011/09/the-many-problems-with-moneyball/245769/

http://time.com/money/4590614/cable-bill-sports-cord-cutting-streaming/

http://www.snl.com/Sectors/Media/

https://www.recode.net/2018/9/10/17838688/mark-leibovich-big-game-nfl-dangerous-times-book-drug-lord-crack-kara-swisher-recode-decode-podcast

https://www.amazon.com/dp/B078LTFG52/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1

http://www.pewresearch.org/fact-tank/2017/09/13/about-6-in-10-young-adults-in-u-s-primarily-use-online-streaming-to-watch-tv/

https://www.businessinsider.com/espn-losing-subscribers-not-ratings-viewers-2017-9

http://time.com/money/4590614/cable-bill-sports-cord-cutting-streaming/

https://www.chicagotribune.com/sports/columnists/ct-sports-tv-future-spt-0828-20160826-column.html

https://www.washingtonpost.com/sports/2018/09/27/nba-fans-will-be-able-purchase-ends-games-streaming-services/?utm_term=.22f10653c3fc

http://www.pewresearch.org/fact-tank/2017/09/13/about-6-in-10-young-adults-in-u-s-primarily-use-online-streaming-to-watch-tv/  

http://www.nba.com/2014/news/10/06/nba-media-deal-disney-turner-sports/

https://beonair.com/history-of-sports-broadcasting/

https://transition.fcc.gov/enbanc/121897/anshand.pdf

https://www.ft.com/content/2234f4da-3ef8-11e7-82b6-896b95f30f58

https://www.latimes.com/business/hollywood/la-fi-ct-disney-fox-sports-nets-espn-20171206-story.html

http://www.pewinternet.org/2015/12/21/4-one-in-seven-americans-are-television-cord-cutters/

http://www.espn.com/mlb/news/story?id=1735937

http://www.espn.com/nba/story/_/id/20747413/a-confidential-report-shows-nearly-half-nba-lost-money-last-season-now-what

Personal interview/lecture, ESPN executive, Spring 2017

Personal interview/lecture, Professor Jeff Fellenzer, USC, February 2017

Personal interview, Professor Jeff Fellenzer, USC, November 2018

Personal interview/conversation, Perform Group executive, summer 2018  

 

In popular culture, the line “Follow the money” is associated with Watergate, when Bob Woodward and Carl Bernstein tracked the cover-up of the break-in at the DNC headquarters all the way to President Richard Nixon. A similar version comes in the recent Broadway musical Hamilton, when Thomas Jefferson is pursuing salacious charges that will eventually ruin Alexander Hamilton: “Follow the money and see where it goes.” It is an apposite statement with regard to the 1Malaysia Development Berhad (fund). Today, firms across the world are asking where their money went in the case of the money-laundering Malaysian sovereign wealth fund. Following some initial investigations and findings, Goldman Sachs is in the crosshairs.

The investment firm, long one of the world’s most integral, has come under a barrage of criticism and rhetorical gunfire from Anwar Ibrahim, the likely future Prime Minister of Malaysia. After key Goldman partners were caught bribing and misleading significant Malaysian politicians as part of their dealings and bond underwritings with the country’s sovereign wealth fund 1Malaysia Development Berhad (1MDB), the firm has essentially been labeled “persona non grata” by Malaysia’s new ruling coalition. Goldman could lose out on numerous future contracts and the damage to its reputation will likely last for some time.

Anwar argues Goldman should return “significantly more” than the $600 million the bank was paid for arranging three bond sales in 2012-13 because “it’s a cost to the image of the country, it’s a cost to investments and now it’s a burden shouldered by the government because of the complicity of so many of these so-called credible, renowned financial institutions … For them to use a country like Malaysia — which is struggling to reform itself economically, moving up the ladder — really, to me, it’s disgusting.” [source]

The prime minister has said “aggressive negotiations” with Goldman are necessary, which may result in litigation or having the bank engage in information sharing to support the country’s ongoing probe of the fund.

Not only is Goldman under pressure in the country tainted by the scandal of its own prime minister furthered by financiers like the bank’s senior Asia partners, it is also under serious investigation at home in New York. The US Department of Justice is investigating as well. Goldman share prices have dropped, according to (rival) investment bank Morgan Stanley, by fourteen percent since it was reported that the bank was involved in the sleaziness.

Morgan Stanley analysts write that “It is unclear how long the issue will take to resolve, what the fines and penalties could be, and what costs Goldman Sachs will subsequently incur to satisfy any demands from regulators” [source].

Currently, much of the infrastructure projects developed in conjunction with other nations by 1MDB is under review, and some have even been cancelled — including multiple China-backed pipeline projects. As part of the new government’s relatively icier China stance, the current prime minister, Mahathir Mohamad, “suspended $23 billion in schemes linked to Beijing and criticised “lopsided” contracts as well as potential links to the scandal-ridden fund” [source] [source].  

It is quite possible Goldman could be charged with a violation of the Foreign Corrupt Practices act, and could face a fine of $1.2 billion, double the amount it made on bond underwriting for 1MDB. With the additional lawsuit against Goldman by Abu Dhabi’s own sovereign investment fund that is also wrapped up by the tentacles of the scandal, the bank could end up paying damages that “exceed Goldman’s average annual net profit over three years of $5.4 billion” [source]. While it remains to be seen how much Goldman will end up paying, it is clear the hit to its reputation and the three charges against former partners are just the beginning — the longer this scandal entangles Goldman, the worse it will get.

1Malaysia Development Berhad (also known as 1MDB) is a multibillion sovereign wealth fund set up by the ex-Malaysian prime minister Najib Razak following his 2009 election victory, under the guise that it would finance projects like power plants to help the Malaysian people but in truth was one of the biggest frauds in history. Razak, the fund’s mastermind and so-called “Zelig of the good life” Jho Low, Malaysian politicians and global bankers were beneficiaries of this embezzlement. By diverting 1MDB funds to use for personal gain, they illegally acquired “billions of dollars worth of assets, including real estate, art, a luxury yacht and proceeds from the film The Wolf of Wall Street” (Bloomberg). The irony that a film about Jordan Belfort – a stockbroker who made untold riches and then was imprisoned for fraud – was financed with laundered money would be rich enough. This detail represents only a minuscule part of a scandal which has brought down a prime minister and now involves multinationals across nearly a dozen countries.

Court filings claim that, over the past decade, Razak’s personal bank accounts were filled with approximately $700 million of the fund’s assets. Upon learning of the prime minister’s central role in the fraud, Malaysians enacted deserved retribution by voting Razak out of office in January. Six months ago, the ruling Barisian Nasional coalition, which had been led by Razak’s party, lost command for the first time since Malaysia became an independent nation in 1957. The coalition officially disbanded in August. Malaysia’s central bank governor also resigned. As the scandal’s fallout has unexpectedly brought opposition leader Mahathir Mohamad, the nonagenarian former prime minister, to power, Malaysia teeters on the brink of legitimacy; it remains to be seen what measures will be taken to ensure the protection of its finances.

The penalties for Goldman Sachs, which earned an unusually high share of $600 million in commissions for underwriting three 1MDB bond offerings worth $6.5 billion, could be significant (FT). The firm, now under Justice Department investigation, has told investors this month that its “potential losses related to legal proceedings involving 1MDB could run as high as $1.8 billion” above initial estimates (FT). These allegations could damage Goldman’s reputation even more so than in the postscript to the 2008 financial crisis. Why? In this case, it is the senior members of the firm who have pleaded guilty to bribery, been indicted or placed on leave –– former partner Tim Leissner, former managing director Roger Ng, and co-head of Asian investment banking Andrea Vella, respectively (WSJ). Additionally, the bonds were approved by 30 executives, including immediate past head Lloyd Blankfein and newly appointed CEO David Solomon (FT). Overall, this scandal threatens to cast doubt on Solomon’s leadership abilities at the embryonic stages of his tenure as CEO and erase the goodwill Goldman has desperately sought to regain following massive fines paid out for its role in the crisis.

According to Britannica, “investigations launched by Swiss and U.S. authorities determined that an estimated $3.5 billion had been embezzled from 1MDB and laundered” around the world. Singapore, off of Malaysia’s coast, has barred multiple Swiss banks from operating within its borders due to their rule-breaking; Switzerland is delving deep into the books of J.P. Morgan Chase, Credit Suisse, UBS and other powerful financial institutions to determine possible crimes. The United States Department of Justice’s anti-kleptocracy unit seeks to recover billions in 1MDB assets – “the largest asset recovery operation in the organization’s history” (Bloomberg). While the scandal-plagued will face severe consequences, there is now cause for governments and international authorities to enact stringent laws – true global financial reform – vis-à-vis money laundering and corruption. It will be fascinating to see how Malaysian society and institutions throughout the world recover from this calamity.

Sources:

Billion Dollar Whale: The Man Who Fooled Wall Street, Hollywood, and the World, by Tom Wright and Bradley Hope, Hachette, RRP. 2018.

https://www.wsj.com/articles/goldman-disclosure-in-1mdb-probe-points-to-potential-control-culture-concerns-1541461239

https://www.channelnewsasia.com/news/commentary/malaysia-general-elections-ooi-kee-beng-rot-barisan-nasional-10221134

https://www.ft.com/content/76cd99b8-e0f8-11e8-a6e5-792428919cee?kbc=e09d5857-96d7-31aa-bdac-ae689cc95a53

https://www.bloomberg.com/graphics/2018-malaysia-1mdb/

https://www.bloomberg.com/news/articles/2018-05-24/how-malaysia-s-1mdb-scandal-shook-the-financial-world-quicktake

https://www.britannica.com/biography/Najib-Razak

https://www.wsj.com/articles/malaysias-1mdb-the-secret-money-behind-the-wolf-of-wall-street-1459531987

https://www.nytimes.com/2018/11/01/business/goldman-sachs-malaysia-investment-fund.html

Our global economy is connected through the energy industry. For centuries, nations and firms have fought over and sought the right to acquire “black gold” – oil [Yergin]. However, the production and use of these natural resources emits dangerous carbon into the atmosphere, endangering our planet. These carbon emissions result in a changing climate — through higher temperatures, more heat, and stronger natural disasters such as tropical storms and wildfires. In acknowledging the perilous effects of climate change, the world’s fifth-largest economy – the state of California – is embarking on a goal to transition out of a state of affairs governed by the dominant energy sources (oil, petroleum, natural gas) and towards complete utility of carbon-free clean electricity by 2045.

Signed into law in September by Governor Jerry Brown, the bill sets increasingly greater targets on California’s renewable energy capability, with 50 percent by 2026, 60 percent by 2030, and one hundred percent clean electricity by 2045. California represents the second state to set this goal [Ige, 1]. Many are skeptical of the ability of the state to fully transition to clean electricity by the time 2045 rolls around, or are perturbed by possible high costs of energy bills caused by the transition. These being legitimate causes for concern, there are myriad reasons Californians could accomplish this challenging aspiration. The development of battery storage will play a vital role and its economic viability will determine California’s success at this effort. As Fareed Zakaria writes, “We need to store the energy [produced] for when the sun isn’t shining and the wind isn’t blowing. For that we need battery power on a different scale than we have today.”

As has often been the case in its innovative history, California’s investment and pledge to transition entirely to clean electricity sets an important example for the rest of the world to follow and should help influence the private sector to act. Explains the energy expert Daniel Yergin: “High energy prices, climate change and energy security are converging as the new engine driving the development of clean energy … They are being bolstered by public policy…” [Yergin, 1].

The state has crafted policies that incentivize companies and utilities to spend on enhancing renewable energy strategies and investment in energy storage, which is seen as vital towards reaching the one hundred percent clean energy goal. Although currently natural gas power plants currently makes up a large quantity of California’s energy, the state’s leadership and many companies forecast that declining costs of energy storage will ensure that electricity is much more strongly stored. Following his signature on the one hundred percent clean energy bill, Gov. Jerry Brown recently signed another law that allows the state to allocate “an additional $800 million for energy storage to capture electricity generated by solar panels during daylight hours to help keep the lights on after the sun goes down” [Penn, 1]. This money goes into the state’s Self-Generation Incentive Program, which incentivizes providing support for “distributed energy resources” and “rebates for qualifying distributed energy systems installed on the customer’s side of the utility meter” [CPUC, 1]. Through this initiative, California is essentially creating a market for the utilities to research ways to develop new advanced energy storage systems. The state has increased the program’s funding to over $1 billion. The rebate money is available for energy storage and can be used for residential and commercial systems, including for schools, farms and businesses.

Vox’s energy and climate writer, David Roberts argues that it is imperative to get these new markets right, for they are “better at determining the proper amount and location of storage than” politicians. The state should help furnish “a market that values carbon, capacity, ramping, voltage regulation, and all the other services storage can provide, lower barriers to entry, set up transparent rules, and let profit-seeking companies battle it out” [Roberts, 1].

In many sectors, need drives innovation. California is hoping that its regulation of carbon-emitted energies drives private sector innovation vis-à-vis energy storage and new energy markets. This is especially the case for solar generation and capture, smart meters and smart grids that can store and send out energy when necessary.

“For utilities invested in the right analytics capabilities [in smart meters and the smart grid], they enable data-based analyses, planning, and diagnostics. Smart grids are more efficient and less capital intense, allowing for predictive maintenance and better asset health” [McKinsey, 3].

For example, with smarter grids and meters, the potential for energy arbitrage – storing/selling energy during higher-power times during the day and releasing/buying it during less-peak times – will grow. More powerful sensors, smart grids and energy storage provide new opportunities to develop tailored programs for consumers, which will help them control energy usage, heating, and cooling more sufficiently. This is what California is counting on. According to McKinsey & Co. research, there are a number of energy markets that – through improvements in battery storage – will grow significantly in economic value:

Source: McKinsey & Company research, June 2017

Ultimately, “the industry wants dynamic pricing and hourly rates so that solar-plus-storage owners can respond in real time to the real needs of the grid,” Brad Heavner, California Solar and Storage Association policy director, vouches. With new and more efficient batteries, solar energy can be stored by consumers and offers alternatives to carbon emitting energies.

Southern California Edison (SCE), Pacific Gas and Electric (PG&E) and San Diego Gas and Electric (SDG&E) are the three major California utilities. Despite possible rising energy bills due to these initiatives, an indicator of progress is that the economics of energy storage are becoming more cost-friendly every year. This should be a positive trend for the utilities, who could improve services by “incorporating new distributed energy alternatives”, and consumers alike [McKinsey, 2]. The International Energy Agency reported in 2017 that battery costs have declined significantly every year since 2009 and that, concurrently, battery energy storage is enlarging yearly.

Source: International Energy Agency report, 2017

Moreover, Bain & Company partners Julian Critchlow and Aaron Denman – head of and partner in the firm’s Global Utilities practice – come to the conclusion that “large-scale energy battery storage is reaching an inflection point, advancing from limited experimentation to wide adoption” [Critchlow and Denman, 1]. This inflection point is a necessary incubation for California to accomplish its goals. For utilities, grid-connected batteries and battery storage are integral for “managing peak loads, regulating voltage and frequency, ensuring reliability from renewable generation and creating a more flexible transmission and distribution system” [2]. With California-based energy storage systems working with commercial clients, utilities, and governments and using machine-learning and deep learning to “optimize power generation,” Bain determines that immediate benefits should be seen and additional value will be realized over time.

Winston Churchill once remarked regarding oil that “on no one process … or field must we be dependent” [British Parliament Speech, 1913]. Similarly, today we cannot depend on “one process” of gaining energy — society must aim to discover and utilize more efficient, environmentally-friendly energy tactics. Battery storage will be pivotal in this effort. As battery power and costs rise and fall, respectively, California’s ambitious endeavor to use completely clean electricity should be emulated, and if achieved represent a realistic, necessary path forward on energy policy for the world within a changing climate.

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http://faculty.haas.berkeley.edu/wolfram/papers/aea%20dynamic%20pricing.pdf

https://www.utilitydive.com/news/as-california-leads-way-with-tou-rates-some-call-for-simpler-solutions/532436/

https://www.nytimes.com/2011/09/25/books/review/the-quest-by-daniel-yergin-book-review.html

https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/battery-storage-the-next-disruptive-technology-in-the-power-sector

https://sites.hks.harvard.edu/fs/whogan/PES_paper_09_salles_final.pdf

https://www.sciencedirect.com/science/article/pii/S0301421506003545

https://www.vox.com/energy-and-environment/2018/4/27/17283830/batteries-energy-storage-carbon-emissions

Betting and gambling are inherently based on chance, luck, and uncertainty. Because uncertainty is difficult to measure, and we cannot predict the future with one hundred percent accuracy, gambling on an outcome is exciting because no one knows what will happen. So, many people enjoy the thrill. In fact, the betting industry is a multi-billion-dollar industry in the countries of the world where it is legalized. The American Gaming Association estimates that in the United States, whose Supreme Court just struck down an important law making it illegal for states to regulate and allow sports betting, $150 billion is spent on illegal gambling each year. The Professional and Amateur Sports Protection Act (PASPA) was a federal law that essentially restricted sports betting to Nevada for a quarter of a century. And with PAPSA struck down, the American market is poised to become the world’s largest legal gambling market.

Although for a long time betting and gambling was seen as a vice that should be completely outlawed, much like alcohol post-Prohibition it is coming mainstream. Attempts to deny access to it, as with alcohol, brought forth illegal and shady offshore operations. Now, states and Congress are viewing a healthy amount of sports betting as “a potential source of revenue more than a detriment to society,” according to industry experts. Additionally, the rise in daily fantasy sports – considered by many to be a form of betting – has captivated the country, with nearly one-fifth of the country now participating in fantasy sports.

[source: Fantasy Sports Trade Association]

The illegality of sports gambling in the United States (save in, famously, Nevada, as well as a couple of other states) led to the rise in offshore betting sites. They were not legal or sanctioned, yet many managed to evade regulators and lawmakers. They continue to have a head start on much of the industry in America. While that is currently an issue, because states are quickly moving to legalize and regulate the industry, and Congress is moving to pass legislation as well, the legal market should win out. NBA Commissioner Emeritus David Stern declares that “between five and 10 years” from now, we will see a massive, regulated, fully online betting market in the United States.

The future legalized market in the United States could reshape the way sports teams and leagues operates, as well as create more experiences for fans to actually participate in, according to team owners and gambling experts.  Leagues see the revenue from gambling bringing in billions of dollars, money that will modify the way teams market and provide services to fans; this additional revenue could cause salary caps and team payrolls to explode as well.  Already, the Pittsburgh Pirates’ executives have argued that states should allocate sports-gambling revenues to stadium building.

According to Chris Eaton, an integrity monitor and former INTERPOL investigator, “In 10 years’ time … I see the large international conglomerates — Bloomberg, Google, the massive data companies — swallowing up most of the sports betting operations around the world and operating an international platform, with all of sports betting being essentially offered on the mobile device, the mobile platform.”

The large technology corporations are already seeking to implement their services into the betting industry. In the past decade “Google, Yahoo, Microsoft and others in the technology sector made written filings to the Commodity Futures Trading Commission (CFTC) in support of expanding so-called prediction markets into the public sphere.” This opportunity to enter a new market will not only boost revenues for the companies that are prepared, have a first-mover advantage or own large name recognition, but will also provide them with even more data.

Lawmakers and companies need to ensure this data is used efficiently and with respect for privacy; that the athletes are not taken advantage of vis-a-vis point shaving; and that gambling is properly regulated and able to be enjoyed in moderation. That these issues will be firmly addressed, however, much like betting on an outcome, are no sure things; with billions of dollars and lives at stake, it will be fascinating to experience the future prominence of legalized gambling across the United States.