Huawei is stepping up its fight against American bans. The tech giant has motioned for a summary judgment in its lawsuit to invalidate Section 889 of the 2019 National Defense Authorization Act, arguing that it violates the "Bill of Attainder, Due Process and Vesting" clauses of the US Constitution. The law explicitly bans Huawei by name despite "no evidence" of a security risk, Huawei's Song Liuping said, and bans third-party contractors who buy from Huawei even when there's no link to the US government.
The company also preemptively tried to dismiss claims that there are facts up for dispute. This is a simple "matter of law," according to lead counsel Glen Nager.
A hearing on the motion is due September 19th.
This won't get Huawei off the Commerce Department's Entities List, which forced US companies to stop doing business with the Chinese firm. It would alleviate some of the pressure on the company, though, and would theoretically provide a route back to doing more business in the US if it's ever removed from the Entities List. It could also push the US to provide evidence (if there is any) to support the measure. If nothing else, it signals that Huawei won't take bans lying down.
US president Donald Trump has made Huawei the biggest story in tech right now by banning it from doing business with US companies. Huawei, China’s tech champion, has lost access to Google’s Android and Intel’s chips, and it’s even seen other international partners like ARM and Panasonic bowing to American influence and discontinuing trade. Having previously been on track to becoming the world’s biggest smartphone maker, Huawei is now in such dire straits that the best metaphor its founder could come up with to allay fears is that the company is like a plane with a hole in its side: not doing great, but still up in the air.
Bludgeoning Huawei with the ban hammer is, by Trump’s own admission, a negotiating tactic to focus China’s attention on American discontent with the existing trade relationship between the two countries. It lands atop a pile of punitive 25 percent tariffs he’s imposed on many Chinese imports to the US, and a promised further round of such tariffs on practically every Chinese export imaginable.
Two expert China observers tell The Verge that China very much cares about these restrictions on its most important overseas market, and it has every incentive to respond, whether to alleviate the sanctions or as a show of its own economic strength. But both agree that China has few, if any, good options available.
Veteran diplomat Hosuk Lee-Makiyama asks pointedly, “What does China have left to retaliate with?” It’s already imposed tariffs on the few classes of goods for which it wants to protect its internal market, and it’s excluded American internet giants like Google and Facebook, so what can China realistically threaten to do as a counter measure? Some observers, such as Ben Thompson in Stratechery, note that “China took the first shots” in the present trade war when it threw out many US tech firms, and it is now the US who is finally responding.
I'm of two minds.
On one hand, I am quite concerned about the direction the US-China tech not-so-cold war is headed.
On the other hand, after having to deal with the Great Firewall for a decade.....
Lowy Institute’s Elliott Zaagman has spent the past 10 years living in and observing China, and he argues that the country’s economic prosperity is more brittle than it first appears. China’s “already at a point where growth rate is not an output, it’s an input,” meaning the government sets the goal it wants to hit each quarter and banks lend to hit that number. Beijing has done more monetary expansion, he says, than the US Fed, the Bank of Japan, and the EU combined. This has spawned a number of toxic asset bubbles — such as in housing, which has had trickle-down consequences of people taking on debt backed by overpriced real estate. Talking to him and Lee-Makiyama, you get the sense that China’s economy is closer to a pyramid scheme than a truly thriving and flourishing giant.
Retaliation is particularly risky because China’s economy relies on ever increasing trade with the world, as evidenced by the massive Belt and Road Initiative to develop land and sea routes for faster transport of goods. And Huawei, though a privately held entity, has been very helpful in procuring high-value overseas business with its lead in network infrastructure, 5G equipment, and, most recently, premium smartphones. Lee-Makiyama notes that because the country lacks a social safety net, it cannot afford to ever take its foot off the gas, which is what the Huawei setback inevitably represents. Economists, he says, have long held 6.5 percent economic growth as the threshold below which China can’t dip if it’s to sustain its growing debt, and China reported 6.4 percent growth in the first quarter of 2019, before Trump’s harshest tariffs had taken effect.
It’s in this context that we must look at China’s apparently formidable arsenal of weapons it could deploy against the US.
There are also more sophisticated kinds of financial warfare. China holds a trillion dollars of US debt, which it could dump on global markets and thus trigger an interest rate spike for the US economy. The Washington Post’s Robert J. Samuelson explains the mechanics of this succinctly, however he argues that China would be doing almost as much harm to itself in the process. A slowdown in the US economy would lead to even less appetite for Chinese exports, the US dollar might also go down in value and make Chinese goods less appealing, and whatever US treasuries China is left with would also be worth less. This illustrates the inherent symbiosis between Chinese production and American consumption, which have together formed the backbone of the global economy over the past 20 years.
The most threatening retort since Huawei was turned into a trade pawn by Trump has been a visit by president Xi Jinping to a rare earths facility. This was a wordless reminder of China’s dominance in collecting and processing the rare earth minerals essential to every smartphone, laptop, hybrid car, and practically anything more advanced than a gas oven. The CEOs of two US headphone manufacturers tell The Verge that China is the only place to buy the neodymium magnets required for their products: one said China is the sole source, the other said it controls 95 percent of the market. If you struggled to wait a few weeks for those sweet new Powerbeats Pro to go on sale, try waiting months and months for an alternative source of magnets.
And yet, as my colleague James Vincent has already set out, rare earths are not the secret weapon China imagines them to be. They’re not all that rare, the response to Beijing hoarding its supply would be production becoming economically viable and ramping up elsewhere, and the ultimate outcome would be fewer jobs and fewer exports for China. Lee-Makiyama sees this as an untenable scenario and points to China’s ill-fated attempts to use rare earths as a trade cudgel in its dealings with Japan and the US in the past.
Finally, and most obviously, the Chinese government could just do the tit-for-tat response of imposing sanctions on American businesses operating within its borders. Even with some older-model iPhone assembly in India, the vast majority of Apple’s smartphone business is built on Chinese land. Chipmakers are even more dependent, as an analysis from HSBC finds that Apple compatriot Qualcomm has 65 percent of its revenue vulnerable to disruption in trade with China. Other US tech firms with similar exposure include Broadcom at 54 percent, Micron at 51 percent, and AMD, Intel, and Texas Instruments all pinning at least a quarter of their revenues on continuing trade with China.
US consumers can also be hit through impositions on brick-and-mortar retailers. Chinese imports account for 26 percent of Walmart’s merchandise, which is on the low end compared to a more typical number like Target’s 34 percent, according to UBS. Additional research by UBS says the Trump administration’s tariffs imposed on Chinese imports “could put $40 billion of sales and 12,000 stores at risk.” The American Apparel & Footwear Association calls the next round of tariffs “a self-inflicted wound that will be catastrophic for the nation’s economy.” If tariffs are catastrophic, what would a total ban from China look like? This is arguably the most effective weapon Beijing could wield in its negotiations with Washington, but the corresponding hit on Chinese trade would be every bit as disastrous.
In Lee-Makiyama’s estimation, no scenario that involves China cutting off or constricting business with the outside world will be palatable to the country economically. Even with its rapidly growing national consumer market, China is still in need of more consumers for its goods and services. And with Apple and its compatriots like Nike, General Motors, and Walmart employing millions of Chinese workers, Trump has the leverage he needs to play hardball. That situation won’t last long, the diplomat warns, and now might prove to be the last good chance for the US to lean on the mutual dependency it has with China. If the trade relationship remains as it is, China will eventually grow its way to be colossal both as producer and consumer, and then American influence would be null.
For the US, what’s at risk are company revenues and profits. The country’s broader economy may suffer, but Lee-Makiyama says few people would notice if the GDP growth rate dipped from 3 to 2 percent. The same contraction for China’s economy, he contends and Zaagman agrees, would be disastrous. This asymmetry is at the heart of why the Trump administration can afford to be self-destructive in its tariff regime while China cannot indulge in similar costs to score trade negotiation points.
The Chinese government was “definitely caught off guard” by the brusqueness of Trump’s actions, says Zaagman, which was “not anticipated at all.” That might explain why Beijing didn’t make fuller or better contingency plans for a situation like today. Then again, Xi might find consolation in the fact that the same surprise must also be reverberating inside the offices of US tech giants, as Asia economic observer Tony Nash, formerly of the Economist Intelligence Group, questions why American companies hadn’t diversified their manufacturing sooner. Their lack of preparedness may give China some reassurance that hostilities won’t escalate much beyond their current point without China firing back.
Without having a clear and coherent plan for its reaction, which neither Lee-Mikayama nor Zaagman believe Beijing is even close to right now, the best strategy for China is to do nothing material and maintain a “strong and silent” posture — which is exactly what the country is doing, commenting only to say that it “won’t flinch.”
The damage, “the stuff that saps one percent off GDP growth every year,” says Zaagman, has already been done. Silicon Valley investors are now looking for startups with reduced China exposure; big US tech manufacturers are exploring Vietnam, Mexico, and other potential production outlets; and China has found its prejudices that it can’t trust the US confirmed. Now that Trump has pulled the big red Huawei lever, China is wise to avoid hurriedly mirroring the move. Then again, it’s not like it has much choice.
Check out the companies making headlines before the bell:
Dick's Sporting Goods — The sporting goods retailer beat estimates by 4 cents a share, with adjusted quarterly profit of 62 cents per share. Revenue beat forecasts as well. Comparable-store sales were flat, better than the forecast of a 1.3% decline by analysts polled by Refinitiv. Dick's also raised its full-year outlook.
Abercrombie & Fitch — The apparel seller lost 29 cents per share for its latest quarter, smaller than the 43 cents a share loss that analysts were anticipating. Revenue topped estimates as well, although a comparable-store sales increase of 1% fell slightly short of the 1.3% consensus estimate.
Capri Holdings — The company formerly known as Michael Kors reported adjusted quarterly profit of 63 cents per share, beating estimates by 2 cents a share. The luxury goods retailer's revenue also came in above forecasts, helped by strength at its Versace and Jimmy Choo brands. Capri gave a weaker-than-expected current-quarter forecast, however, as it spends more on marketing and new store openings.
Canada Goose — The outerwear maker reported adjusted quarterly profit of 9 cents per share (Canadian), beating the consensus estimate of 5 cents a share. Revenue was below estimates, however, and Canada Goose also gave a weaker-than-expected outlook.
Workday — Workday earned an adjusted 43 cents per share for its latest quarter, beating estimates by 2 cents a share. The maker of human resources software's revenue come in above forecasts, as it signed up more business subscribers.
Boeing — The 737 Max jet may not return to service until August, according to the head of the International Air Transport Association. Alexandre de Juniac told reports that the group plans to organize a summit of regulators and airlines in five to seven weeks to discuss what may be needed to allow the 737 Max to fly again.
T-Mobile, Sprint — The two wireless carriers could sell the prepaid wireless brand Boost Mobile for up to $3 billion, according to interested bidders who spoke to Reuters. The sale of Boost is among the concessions offered to win Federal Communications Commission approval of the deal. Boost Mobile founder Peter Adderton, who is interested in buying back boost, will be a guest on CNBC's Squawk Alley today at 11 a.m. ET.
Bed Bath & Beyond — The housewares retailer has added four new independent directors to its board, in a settlement with an investor group consisting of Legion Partners Asset Management, Macellum Advisors, and Ancora Advisors. The group said it was pleased with the move.
Morningstar — The financial information company announced the acquisition of credit ratings agency DBRS for $669 million.
Devon Energy — The energy producer announced the sale of its Canada business to Canadian Natural Resources for $2.8 billion. Devon plans to use the proceeds to reduce debt.
Uber Technologies — Uber CEO Dara Khosrowshahi told the German newspaper Handelsblatt that the ride-hailing company will not achieve profitability in the next year or two, but that it will come.
Heico — Heico reported quarterly profit of 60 cents per share, 11 cents a share above estimates. Revenue came in well above forecasts and the aircraft parts maker raised its financial forecast for the year.
General Mills — The food producer's stock was downgraded to "sell" from "neutral" at Goldman Sachs, which said that its December prediction that short term strength might be followed mounting deceleration is now playing out.
Amazon, Facebook, Trade Desk, Twitter — In a report on internet advertising, Pivotal Research said that it would pay to be selective in this area, and issued "buy" ratings on these four stocks because of their leadership positions, among other factors. It rates Alphabet, Snap, and Pinterest at "hold."
When President Trump tweeted on May 5 that the China trade deal was off, the historical echoes in Beijing were loud and clear.Almost exactly 100 years earlier, China’s “May Fourth Movement” of 1919 was a direct response to the actions of President Woodrow Wilson at the end of World War I. Wilson had promised China, an American ally, that German colonies in Shandong would be returned to Chinese sovereignty, but instead handed them to Japan. China exploded with anti-American, nationalist sentiment. One of the eventual consequences was the establishment of the Chinese Communist Party, which for the last 70 years has ruled the country.
Thus, Mr. Trump has handed Xi Jinping a remarkably effective nationalist card to play at a time when he has been under pressure at home because of a slowing economy. The Chinese media is now full of accounts of the country’s economic resilience and appeals to patriotism, even invoking the spirit of the Korean War, when, according to the official narrative, China was able to stare down the vastly superior American military.
And just in case people didn’t get the point, Mr. Xi recently visited Jiangxi, the starting point of the Long March in 1934, in which the Communist Party endured many hardships but ultimately emerged victorious.
I can almost hear members of the Trump administration groaning. Why on earth would they need to take into consideration events in China’s ancient past?
The answer depends on what Mr. Trump’s primary objective is. If it’s to sound tough to American voters, he may well have a winning formula. But if it’s to bring about a substantive change in China’s negotiating posture toward a bilateral trade agreement, one that might usher in changes in China’s trade policy, addressing questions of forced technology transfers, intellectual property theft, industrial subsidies, currency manipulation and a phalanx of other non-tariff barriers, I’m not so sure.
Days after the president’s tweets, China listed three “red lines,” positions the United States had taken in the trade talks that were unacceptable: First, that it would keep tariffs in place for a period after the proposed trade agreement was signed. Second, that it could impose punitive tariffs if it judged China to be in violation of the agreement, and that China would be forbidden from retaliating with its own tariffs. Third, the ever-inflating expectations of the terms under which Beijing would buy American goods under a proposed bilateral purchasing agreement.
These “red lines” were new. Before that, China’s negotiating team had a fully flexible remit from the leadership. But not anymore. Now that these three lines are in the public domain, there is no way Chinese leaders can yield on them. The leaks of large parts of the negotiating text to the American news media has added a new level of toxicity, making it virtually impossible to return to the existing text as a basis of negotiations. Together with recent moves against the Chinese telecom company Huawei presumably intended to pressure Beijing further, the possibility of negotiating a revised agreement that is more accommodating to American interests is now very slim.
Instead, what I have seen in Beijing over the last few weeks is a country moving in exactly the opposite direction.
Economic analysts, meanwhile, have been calculating the impact of a full-blown trade war, estimating a loss of about 1.2 percentage points to Chinese G.D.P. growth. This figure is now portrayed in the Chinese media as entirely manageable given China’s capacity to use fiscal and monetary policy stimulus to support domestic demand and keep growth above 6 percent.
Even if a trade deal with the United States is still possible, some in the Chinese leadership are now starting to ask, why bother? They argue that in technology, investment, foreign policy, national security and human rights, the Trump administration has made it clear that it has embarked on a more adversarial position toward China. So why should Beijing expend any more political capital on a trade deal? Perhaps it’s better, in China’s view, to cut its losses now and get ready for the next Cold War.
If that’s what the Trump administration wants, its strategy has been a great success. If not, and the president really wants a trade deal, with reasonable decreases in the bilateral trade deficit, and some substantive changes in Chinese economic behavior, the American negotiating strategy requires some serious recalibration.
Of course, China’s public position is that negotiations can continue. Even within the framework of the new “red lines,” there may still be room for a deal. China might agree to purchase more American goods, with America yielding on the retention of tariffs, and the unilateral right to impose tariffs later. However, the degree of difficulty in getting to an agreement has now increased substantially.
The bottom line is that nationalism is not just a factor in Trump’s America. It’s now a big factor in Xi Jinping’s China as well, reinforced through the prism of Chinese history. In most of its dealings with America over the last 100 years, China has seen itself as weak. Today, in Beijing’s view, China is weak no longer.
Kevin Rudd, a former prime minister of Australia, is president of the Asia Society Policy Institute in New York.
The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com.
When President Trump tweeted on May 5 that the China trade deal was off, the historical echoes in Beijing were loud and clear.Almost exactly 100 years earlier, China’s “May Fourth Movement” of 1919 was a direct response to the actions of President Woodrow Wilson at the end of World War I. Wilson had promised China, an American ally, that German colonies in Shandong would be returned to Chinese sovereignty, but instead handed them to Japan. China exploded with anti-American, nationalist sentiment. One of the eventual consequences was the establishment of the Chinese Communist Party, which for the last 70 years has ruled the country.
Thus, Mr. Trump has handed Xi Jinping a remarkably effective nationalist card to play at a time when he has been under pressure at home because of a slowing economy. The Chinese media is now full of accounts of the country’s economic resilience and appeals to patriotism, even invoking the spirit of the Korean War, when, according to the official narrative, China was able to stare down the vastly superior American military.
And just in case people didn’t get the point, Mr. Xi recently visited Jiangxi, the starting point of the Long March in 1934, in which the Communist Party endured many hardships but ultimately emerged victorious.
I can almost hear members of the Trump administration groaning. Why on earth would they need to take into consideration events in China’s ancient past?
The answer depends on what Mr. Trump’s primary objective is. If it’s to sound tough to American voters, he may well have a winning formula. But if it’s to bring about a substantive change in China’s negotiating posture toward a bilateral trade agreement, one that might usher in changes in China’s trade policy, addressing questions of forced technology transfers, intellectual property theft, industrial subsidies, currency manipulation and a phalanx of other non-tariff barriers, I’m not so sure.
Days after the president’s tweets, China listed three “red lines,” positions the United States had taken in the trade talks that were unacceptable: First, that it would keep tariffs in place for a period after the proposed trade agreement was signed. Second, that it could impose punitive tariffs if it judged China to be in violation of the agreement, and that China would be forbidden from retaliating with its own tariffs. Third, the ever-inflating expectations of the terms under which Beijing would buy American goods under a proposed bilateral purchasing agreement.
These “red lines” were new. Before that, China’s negotiating team had a fully flexible remit from the leadership. But not anymore. Now that these three lines are in the public domain, there is no way Chinese leaders can yield on them. The leaks of large parts of the negotiating text to the American news media has added a new level of toxicity, making it virtually impossible to return to the existing text as a basis of negotiations. Together with recent moves against the Chinese telecom company Huawei presumably intended to pressure Beijing further, the possibility of negotiating a revised agreement that is more accommodating to American interests is now very slim.
Instead, what I have seen in Beijing over the last few weeks is a country moving in exactly the opposite direction.
Economic analysts, meanwhile, have been calculating the impact of a full-blown trade war, estimating a loss of about 1.2 percentage points to Chinese G.D.P. growth. This figure is now portrayed in the Chinese media as entirely manageable given China’s capacity to use fiscal and monetary policy stimulus to support domestic demand and keep growth above 6 percent.
Even if a trade deal with the United States is still possible, some in the Chinese leadership are now starting to ask, why bother? They argue that in technology, investment, foreign policy, national security and human rights, the Trump administration has made it clear that it has embarked on a more adversarial position toward China. So why should Beijing expend any more political capital on a trade deal? Perhaps it’s better, in China’s view, to cut its losses now and get ready for the next Cold War.
If that’s what the Trump administration wants, its strategy has been a great success. If not, and the president really wants a trade deal, with reasonable decreases in the bilateral trade deficit, and some substantive changes in Chinese economic behavior, the American negotiating strategy requires some serious recalibration.
Of course, China’s public position is that negotiations can continue.Even within the framework of the new “red lines,” there may still be room for a deal. China might agree to purchase more American goods, with America yielding on the retention of tariffs, and the unilateral right to impose tariffs later. However, the degree of difficulty in getting to an agreement has now increased substantially.
The bottom line is that nationalism is not just a factor in Trump’s America. It’s now a big factor in Xi Jinping’s China as well, reinforced through the prism of Chinese history. In most of its dealings with America over the last 100 years, China has seen itself as weak. Today, in Beijing’s view, China is weak no longer.
Kevin Rudd, a former prime minister of Australia, is president of the Asia Society Policy Institute in New York.
The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com.
SYDNEY (Reuters) - Asian shares fell on Wednesday and bonds rallied as investor sentiment soured over growing worries about world growth with trade tensions between the United States and China showing no signs of easing.
MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.5% after three straight days of gains. Chinese shares started on the back foot but bounced off early losses to be marginally higher. Australian shares ended 0.7% lower while Japan's faltered 1.2%.
In an indication U.S. markets will fall again on Wednesday, E-Minis for the stumbled 0.3%. In early European trading, the pan-region were down 0.7% as were German while those for London's and France's eased 0.6% each.
Risk aversion has increased globally in recent days as fears of world recession resurfaced amid disappointing macro data in major economies. Wins for eurosceptic parties in EU elections as well as a snap poll in Greece and political turmoil in Austria have added to the gloomy outlook.
Italy's dispute with the European Commission over its budget is also a major overhang for world markets.
In Asia, focus remains on the ongoing Sino-U.S. trade war. U.S. President Donald Trump said on Monday that Washington was not prepared to make a deal with China yet. In response, Chinese newspapers warned on Wednesday Beijing is ready to use rare earths to strike back at the United States.
The tariff skirmish is not limited to China, though. Trump has also pressed Japan to reduce its trade imbalance with the United States.
The specter of prolonged trade friction drove U.S. 10-year yields about 10 basis points below the 3-month rates, an inversion typically seen as a leading indicator of a recession. German Bund yields are also on a slippery slope.
"What I see as more consistent is that typically when the yield curve inverts you get central bank easings. So the question about recession would be would the U.S. Fed ease enough to avoid a recession?" said Chris Rands, Sydney-based fixed income portfolio manager at Nikko Asset Management.
"My reading of what is going on at the moment is that U.S. economic data seems to be flicking away, and the market is starting to tell us that rate cuts will eventually be coming," Rands added.
U.S. rates futures are pricing in two cuts by the Federal Reserve by the middle of next year to help prop up the country's economy.
Data this week showed a gauge of U.S. manufacturing activity unexpectedly fell in May from the previous month.
That follows earlier disappointing readings on U.S. manufacturing and industrial output, Rands added.
"The fact that you have got a bit more noise around the trade war now at the same time as manufacturing is rolling over it's getting people to think that things are a little bit worse than they had expected," he said.
Analysts at Citi reckon punitive measures against China's Huawei and other tech firms, as part of the tariff battle, could undermine global productivity growth.
"Technological rivalry is here to stay," Citi analyst Johanna Chua said in a note, adding "it is hard to be constructive (on) risk assets in Asia at this juncture."
"We maintain a bias to be long U.S. dollar-Asia...As growth is likely to significantly outweigh inflation concerns, we expect Asian central banks bias will remain on the accommodative side."
In currencies, activity was muted.
The was a touch lower at 97.905 but well above a recent two-week trough of 97.547.
The euro was unchanged at $.1.1159 after two straight days of falls while the British pound held at $1.2656.
In commodity markets, oil prices were subdued on Wednesday as worries the Sino-U.S. trade war could trigger a global economic downturn dominated, despite the risk of supply shortfall from U.S. floods and political tensions in the Middle East. [O/R]
was last off 51 cents at $69.60 per barrel while eased 62 cents to $58.52 per barrel.
Sports Illustrated was sold from Meredith to Authentic Brands for $110 million. The first instinct is that the number seems very low for a brand that has the historical cachet of SI and remains a force digitally both in reporting — they recently broke the big stories on misconduct from Jerry Richardson and members of the Mavs front office — and in distribution. The sale also dragged on forever; last June, Meredith officials were saying bids had been received in the $200 million range.
The weirdest part, though, is not the purchase price, but the fact that Meredith is paying Authentic Brands an undisclosed amount to license the Sports Illustrated brand name and continue to publish the magazine and website. What this means is that Authentic is not buying the actual core SI product; they are buying the brand, the intellectual property, and the photo library.
In a wide-ranging discussion, Salter envisioned possibilities ranging from Sports Illustrated medical clinics and sports-skills training classes to a gambling business and better use of the magazine’s vast photo library. “We always stay close to the DNA and the heritage of the brand,” he says. “Granted, we will go beyond, but we will always remember sort of how we go there.”
While Meredith has what Salter described to Ben Strauss of the Washington Post as “obligations” to continue to invest in the people who write for SI, Salter sidestepped Strauss’s direct question about whether investigative journalism — which drives relevance, but also costs a lot and potentially alienates branding partners — would continue to be a priority. The CEO said:
“Sports Illustrated will continue to be a resource for its readers, providing up-to-the-minute sports news and coverage, thoughtful analysis, and entertaining stories. Our partnership with Meredith is key in continuing to re-build Sports Illustrated into a global platform while disseminating information with integrity and respect.”
It’s also instructive to realize how these two companies got to these respective positions. Meredith is an Iowa-based magazine company backed by the Koch Brothers described in a recent Wall Street Journal story as being particularly “unsentimental.” They operate women’s lifestyle publications like Better Homes & Gardens and Allrecipes, and bought Time Inc. for $1.85 billion with the express intention of selling off legacy titles like Time, Fortune, and SI, while seeing an opportunity to capitalize on People.
As the Washington Post story on the SI acquisition describes, Authentic Brands “holds the licensing and trademark rights to celebrities such as Marilyn Monroe, Elvis Presley and Muhammad Ali. The company also has licensing deals with former golfer Greg Norman and retired NBA star Shaquille O’Neal.” They also have licensing rights for fashion brands like Nautica and Juicy Couture.
The weirdness of this whole transaction makes it feel like a shotgun wedding. In it, Meredith does not get an attractive sale price nor a clean break from the publication they sought to sell for over a year. Their stock price fell over 4% on Monday on the news. Authentic Brands probably gets a bargain, but the nature of the deal itself reveals that they don’t have enough interest in operating the core assets to figure it out themselves.
SI still produces a lot of relevant work. The annual swimsuit issue remains a major revenue driver. We’ll have to see if this arrangement is crazy enough to work.
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