● How

●Acit
Mexico
auta teekay
topped tibus
China nobitae
22 00
● Google’s antitrust trial 14
● The weirdest draw in Vegas 38

September 18, 2023

MEET THE PARENTS

Sam Bankman-Fried

was raised

by ethics

and legal

scholars.

How much did

they enable

his crypto empire? 30

Barbara nkman
Jos eph
Ba
Fried an
d
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@ExxonMobil
 September 18, 2023

◀ Sphere at the
Venetian is scheduled
to open this month in
Las Vegas

1
PHOTOGRAPH BY MIKAYLA WHITMORE FOR BLOOMBERG BUSINESSWEEK

FEATURES 30 What Did Bankman and Fried Know?

When building a crypto empire, being the son of elite parents helps—a lot

38 Having a Ball in Vegas

James Dolan’s giant Sphere may be less insane than it looks

44 Megapaca’s Thrifty Ambition

The top importer of Americans’ used clothing wants to sell it right back
 ◼ CONTENTS Bloomberg Businessweek September 18, 2023

◼ IN BRIEF 4 New iPhones ● Impeachment threat ● Twinkies sale ◼ COVER TRAIL

◼ OPINION 5 Fewer, larger banks are good for the industry How the cover
◼ AGENDA 5 Another key Fed decision ● Reviewing UN goals gets made

①
“So this week we have
◼ REMARKS 6 The loneliness of a China bull a great story about
the lawyers Bankman
and Fried.”
BUSINESS 8 Texas gives a big 10-4 to driverless trucks
1 10 A deepening crisis for people who take ADHD drugs “You mean Sam
Bankman-Fried?”
12 Your favorite artist is playing? Here’s when to buy a ticket
“No. His parents.
The renowned Stanford
TECHNOLOGY 14 In US v. Google, Apple looms large legal scholars,
2 17 How four tech giants divide up the internet
Bankman and Fried.”

“Huh. They
were experts in what
FINANCE 18 Israel’s upheaval hasn’t scared off VCs yet kind of law?”
3 19 High US rates hobble the global economy “He’s into taxes, she’s
21 The great IPO drought may be coming to an end into ethics? Actually,
Fried was said to have
definitively answered
ECONOMICS 22 ▼ Mexico tries not to miss its moment—again the ‘trolley problem.’ ”
4 “Wow. Didn’t see that
coming. So clearly they
had nothing to do with a
company accused of an
epic fraud?”

“Eh. The jury is out on

that one.”

“I see what you

did there.”
2 “Couldn’t resist.”

“This seems cinematic.

Can’t wait for the three-
hour Aaron Sorkin-
backed movie about it
on Apple TV+!”

“You know the

writers’ strike is still
going, right?”

“Ah, yeah. Guess

I’ll need to satisfy
my desire for new
Succession-like dramas
through the art of
graphic design and the
style of French New
Wave posters!”

◼ PURSUITS 51 Thirteen new answers to “Where should we eat?” “Bien sûr!”

54 Without salmon, a Canadian resort gets creative

56 Clear cocktails made using milk defy all expectations
58 Hawaii’s most expensive hotel isn’t for everyone
59 The Leica M11 upholds the company’s stellar reputation

◼ LAST THING 60 Extreme language to describe a warming planet

ECONOMICS: ALEJANDRO CEGARRA/BLOOMBERG

CORRECTION The entry for Aminath Shauna in “The Bloomberg New Economy Catalysts” (Aug. 28, 2023)
should not have linked her with the Maldives Floating City, a project she is not involved with.

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 Bloomberg Businessweek By Mark Leydorf, with Bloomberg News
◼ IN BRIEF
● Apple ● War in
introduced Ukraine
iPhone 15 ▶ North Korean leader Kim Jong Un
crossed into Russia on Sept. 12 in a
luxury armored train for a summit with

on Sept. 12. President Vladimir Putin. The US says

they discussed Pyongyang supplying
weapons for Putin’s flagging war.

▶ Ukrainian President Volodymyr

The new versions have much
improved cameras and faster chips,
and on the Pro model, Apple swapped
out stainless steel for lighter, more
durable titanium. Henceforth,
the company is nixingng the
Lightning charging port in
favor of USB-C, but it isn’t
purposefully trying to
irritate you: The EU
mandated the shift.
Zelenskiy vetoed a law on public
officials’ asset declarations after anti-
corruption campaigners protested that
the legislation delayed the disclosures
by a year. An injured soldier in a military
hospital gathered the required 25,000
signatures in a few hours for a petition
urging Zelenskiy to reject the law.
● Rescuers are searching for survivors after floods from a rare Mediterranean
tropical cyclone collapsed dams near Derna, Libya, on Sept. 10. Authorities say at
least 6,000 were killed and 10,000 are missing.

● US child poverty surged ● J.M. Smucker

● Lyft is bringing ● The problem
by the most on record in agreed to purchase
2022, after unprecedented out a feature that Twinkies maker with Pratt &
pandemic-era benefits tries to match Hostess Brands for Whitney’s jet
expired. Census Bureau

4
data out on Sept. 12 said
one metric of child poverty,
incorporating after-tax
women riders and
drivers. $5.6b
on Sept. 11. Consolidation
engines gets
worse.
income and government- is accelerating among
transfer payments, more the companies that stock
than doubled last year, to shelf-stable foods, as post-
Women+ Connect will increase the Most of the company’s 3,200 GTF
chances of matching women and Covid consumers return to turbofan engines in service on jets must

12.4% nonbinary riders with drivers who healthier, fresher foods.

IPHONE: DAVID PAUL MORRIS/BLOOMBERG. LIBYA: AFP. TWINKIE: GETTY IMAGES. MCCARTHY: ANDREW CABALLERO-REYNOLDS/GETTY IMAGES.
be removed over the next three years
have a similar gender identity. to check for flaws in components made
Women make up only 23% of Lyft’s
from contaminated metal powder,
drivers but account for nearly half
parent company RTX said on Sept. 11.
of its riders. In its first safety report,
released in 2021, the San Francisco With airlines already facing lengthy
company said it recorded more waits for repairs, the added work
than 4,000 claims of sexual assault means hundreds of aircraft will need to
from 2017 to 2019. be rotated out of service through 2026.

● Guyana’s economy will ● Coco Gauff beat Aryna

● “McCarthy is being told expand in 2023 by Sabalenka in the US Open
final, becoming the first
by Marjorie Taylor Greene to
do impea
impeachment, or 38%
the IMF said on Sept. 11.
American teenager to win
it since Serena Williams in
1999. Novak Djokovic beat
Massive offshore oil Daniil Medvedev to take
else she
she’ll shut down deposits first drilled by his fourth men’s title, tying
Exxon Mobil in 2015 haveave Margaret Co
Court’s
the gove
government.” already quadrupled the he 50-year-old
50-year-o
size of the economy over record of 24
the last five years. Thee Grand Slam
GAUFF: SARAH STIER/GETTY IMAGES

White House spokesman Ian Sams responding

X the platform formerly known as Twitter,
on X,
government says it has as singles
singl
to Republican House Speaker Kevin McCarthy set up a sovereign trophies.
tro
as
asking the Oversight Committee on Sept. 12 to
o
open an impeachment inquiry into Joe Biden
wealth fund and
w
without a House vote. “Opening impeachment given a big boost to
d
despite zero evidence of wrongdoing by
P
POTUS,” he went on, “is simply red meat for
education, health and
t extreme rightwing.”
the infrastructure spending.
ng.
 ◼ BLOOMBERG OPINION September 18, 2023

encouraging efficiency, pushing down consumer costs and

Midsize Bank Mergers spurring innovation.
As it happens, banking regulators and the Justice
Would Lead to a Department are in the process of revising their rulebook for
analyzing bank mergers. They should accept that the US finan-
Stronger Industry cial landscape is naturally evolving to support fewer but big-
ger banks and resist political pressure to impede that process.
As the incentive to gain scale grows, one strategist
For banks in 2023, one message is coming through clearly: has predicted that the number of lenders in the US will
Scale is good. decline to a few hundred from more than 4,000 in the
The US has a lot of banks. At one end are small com- next two decades. That may be an extreme estimate, but
munity banks, which provide essential services to towns, consolidation would be for the best: The likelihood is that
rural areas and minority groups that are often overlooked those institutions that remain will be safer, leaner and more
by bigger rivals. At the other end are the megabanks, such dynamic than the regional banks they displace. For the
as JPMorgan Chase & Co., which cater to global corpora- sake of the industry and the broader economy, regula-
tions and investment firms as well as to individuals and busi- tors should ease the way. <BW> For more commentary, go to
nesses. Then there’s the middle tier, which has traditionally bloomberg.com/opinion
focused on lending to property developers and businesses
in specific regions, often competing with community banks
in some areas and with megabanks in others. ◼ AGENDA
As the turmoil with banks such as Silicon Valley and
Signature earlier this year showed, these regional banks—
there are about 146 nationwide—are under increasing pres-
sure. They hold many of the most troubled commercial
real estate loan portfolios, have been forced to pay more
for deposits and have sustained credit-rating downgrades. 5
The biggest among them may soon face tougher regulation,
including higher capital requirements. Exactly what value
they still add is an open question.
For these banks, the logic of consolidation—that is, of
becoming bigger banks—has rarely been more compelling.
Lawmakers such as Democratic Senator Elizabeth Warren
of Massachusetts have warned for years about the perils of
“too-big-to-fail” institutions. They caution that bigger banks
add risks and reduce competition. The reality, in many
cases, is quite the opposite.
To be sure, the largest financial institutions require
▶ Suspense, Suspense
stricter oversight, but such a regime is already in place. The US Federal Reserve decides on interest rates on
More to the point, as higher interest rates have curbed loan Sept. 20, and the Bank of England will follow the next day.
demand, slashed asset values and boosted the cost of depos- Investors are focused on the Fed decision, as the guessing
its, the advantages of size have only grown. Bigger banks game continues: Will it hike or pause?
tend to have more diverse sources of funding and revenue.
They have ample resources to invest in technology and com- ▶ The UK on Sept. 20 ▶ The SDG Summit ▶ The People’s Bank
releases its latest data convenes Sept. 18-19 of China announces its
pliance. Stricter capital rules will make them both more on pricing. Year-over- during the UN General one- and five-year loan
creditworthy and more resilient in a crisis. In many respects, year consumer price Assembly. World leaders prime rates on Sept. 20.
inflation trended will gather to review In August, the one-year
bigger is safer. downward in July, the 17 Sustainable rate was slashed
Consolidation is also no obstacle to competition. For marking the fifth straight Development Goals the 10 basis points, to 3.45%,
month with a decrease. UN set forth in 2015. a record low.
one thing, the industry is already under fierce competitive
pressure. Banks today compete with a widening array of
ILLUSTRATION BY KAREN YOOJIN

credit unions, tech-enabled mortgage providers, private ▶ On Sept. 20, General ▶ The 2022 Asian ▶ A blockbuster exhibit
Mills reports earnings for Games, postponed of works by Édouard
equity-backed direct lenders and online payment compa- the fiscal first quarter. because of Covid-19, Manet and Edgar Degas,
nies, to name a few. A small business that once relied on With inflation continuing will start on Sept. 23 in key figures in the birth of
to rattle food prices, the Hangzhou, China. All 45 impressionist painting,
the local bank for its account-management needs may today company’s stock has Asian Olympic teams are opens at New York’s
turn to Shopify Inc. and Stripe Inc. Enabling more regional been on a downward dip set to participate in 40 Metropolitan Museum on
since mid-May. sports and 61 disciplines. Sept. 24.
banks to merge would only add to this salutary pressure,
 ◼ REMARKS
China’s Bruised,
Not Busted
6
● The property market correction is
painful (though necessary), but the
economy has new sources of strength
● By Tom Orlik
China’s property sector is collapsing. Its electric vehicle
sales are booming. Properly understood, both of those
trends are good news for Beijing.
The benefits won’t be immediately evident. In the near
term, the drag from the real estate meltdown is immense
and dwarfs any positives elsewhere. In the long term,
though, a China that’s ended an unsustainable real estate
boom and amped up advanced manufacturing will be
better positioned to grow.
For Wall Street—which has declared China to be
“uninvestable”—and the White House—which has deemed
its economy a “ticking time bomb”—that points to one
conclusion: The pessimism about China is overdone.
Before making the case for cautious optimism, let’s
acknowledge the depth of the challenge China faces. That
starts with real estate and the reckoning now underway fol-
lowing more than a decade of overborrowing and overbuild-
ing. Sales of apartments and homes are down sharply, prices
are falling (by more than the official data suggest), and con-
struction activity is contracting. Bloomberg Economics cal-
culates that property developer debt worth some 13.6 trillion
 ◼ REMARKS Bloomberg Businessweek
yuan ($1.9 trillion) is at risk of default—a figure equal to
almost 12% of gross domestic product.
That hole is too big for even Beijing to fill, and means
more pain ahead for homeowners (falling prices), develop-
ers (bigger losses), banks (bad loans), bondholders (haircuts)
and local governments (plunging revenue from land sales).
And it’s not the end of China’s problems. A botched exit
from Covid Zero, a sweeping crackdown on entrepreneurs
and the disappearance of datasets on youth unemployment
and consumer confidence have contributed to a sense of
authoritarian overreach and governance failure.
Adding to the gloom are a demographic drag—with the
working-age population expected to shrink by 240 million
in the next three decades—and fractious relations with the
US throwing up new barriers to export markets and tech-
nology transfer.
Small wonder, then, that expectations for China’s short-
and medium-term growth prospects have been revised
sharply down. For 2023 the consensus among economists
surveyed by Bloomberg is that GDP will expand 5.1%, down
from the 5.7% projected earlier. Stripping out the base effect
from last year’s lockdown-hobbled expansion, growth looks
closer to 3%.
The drag from demographics, challenging relations
with the US and diminished confidence in Beijing’s com-
mitment to reform will persist for years, which is why
Bloomberg Economics has lowered its China growth fore-
cast for 2030 to 3.5% from 4.3%. It’s not hard to find even
gloomier predictions.
So far, so miserable. But is China, an economy that in
the last 40 years has averaged annual growth of more than
9%, minted 61 new members of the Bloomberg Billionaires
Index and won a seat at the institutions of global leadership,
really on the rocks?
Having written a 2020 book boldly titled China: The Bubble
That Never Pops, I may be a little biased. Still, allow me to
marshal the evidence in favor of a more optimistic view.
Let’s start with the dark cloud cast by the collapse of
the property sector. The silver lining here looks something
PHOTO ILLUSTRATION BY 731; PHOTOS: ALAMY, AP PHOTO (2), SHUTTERSTOCK (2), ZUMA PRESS
like this: A correction in real estate was inevitable, and
China’s central government gets the blame for allowing the
bubble to grow to unmanageable proportions. But it also
gets credit for attempting to deflate it rather than allowing
it to burst.
A correction in a sector that accounts for about 20% of
GDP is inevitably painful. So far, though, it’s taken place
without tipping the economy into recession or plunging the
financial system into a full-blown crisis. And we may be
closer to the end than the beginning. Bloomberg Economics
calculates that the supply of housing needs to fall by 30%
to come into line with fundamental demand. Construction
has already dropped 18%.
With the correction occurring at lightning speed, and the
steady drip, drip of government stimulus—from interest-rate
cuts to lower down-payment requirements for first-time
September 18, 2023
buyers—finally adding up to something, an end to the crisis
may not be too far off.
Meanwhile, China continues to find new sources of
growth. Sales of electric vehicles are exploding. When
plug-in hybrids are included, they hit 5.7 million in 2022,
more than half of the world’s total. In 2023, China could
very well overtake Japan to become the world’s biggest
exporter of cars. Taken together with China’s grip on renew-
able energy supply chains, a lead in electric cars gives the
country a commanding position in the new green economy.
Huawei Technologies Co., the Chinese telecom equip-
ment maker that’s the target of sweeping US sanctions,
recently unveiled new smartphone models that use locally
made advanced semiconductors, a sign that Washington’s
export controls might not succeed in blocking China’s climb
up the technology ladder.
It’s also helpful to take an historical perspective. China’s
growth over the last 40 years has been stellar, but it wasn’t
an unbroken upward trajectory. The economy has come
close to the brink at least four times: in 1989, following the
Tiananmen Square massacre; in 1998, during the Asian
financial crisis; in the global financial crisis of 2008; and in
2015, after a bungled devaluation of the yuan.
On each of those occasions, Western analysts lined up
to proclaim the end was nigh. There’s even a book, The
Coming Collapse of China, published in 2001. On each occa- 7
sion, they were wrong. Western analysts suffer from a seri-
ous case of confirmation bias. They start from the position
that the Chinese system is failing and then look for evidence
to support that conclusion. When Hu Jintao, the consensus-
oriented former Communist Party general secretary, was
in charge from 2002 to 2012, they said that without a stron-
ger guiding hand China faced stagnation. When Xi Jinping
proved a more muscular leader, the narrative pivoted to the
risks of dictatorship.
Similarly, for more than a decade, economists said China
needed to stop inflating the property bubble and allow
developers to default. When Beijing started to do just that,
the story swung to how the economy was on the brink and
more stimulus was urgently required.
Maybe I’m being too optimistic. Maybe China: The Bubble
That Never Pops will prove as prescient in its optimism as
past calls for collapse have in their pessimism. My view,
though, is that China will once again defy the doubters.
Even before the real estate meltdown, it was clear China
was shifting into a slower growth mode. The property melt-
down has meant that transition came earlier, and more pain-
fully, than expected.
The benefit is that the correction will be over more
quickly. When it ends, China will be well positioned for a
period of slower but more sustainable growth. The boom
in EV sales, among other things, shows the potential. China
isn’t about to take over the world. But it’s not about to col-
lapse, either. That’s a fact investment and geopolitical
strategists would be well advised to keep in mind. <BW>
 Bloomberg Businessweek
B Goodbye,
U California
S
I
N
E
8
S Driverless Trucks
S Head to Texas
● After finding no love at
home in California, companies
developing autonomous semis
get a warm welcome in Texas
In a workshop near the crossroads of I-35 and I-20
just south of Dallas, technicians from a company
called Kodiak Robotics Inc. work under the hoods
of a pair of Kenworth trucks, connecting onboard
computers with the steering, accelerator and
brakes to enable operation without a driver.
About 20 miles to the south, Aurora Innovation
dispatches autonomous rigs from a warehouse,
hauling freight across Texas for companies such as
FedEx and Schneider National. Up in Fort Worth,
the twin city just west of Dallas, Gatik.AI uses
smaller driverless box trucks to ferry goods from
a distribution center to Kroger supermarkets.
Edited by
All three of the truck companies have their roots
David Rocks in California, but when it came time to test their
September 18, 2023
vehicles, they headed for wide-open Texas, where
lawmakers in 2017 approved a legal pathway for
autonomous trucks. In California, state regulators
BURNETTE: PHOTOGRAPH BY KELSEY MCCLELLAN FOR BLOOMBERG BUSINESSWEEK. TRUCK: COURTESY KODIAK
haven’t even set the rules for initial trials—and the
legislature has approved a bill requiring a driver in
big rigs even as the state embraces driverless cars.
“We would love to be able to test in California,” says
Kodiak Chief Executive Officer Don Burnette. The
state “should be a leader in technologies like auton-
omous vehicles as opposed to a follower.”
The companies today have drivers riding in the
cabs of their trucks, holding their hands just over
the steering wheel in case anything goes wrong.
That means others on the road often aren’t aware
the trucks are operating autonomously. But reac-
tions may change when Texans see eighteen-wheel-
ers with empty cabs—which could happen as soon
as the end of next year, if Kodiak and Aurora
Innovation Inc. stick to their current plans.
The federal government has left regulation
of autonomous vehicles up to states, and about
half of them allow driverless trucks. Texas has
◼ BUSINESS Bloomberg Businessweek September 18, 2023

to the bill’s sponsors saying the proposed ◀ A Kodiak eighteen-

wheeler on a Texas
law “takes an inflexible approach to regulat- interstate
ing a growing industry borne out of California’s
innovation economy.”
That stance raises questions about the bill’s
chances of becoming law, but there’s growing con-
cern about driverless trucks in the state. Unions
fret about jobs, while proponents of the technol-
ogy say it will help ease a perennial trucker short-
age, especially for the long-haul routes that keep
drivers away from family for long periods. And with
no humans behind the wheel, rules such as limits
on driving hours and a ban on drug and alcohol
use will no longer apply. “Everyone understands
that there’s a huge driver shortage,” says Gautam
Narang, CEO of Gatik. “This technology can help
address that.”
Safety remains the paramount concern.
Software and sensors don’t “have a gut reaction”
when something goes wrong, and they can’t read
the body language of a driver who’s about to cut
into a lane, says Mike Di Bene, a Teamster who’s
worked as a driver for three decades. “Our fam-
ilies are on those highways,” Di Bene says. “If ▼ Burnette at Kodiak’s
you’re going unmanned, you’re going unsafe.” California headquarters

embraced the technology, setting up a task force to

collaborate with operators and tackle issues such as
roadside inspections and how police will respond
when there’s no driver. Laws in states along the
entire stretch from Arizona to Florida allow auton-
omous trucks as long as they adhere to the rules of
the road, but the industry feels it needs to do more
testing prior to any full driverless rollout.
California lawmakers have opposed autono-
mous big rigs, spurred in part by a robust union
campaign led by the International Brotherhood of
Teamsters, as well as the experience of robo-taxis
in San Francisco. A driverless taxi from General
Motors Inc.’s Cruise got stuck in concrete, and
another collided with a fire truck, prompting state
officials to order the company to cut its autono-
mous fleet in half.
The California State Senate on Sept. 11 approved
a bill that would require drivers to occupy large
trucks even when they’re being operated autono-
mously, and the legislation now heads to Governor
Gavin Newsom. A top adviser in his office wrote
 ◼ BUSINESS Bloomberg Businessweek September 18, 2023

The big rigs under test operate in an environ- autonomous vehicles being tested in Texas. And
ment that’s vastly different from the one in San he plans to hold off signing up as a customer until
Francisco where driverless taxis are being tested. he’s more confident about the technology. “It’s got
There, the vehicles must grapple with a dense to be proven very well,” Schnautz says. “I would
population, hilly terrain and bouts of fog. Texas feel terrible if an autonomous truck killed some-
has long stretches of flat, empty highway bathed body and my motivation was that it’s cheaper.”
in ample sunshine. And eighteen-wheelers typi- �Thomas Black
cally load and unload at freight terminals along
THE BOTTOM LINE States from Arizona to Florida allow
major highways in fringe areas, avoiding crowded autonomous trucks, but companies making them say they must do
city centers. more safety testing prior to a full rollout.
In 2021, US law enforcement reported more
than a half-million collisions involving big rigs,
leaving almost 5,800 people dead and 155,000
injured, according to the National Highway Traffic
Safety Administration. “We have an opportunity Drug Deficit Disorder
to reduce those accidents,” says Nat Beuse, chief
safety officer at Aurora and a former federal trans-
portation safety official, whose company raised ● ADHD medications are in short supply as makers say production
$820 million in July. is maxed out and patients decry strict controls on sales
So far, the trucks are doing relatively well.
Federal government data show that there have
been fewer than 20 incidents in Texas, all of them
caused by drivers of other vehicles. In one case, a
motorist fell asleep, crossed two lanes and rear-
ended a Kodiak truck, denting the car’s hood. In
10 another, a car swerved into an Aurora truck at
65 miles per hour, but both vehicles were able to
drive away from the scene.
Kodiak’s trucks use eight cameras and four
radar and lidar units that scan the surroundings
up to a half-mile away every tenth of a second in
all directions. These are mounted in boxes where
the rearview mirrors typically sit and feed data to
the onboard computer, which then sends instruc-
tions to the driving systems. Aurora’s sensors are
mounted just above the doors, giving the truck’s
cab the appearance of a bull with horns. Gatik uses
smaller Isuzu box trucks, placing the cameras,
radar and lidar above the cab.
People in the industry say the systems will need
to be flawless, not simply better than vehicles with
humans at the wheel. That’s because insurers will
likely refrain from offering coverage until they’re Mark Bouchard’s troubles started in June. Until
convinced they won’t face ruinous settlements, as then, the Chicago law student had no issues getting
juries will be harsh if an autonomous truck causes Vyvanse, a drug that controls ADHD. That month
ILLUSTRATION BY DEREK ABELLA. DATA: SYMPHONY HEALTH

an accident, says Stephen Ritzler, team lead of
trucking and logistics at insurance brokerage
CoverWallet Inc. “It’s a different story when there’s
no driver to assume the blame,” he says. For busi-
nesses, “with every single truck they put out on the
road, their neck is on the line. So their standard of
safety has to be absolutely perfect.”
Danny Schnautz, president of Clark Freight
Lines Inc. near Houston, says drivers for his
fleet of about 150 trucks give wide berth to the
the 28-year-old called three pharmacies before find-
ing it. In July it took about a dozen calls. Last month
it was more than 30—and the prescription was a dif-
ferent combination of pills that cost $270, triple the
usual price. “Every month the game of phone tag
gets longer, and I have to ration my meds for more
days,” Bouchard says.
Like Bouchard, millions of Americans with
attention-deficit/hyperactivity disorder have faced
increasing trouble finding the drugs they need.
◼ BUSINESS
Last year, Teva Pharmaceutical Industries Ltd.,
the leading maker of Adderall, started experienc-
ing shortages that it blamed on a dearth of factory
workers. As buyers sought alternatives, rival compa-
nies began to run short as well. In July the US govern-
ment urged drugmakers to ramp up production, but
some of the biggest manufacturers say they have no
plans to boost output. Teva is “running at full capac-
ity” after resolving its labor problems last year, says
Chief Executive Officer Richard Francis. Increasing
production, he says, would require finding or build-
ing new factories, though the company declines to
say whether it’s considering such a move.
The supply shortfall has been driven largely by
economics. Most ADHD medications are generics,
which typically don’t make much money for manu-
facturers, providing little incentive to maintain sur-
plus capacity. So when something goes wrong at
one factory, it’s difficult for others to fill the gap.
Complicating matters, the US Drug Enforcement
Administration limits the quantities of ADHD med-
ications manufacturers can produce because
they’re controlled substances that the government
considers a risk for addiction or abuse. Some drug-
makers say the restrictions mean they can’t fully
address the shortages, but the DEA says the indus-
try isn’t producing as much as it’s allowed.
In July the DEA and the US Food and Drug
Administration asked manufacturers with unused
allotments to either make more or offer their quotas
to others who might ramp up supply. (They declined
to identify which companies were falling behind.)
Novartis AG and Takeda Pharmaceutical Co., the
No. 2 and No. 4 makers of Adderall, respectively, say
they’re fulfilling their quotas. The No. 3 producer,
Lannett Co., didn’t respond to a request for com-
ment. Teva says it plans to produce its allotment for
this year. The four companies accounted for two-
thirds of the Adderall sold in the US last year.
Concerns about overprescribing have com-
pounded the problems. The DEA last year told
Adderall manufacturers that an increase in
prescriptions from Cerebral, Done and other
telehealth startups might reflect “improper pre-
scribing,” says a senior agency official who wasn’t
authorized to speak on the record. Cerebral says it
stopped prescribing controlled substances to new
patients in May 2022. Done didn’t respond to
requests for comment.
On Aug. 25 the FDA approved a generic ver-
sion of Vyvanse, and manufacturers started ship-
ping it a few days later, providing some relief to
people such as Bouchard. But it’s not always easy
for ADHD patients to switch medicines, because
they all work somewhat differently.
Bloomberg Businessweek September 18, 2023
Last August, Christian Na’s pharmacy ran out of
the generic version of Concerta he’d been using. He
started taking his remaining pills every other day
but had trouble focusing and fretted he’d get fired
from a new job as an attorney for a labor union.
A few weeks later his psychiatrist prescribed an
alternative, saying it might be easier to find. But
for the next month, Na ground his teeth and lost
sleep while he adjusted to the new medication.
And now he can’t even reliably find that drug. He
recently drove an hour from his home in Riverside, “It feels like
California, to a pharmacy that said it had it in stock. they’re putting
By the time he arrived, none was left. “It feels like me through
they’re putting me through a scavenger hunt,” says a scavenger
the 38-year-old Na. hunt”
Some physicians say the shortage has dragged
on in part because ADHD isn’t always considered
a serious medical condition. “Mental health chal-
lenges tend to have a stigma,” says Craig Surman,
director of the clinical and research program in
adult ADHD at Massachusetts General Hospital in
Boston. “Legislators may not feel like this is a polit-
ically worthy agenda.”
Because of their status as controlled substances,
many ADHD drugs are subject to onerous prescrip-
tion requirements. Patients typically need a new 11
script each month and can’t build up supply, and
pharmacies are limited in how much they can
order. Worse, until recently, if a pharmacy didn’t
have the drug in stock, a patient had to get a new
prescription to buy it elsewhere. Since August,
new rules have allowed pharmacies to transfer
prescriptions without a doctor’s permission, but
only once.
Some in the field say the restrictions unfairly
lump ADHD treatments in with drugs that are much ▼ Adderall prescriptions
filled at US pharmacies
more prone to abuse, such as opioids. A 2018 study
by government scientists published in the American
Journal of Psychiatry found that only 2.7% of people
who took ADHD drugs had stimulant-use disorders. 3.5m
Jeb Oliver, a 34-year-old social worker in
La Grande, Oregon, says he’s been in “constant
crisis mode” since his local pharmacy first ran out 3.0
of Adderall last December. He upped his caffeine
intake, and in spring he tried switching to Vyvanse,
but his insurance wouldn’t cover it, and he couldn’t 2.5
afford to pay out of pocket. So he’s gone weeks with
half-doses of Adderall or skipped it altogether, leav-
ing him at times unable to focus enough even to 2.0
do household chores. “It’s not like we’re addicts 1/2015 8/2023
seeking a fix,” he says. “We’re people trying to get
through our lives.” �Gerry Smith and Ike Swetlitz
THE BOTTOM LINE Drugmakers say DEA restrictions prevent
them from fully addressing ADHD medication shortages, but the
agency says the industry isn’t producing as much as it’s allowed.
 ◼ BUSINESS Bloomberg Businessweek September 18, 2023

When Should You Buy Your

Concert Tickets?
12 days Day of 14 days 1 day
◀ ● Beyoncé $443 ● Billy Joel $198 ● Anuel AA $231 ● SZA $532
Day of
Sat., July 29 Fri., June 2 Sun., May 28 Sat., March 4 $522
Buy MetLife Madison Madison Madison Square
Stadium Square Square Garden
your Day of
$343
Garden Garden Day of
$175
ticketss
earlierr 92 days 92 days 86 days 82 days
$246 $109 $99 $187

6 days 52 days 11 days Day of

● Taylor Swift $2,320 ● Taylor Swift $2,772 ● Taylor Swift $2,590 ● Blink-182 $243
Fri., May 26 Sat., May 27 Sun., May 28 Fri., May 19
MetLife Stadium MetLife MetLife Stadium Madison Square
Stadium Garden
Day of Day of
Day of $1,531 2
$1,442
$1,349

72 days 71 days 71 days 66 days

12 $865 $690 $830 $142

Day of 1 day 4 days 100 days

● John Mayer $439 ● Drake $477 ● Drake $444 ● Paramore $166
Wed., March 15 Sun., July 23 Day of Tues., July 18 Tues., May 30
n
Madison Square Garden Madison Square $462 Barclays Center Madison
Garden Square
Day of
Garden
$334

Day of
$133
ys
34 days 27 days 24 days 24 days
$183 $251 $212 $117

75 days 67 days 49 days 100 days

● Bruce $285 ● Suga $823 ● Twice $87 ● Blackpink $124
Springsteen Sat., April 29 Thurs., July 6 Sat., Aug. 12
Tues., April 11 Prudential MetLife MetLife Day of
UBS Arena Center Stadium Stadium $94
Day of Day of
$410 $67
Day of
$159
7 days 7 days 7 days 6 days
$153 $233 $57 $45

70 days 22 days 35 days 26 days

● Depeche Mode $443 ● Ed Sheeran $136 ● Jonas Brothers $102 ● Metallica $188
Fri., April 14 Sat., June 10 Sat., Aug. 12 Fri., Aug. 4
Madison Square MetLife Stadium Yankee MetLife
Garden Stadium Stadium

Day of Day of Day of Day of

$199 $85 $53 $79
◼ BUSINESS Bloomberg Businessweek September 18, 2023

Cheapest Pop Resale prices for concert tickets vary wildly, depending on the artist,
listing available Rock the venue and—especially—when you buy. Using data from ticketing
daily, by days K-pop platform SeatGeek, we looked at the best time to purchase tickets in
to show R&B/hip-hop the 100 days leading up to dozens of shows in the New York City
Latin area this year. Prices often skyrocket in the days just before artists
such as Drake and Beyoncé hit the stage, but for K-pop acts
and old-timers such as Bruce Springsteen and Metallica, they can
Minh Anh Nguyen
plummet. �Minh-Anh

11 days 27 days Day of 3 days

● Beyoncé $418 ● Romeo $184 ● SZA $671 ● Billy Joel $245
Sun., July 30 Day of Santos Sun., March 5 Fri., Jan. 13 Day of
MetLife $416 Fri., June 9 en
Madison Square Garden Madison Square $234
Stadium Citi Field Garden

Day of
$144

81 days 77 days 75 days 74 days

$230 $126 $181 $116

Day of Day of Day of 4 days

● Drake $521 ● Rauw Alejandro $198 ● Drake $437 ● Drake $452
Tues., July 25 Thurs., March 23 Fri., July 21 Mon., July 17 Day of
Madison Square Prudential Center Barclays Barclays Center $393
Garden Center

66 days 63 days 55 days 45 days

$214 $81 $166 $214 13

Day of 4 days 68 days

● Drake $585 ● Drake $452 ● Bruce $545
W
Wed., July 26 Thurs., July 20 Day of Springsteen
M
Madison Square Barclays Center $419 Fri., April 14
G
Garden Prudential Center

Day off
$337

23 days 15 days 13 days

$207 $203 $239

53 days 17 days 48 days 12 days 99 days

● Bruce $331 ● Blink-182 $163 ● Bruce $677 ● Metallica $167 ● Billy Joel $164
Springsteen Sat., May 20 Springsteen Sun., Aug. 6 Tues., Feb. 14
Sun., April 9 UBS Arena Sat., April 1 MetLife Madison
UBS Arena Madison Square Stadium Square
Garden Garden
Day of
$186 Day of Day of
Day of
$83 $293
$63
2 days 1 day 1 day 1 day Day of
$141 $68 $250 $58 $68

99 days 60 days 70 days 72 days

● Paramore $157 ● Pink $224 ● Suga $647 ● Suga $775 ▶
Wed., May 31 Thurs., Aug. 3 Wed., April 26 Thurs., April 27
Madison Citi Field UBS Arena UBS Arena Buy
Square Garden
your
tickets
ARTISTS: GETTY IMAGES (10)

Day of Day of Day of Day of

later
$92 $68 $99 $89
 Bloomberg Businessweek September 18, 2023

2
Google’s
T Big Trial
E Features
C Apple, Too
H
N
14
O
L
O
G
Y ILLUSTRATION BY YANN BASTARD

The antitrust case could be the most significant

Edited by
Joshua Brustein courtroom threat to US tech in decades
◼ TECHNOLOGY
One of the defining relationships in modern Silicon
Valley is the interaction between Apple and Google.
For decades the companies have mixed intense
competition—Apple Inc. co-founder Steve Jobs
once famously threatened to wage “thermonu-
clear war” on Google over its entry into the smart-
phone business—with enthusiastic collaboration.
Since 2005, Google has paid Apple billions of dol-
lars to be the default search engine on its Safari web
browser, a deal that’s brought the two trillion-dollar
corporations together in ways that have raised eye-
brows in Washington. “Our vision is that we work
as if we are one company,” wrote a senior Apple
employee to a Google counterpart following a 2018
meeting to help make the pact more profitable.
That message is part of a trove of potentially
damning internal communications coming to light
as part of the US Department of Justice’s antitrust
case against Alphabet Inc.’s Google, where the
government accuses the search giant of freezing
out competitors through deals like the one it has
with Apple. The trial marks the first time since the
case against Microsoft Corp. more than two decades
ago that allegations of anticompetitive behavior in
Silicon Valley will be hashed out in federal court.
The moment marks a new era of trustbusting
aimed at the tech sector. The Justice Department
has already filed a second antitrust case against
Google over its advertising dominance. The Federal
Trade Commission, a sister agency that’s been far
more aggressive under current chair Lina Khan than
at any time in the recent past, is seeking to break
up Facebook parent Meta Platforms Inc.; the FTC is
also expected to sue Amazon.com Inc. for antitrust
violations this month, while a Justice Department
probe into Apple could result in another lawsuit
later this year.
This first trial, which is scheduled to take
10 weeks, focuses only on Google’s alleged monop-
olization of the online search market, but if the
Justice Department wins, it may seek to break off
Alphabet’s search business from other products,
Android and Google Maps among them. Such an
outcome would be the biggest forced breakup of
a US company since AT&T Corp. was dismantled
in 1984. Regardless of the result, the trial has the
potential to be damaging not only to Google but also
to business partners such as Apple, whose execu-
tives will be compelled to testify and whose emails
will be pored over in open court.
The Justice Department and 52 attorneys gen-
eral representing US states or territories accuse
Google of paying billions of dollars to maintain its
monopoly over search through agreements with
tech rivals, smartphone manufacturers and wireless
Bloomberg Businessweek September 18, 2023
providers. While Google made a number of these
deals, its agreement with Apple looms largest. First
forged 18 years ago, it made Google Apple’s default
search engine, while giving Apple as much as a 50%
share of the ad revenue Google made from searches
by users of Apple’s Safari browser. Google rode the
wave of Apple’s successes in mobile, and enforcers
say it now has a 90% share of the overall search mar-
ket. At the same time, Apple has pocketed billions of
dollars annually from the relationship—an estimated
$18 billion in 2022 alone, according to Sanford C.
Bernstein & Co. analysts.
The Justice Department’s allegations mirror
those made in the Microsoft case from the late
1990s, which centered on that company’s practice of
pre-installing its Internet Explorer browser on com-
puters that ran the Windows operating system, then
imposing technical obstacles to prevent computer
manufacturers or consumers from installing rival
web browsers such as Netscape. Google rejects such
comparisons. Unlike Microsoft’s browser defaults,
Google’s deals do not include any technical bar-
riers that restrict switching to competing brows-
ers, and the process is simple, according to Kent
Walker, Alphabet’s chief legal officer. “People don’t
use Google search because they have to, they use it 15
because they want to,” he says. Google has likened
its search deals to those that cereal companies make
with grocery stores for prime shelf space.
The power of default settings in tech has been
the subject of significant research. Eric Johnson, a
professor at Columbia Business School who stud-
ies decision-making, says defaults can signifi-
cantly affect consumer choices even when the
technical barriers to switching are low. In one
study, for example, 82% of people agreed to be an
organ donor if the “yes” box on the form was
Dominating the Default Setting
Browser market share in the US
Browser’s default search engine ◼ Google ◼ Other
Firefox changes default from Google
to Yahoo, then switches back
100%
Microsoft
browsers
50
Safari
Firefox
Chrome
0
1/2009 1/2014 1/2019 8/2023
DATA: STATCOUNTER. MICROSOFT BROWSERS INCLUDE INTERNET EXPLORER, IEMOBILE, EDGE AND EDGE LEGACY
 ◼ TECHNOLOGY
prechecked, versus only 42% when “no” was the
default choice. “It’s not just the physical effort of
clicking or unclicking a button,” says Johnson, who’s
spent 30 years researching how the presentation
of choices changes consumer behavior. “It’s that
mental effort. The crux here is that people don’t
really want to think about—or aren’t even aware—
that there’s a choice.”
Apple demonstrated this power in 2012, when it
switched the default map program on iOS devices
to its own maps app, which is widely seen as infe-
rior. Google analyzed how many users it lost from
that change, then how much revenue it might lose
if Apple switched to a different search engine. That
analysis, the Justice Department said last year,
inspired Google to re-up its search deal when it
expired after 10 years.
A major inspiration for the original partnership,
according to Apple executive Eddy Cue, was simply
convenience. At the time, Microsoft’s Windows and
Internet Explorer were the market leaders, and
Apple sought to offer an alternative, introducing its
Safari browser with new features including a built-in
search bar. “The idea, originally, was to just pro-
vide an easy way for customers, if they searched on
16 this field, not to have to type in a URL,” Cue said in
a 2022 deposition in the case. “We eliminated that
whole middle step.”
When Google and Apple made their deal in 2005,
Safari accounted for only 1.3% of the search mar-
ket. But its share rose with the success of its mobile
devices, and by 2014, Google was paying Apple
about $1 billion a year for its default status on Safari,
according to a figure shared accidentally during a
court hearing in an unrelated lawsuit.
Deals in which search engines pay for default
status on web browsers and mobile devices aren’t
unusual. In addition to Safari, Google is the default
search engine on the Firefox browser, developed by
the nonprofit organization Mozilla, through a deal
that accounted for 83% of Mozilla’s revenue in 2021.
Verizon agreed to pre-install Microsoft’s Bing as its
default search engine, and AT&T teamed up with
Yahoo! Inc. But by 2011, AT&T, Sprint, T-Mobile and
Verizon entered pacts with Google that would pay
them 15% to 40% of the advertising revenue on the
devices the carriers sold to customers. The strategy
was important because “otherwise Bing or Yahoo!
can come and steal away our Android search dis-
tribution at any time,” a Google executive wrote in
a 2011 email cited in court filings in the case. “Our
philosophy is that we are paying revenue share *in
return for* exclusivity.”
A Google executive told FTC investigators in 2012
that the company’s search volume could decrease as
Bloomberg Businessweek September 18, 2023
◀ Cue and Cook
much as 50% if Apple replaced Google Search with
Bing. “We are paying for the promotional place-
ment and the default setting,” he said, according to
a leaked 2012 FTC memo first published by Politico
in 2021. By 2020, when the Justice Department and
states sued, they estimated that Google was the
default on 90% of mobile browsers and 83% of com-
puter browsers.
Google has never disclosed how much it pays in
these deals. According to the FTC memo, the com-
pany paid between $10.9 billion and $13.1 billion in
2012 to secure its default position. In securities fil-
ings, the company discloses payments made to part-
ners from revenue-sharing agreements, along with
money paid to website publishers and YouTube cre- “The crux here
ators for advertising, in one figure. Those payments is that people
amounted to $48.95 billion in 2022. don’t really
When Apple and Google renegotiated their deal want to think
in 2016, the amended agreement expanded use of about—or
Alphabet’s search engine to Siri—which had been aren’t even
using Microsoft’s Bing—and Spotlight, a search fea- aware—that
ture to find programs and files on Apple devices. there’s a
Two years later, Apple Chief Executive Officer Tim choice”
Cook and Alphabet CEO Sundar Pichai, who were
involved in those negotiations, met again to discuss
how the companies could work together to drive
search revenue growth, the Justice Department
said in its complaint.
Walker, Alphabet’s chief legal officer, says
there’s nothing nefarious about such deals and
that Google views its relationship with Apple as
one of “co-opetition”—part cooperation, part
competition. “We work with them on a variety of
different areas and make our products and services
available” on the iPhone, he says. “At the same
time, we compete with them.”
But while such a deal may have seemed
benign in 2005, the situation changed as the com-
panies became so large, according to Rebecca
Allensworth of Vanderbilt Law School. Their
multibillion-dollar deal is effectively buying them
protection against future competition. “You are
KEVIN DIETSCH/GETTY IMAGES
not supposed to be able to cooperate with your
competitors,” she says. �Leah Nylen
THE BOTTOM LINE Prosecutors say that Google’s deals to pay
to be the default search engine in web browsers, including Apple’s
Safari, are anticompetitive.
◼ TECHNOLOGY Bloomberg Businessweek September 18, 2023

Who Owns Your Internet

A lot goes into each visit to the internet: A single, casual trip online requires access to a device, an
operating system and likely some combination of web browser, search engine and dedicated apps.
So much of this digital real estate is owned and operated by so few companies. Apple Inc. dominates
mobile devices, and Alphabet Inc. has more than a 50% market share in browsers and search, as well
as the top two visited websites worldwide. In the US, Meta Platforms Inc. controls all three of the most
popular social media services. �Dorothy Gambrell

Parent company ◼ Alphabet ◼ Apple ◼ Meta ◼ Microsoft

Ten most popular Ten most popular
Ten most visited mobile apps for social networks by
websites, monthly iOS and Android share of internet
Mobile device PC shipments Operating system Browser market Search engine average page combined, average users who visit
market share, US market share, US market share, US share, US market share, US views, US monthly users, US them monthly, US

Apple Dell Windows Chrome Google Google.com YouTube Facebook

57% 27% 39% 52% 89% 18.6b 244m 74%

Amazon
238
Instagram
54

HP 17
27
Gmail
186 Messenger
53

OS X
21 Google
174
TikTok
40

Youtube.com TikTok
Safari 6.4 157
Lenovo 31 Apple iMessage
17 37
Samsung
26 iOS
19 Instagram
151 Twitter
36

Facebook.com
3.2 Facebook
Apple Pinterest
146
13 34

Amazon.com
Android 1.9 Messenger
14 Snapchat
129
Yahoo.com 31
Motorola Edge
Acer 1.8
4 8
6
Google 3 Twitter.com 1.3 Google Maps LinkedIn
Bing 113 28
Other Asus 3 Instagram.com 1.1
Firefox 3 6
10 ChromeOS
Other Wikipedia.org 1.0
4 Google Photos Reddit
7 Opera 3 Other Reddit.com 0.8 102 25
Other 4 5
Other 2 Pornhub.com 0.7
DATA: STATCOUNTER AUGUST 2023 (MOBILE DEVICE, OPERATING SYSTEM, BROWSER, SEARCH), GARTNER Q2 2023 PRELIMINARY DATA (PCS),
SIMILARWEB JANUARY TO JULY 2023 (WEBSITES), SIMILARWEB QUARTER ENDING AUGUST 2023 (APPS), GWI Q2 2023 (SOCIAL)
 Bloomberg Businessweek September 18, 2023

3
Investors Stand by Israel’s
F Tech Startups, for Now

I The turmoil unleashed by Prime Minister Netanyahu’s efforts

to curb the judiciary hasn’t scared off venture capital funds

N For more than eight months, Israel’s business

leaders have helped lead the massive protests
against Prime Minister Benjamin Netanyahu’s
American venture capital funds, 2023 is on course
for a steep decline. Venture investing in Israel fell
74% in the first six months of the year compared

A
efforts to restrict the powers of the judiciary,
warning that they threaten democracy and will
drive capital and talent away from a country that’s
become an investor darling.
with 2022, to $1.83 billion, according to research
firm PitchBook. Globally, that figure dropped only
49%. The Israeli government’s figures for the first
quarter of 2023 recorded a 60% drop.

N
Yet interviews with more than 25 tech inves- Foreign funds active in Israel say they aren’t
tors, lawyers and bankers show that behind pulling back, attributing today’s five-year low in
the scenes some of those business leaders are
reassuring investors abroad that things are going

C
to be fine, at least in the short and medium term.
They also say most Israeli startups are positioned
to focus on the US market, leaving investors with
18 limited exposure to the domestic upheaval.

E
“We would like for Israel to be a stronger soci-
ety, a less fractured society and a stronger democ-
racy rather than a weaker one,” says Nicole Priel, a
partner at Denver-based venture capital firm Ibex
Investors who runs its Tel Aviv office. “But we don’t
think that it is going to get in the way of our invest-
ment strategy and our investment pace or profile.”
Economists at the Bank of Israel have warned
that the government’s plan to weaken the judiciary
is hurting Israel’s economy and will drive away
foreign investment. The country’s currency, the
shekel, has been rocked by the political turmoil, and
credit agencies have issued warnings. Dealmaking
has been slow, and Israeli lawyers and bankers have
suggested the judicial overhaul is playing a role.
Despite such concerns, Netanyahu’s campaign
hasn’t yet caused investors to bolt for the exits.
Meanwhile, large multinationals such as Amazon
Web Services, Intel and Nvidia are expanding
in Israel with billion-dollar projects. An Israeli
AI company, AI21, achieved unicorn status in
August. Weapon exports to Asia and Europe are
soaring. Fitch Ratings Inc., in an announcement
on Aug. 14 that it would not downgrade Israel sov-
ereign debt, said the judicial changes are “unlikely
to trigger a material exodus of talent and capital
in the high-tech sector.”
Edited by
Eric Gelman and
After a 2021 boom brought in record amounts
Cristina Lindblad of cash to Tel Aviv, with as much as four-fifths from
 ◼ FINANCE
investment to the global downturn and persistent
high valuations of Israeli companies. Scott Tobin, a
senior partner at Battery Ventures’ Tel Aviv office,
said in an email he’s not seeing “any political moti-
vated pullback” linked to the judicial reforms. “Good
companies in Israel are still being highly sought after
from global funds and the competitive dynamics for
those investments is still very strong,” he wrote.
Hundreds of thousands of Israelis have pro-
tested at least weekly since January, at times shut-
ting down the airport and swaths of the economy.
Talk of emigration is growing, particularly among
the mobile tech class, many of whom hold foreign
passports and are concerned about the sudden
rise of ultranationalist and ultrareligious policy-
makers. Tech workers account for one-quarter
EYAL WARSHAVSKY/AP
of Israel’s income tax revenue, and the sector
accounts for more than half of its exports.
Some funds are taking measures to make sure
their Israeli portfolio companies are registered or
Bloomberg Businessweek September 18, 2023
incorporated in the US early, cash reserves are
parked abroad and founders are relocated—trends
that predate the current crisis but have picked
up since the political turmoil began. A survey of
more than 500 Israeli companies by the Israel-
based Start-Up Nation Policy Institute found that “Good
more than two-thirds have taken legal steps, such companies in
as changing their headquarters or moving funds Israel are still
abroad since the judicial overhaul was announced. being highly
“Israeli high tech remains attractive to sought after”
US investors for the same reason it was attractive
eight months ago,” says Adam Fisher of Bessemer
Venture Partners, who’s taken a public stand
against the government policy. “Israeli high tech is
aspiring, it’s diverse in terms of its industries, and
it’s also proven to be resilient to external shocks
of all types.”
Because Israeli tech startups aim to sell their
products and shares in the US market, Fisher says
what’s happening in domestic markets—from the
shekel to the Tel Aviv stock exchange and even ◀ Israeli protesters
in Jerusalem rally
real estate—doesn’t really matter. “Ultimately,” against Netanyahu’s
he says, “the far bigger market risk is whether judicial reforms
there’s a recession in the US, whether US busi-
nesses are buying software.” �Marissa Newman,
with Mark Bergen and Lizette Chapman 19
THE BOTTOM LINE Because Israel’s technology sector is so
focused on the US market, it may be relatively immune to domestic
political disruption.
Troubled
By the Fed
● The effects of higher US interest rates are taking a bigger
toll on many countries than China’s slowdown
For all the worries about the potential global
spillovers from China’s economic troubles, it’s
actually the US Federal Reserve that’s inflicting
pain on much of the world at the moment.
The reason: Although financial markets had
been pricing in rate cuts for the latter part of 2023,
it’s become clear that US interest rates are likely to
stay high as the threat of a recession recedes but
US inflation continues to show signs of stickiness.
 ◼ FINANCE
Investors are coming to grips with the idea
that the federal funds rate could remain at its cur-
rent 5%-plus level—the highest in 22 years—well
into next year. Many middle-income and devel-
oping nations are having to delay plans for cutting
rates, even if it means curbing growth, because
of the risk of triggering destabilizing capital out-
flows. “It’s hard to decouple completely from the
Fed,” says David Loevinger, a managing director
in the emerging markets group at asset manager
TCW Group Inc., who’s a former China specialist
at the US Department of the Treasury.
Countries are feeling the effects of the Fed’s
actions in various ways. Higher US rates make
dollar-denominated assets more attractive, suck-
ing money out of other markets and causing their
currencies to depreciate. This dynamic adds to
inflation pressures and makes it harder to pay
back debt that was issued in dollars.
The Bloomberg Dollar Spot Index provides one
gauge of the extent of the pain. It tracks the perfor-
mance of the greenback against a basket of 10 major
currencies and has been climbing since mid-July,
the longest upswing since 2005. Also, data com-
piled by the International Monetary Fund shows
20 that emerging and developing economies are now
growing at rates that are comparable to those of
advanced economies, instead of outperforming
them as they had for most of this century.
No question, China’s slowdown creates head-
winds for many economies, especially in Asia, that
now face diminished demand for their exports.
But in capitals from Jakarta to Brasilia, the talk of
the town lately has been why the national central
bank isn’t moving more quickly to lower borrow-
ing costs. “In the contest of who’s roiling markets
globally, the Fed wins hands down,” Loevinger
says. “Despite all the hand-wringing, China’s cur-
rent downturn isn’t as big as those in 2008, 2020
and 2022,” he says.
China itself is among those affected by high
US rates. The People’s Bank of China (PBOC) has
been increasingly forceful in its defense of the
yuan, orchestrating sales of dollars to prop it up
and warning that speculators will be punished.
Nevertheless, the yuan has tumbled to the lowest
level since 2007. At a Sept. 5 briefing organized
by the Chinese Embassy in Washington, spokes-
man Liu Pengyu said, “Major developed econo-
mies have adopted contractionary policies that
cause spillover impacts.” That’s diplo-speak for
“Blame the Fed.”
The Reserve Bank of India has also intervened
in markets to support the rupee. And since Japan’s
currency crossed the psychological threshold of
Bloomberg Businessweek September 18, 2023
How Much Does It Hurt?
Change in real GDP Bloomberg Dollar Spot Index
Emerging market and developing economies
Advanced economies
8% 1260
4 1240
0 1220
-4 1200
2000 2022 12/30/22 9/12/23
DATA: INTERNATIONAL MONETARY FUND WORLD ECONOMIC DATABASE, BLOOMBERG
145 yen to the dollar earlier this month, speculation
has raged that the Bank of Japan is contemplating
an exit from negative interest rates.
A cooling Chinese economy is having rip-
ple effects internationally. Foreign investors
have been unloading China’s blue-chip stocks
for months, contributing to the longest stretch
of outflows from Chinese equities on record.
Companies including Mercedes-Benz Group AG
and Caterpillar Inc. have alluded to fading demand
in China in earnings calls, and South Korea and
Germany have seen exports to China fall.
Even so, the Chinese economy is still expected
to grow around 5% this year. And it’s notable that
even though the yuan has slipped against the dollar,
it hasn’t stoked the kind of global financial turmoil
seen in 2015, when a surprise devaluation by the
PBOC spooked investors around the world. “China
obviously is important, but so far the extreme pes-
simism has been contained within Chinese assets,”
says Janet Mui, head of market analysis at RBC
Brewin Dolphin. “Investors still ultimately believe
the Chinese government will cushion the economy
and prevent financial contagion.”
At the next meeting of its rate-setting commit-
tee on Sept. 19-20, the Fed will release its quarterly
summary of economic projections. The forecasts,
which run into 2025, are eagerly awaited for the
clarity they may provide on the trajectory of inter-
est rates. Hao Hong, chief economist at Grow
Investment Group and a veteran China observer,
sums up the view in markets around the world:
“Everyone is watching the Fed.” �Enda Curran
and Christopher Anstey
THE BOTTOM LINE US interest rates, at their highest in 22 years,
are preventing many countries from lowering their own, because of
the risk of triggering capital outflows and currency weakness.
 IPOs Looking for a Rebound
The market for US initial public offerings has been sluggish. High interest
rates, a banking crisis, economic uncertainty and poor returns from recent
IPOs have weighed on investors. Spirits may revive with much-anticipated
offerings from Instacart and chip designer Arm, which is scheduled to start
trading on Sept. 14. And Birkenstock has filed to go public. �Michael Hytha

The slowdown came after a surge in money raised through offerings primarily Behind the Slump
by technology and consumer companies. Financials and communications
businesses also helped drive the market before the retreat.
① Private valuations for startups
Value of IPOs on US exchanges, by pricing date have been pummeled recently.
◼ Tech ◼ Consumer ◼ Communications and internet ◼ Other
Instacart valuation

March 2021
*TOP OF RANGE. DATA: BLOOMBERG (IPO VALUES), FEDERAL RESERVE (FED FUNDS RATE), PITCHBOOK AND BLOOMBERG REPORTING (INSTACART VALUATION), BLOOMBERG ECONOMIC SURVEY (RECESSION PROBABILITY)

$39b
$24b
September 2023
$9.3b*
Includes a
combined
$7.2b raised in
offerings from
Airbnb and ② Rates have soared—and with
DoorDash them, the bar for investor returns.
Fed funds rate (upper bound)
18
21
6%
Includes $13.7b
raised in Rivian
Automotive’s
offering 3

12 0

9/6/19 9/8/23
Includes $2.2b
raised in Warner
Music Group’s Includes $4.4b raised in
offering a carve-out of Kenvue,
Johnson & Johnson’s ③ The banking crisis triggered
consumer-health unit by the collapse of startup lender
Silicon Valley Bank added
6 scrutiny to new businesses.

④ The uncertain outlook curbs

the market’s appetite for risk.
Probability of a US recession in the next
12 months, Bloomberg economic survey

0 100%

9/2019 3/2021 9/2023

AS OF 9/12

50
While 1,955 companies that filed for IPOs in the past
More to three years have completed them, listings for 525 others
Come seeking to raise more than $40 billion remain pending as 0
of Aug. 31, according to data compiled by Bloomberg. 9/2019 8/2023
 Bloomberg Businessweek September 18, 2023

E
C
O
N
O ①

22
M
I ② ③

C
S Mexico’s Moment The country has passed China as the biggest exporter
to the US. Now it has to keep the investment boom going

The new Cold War is a business opportunity, and
Mexico looks better placed than almost any other
country to seize it.
US-China tensions are rewiring global trade, as
the US seeks to reduce supply chain reliance on geo-
political rivals and also source imports from closer
to home. Mexico appeals on both counts—which is
one reason it’s just overtaken China as the biggest
supplier of goods to the giant customer next door.
On top of resurgent exports, Mexico boasts
the world’s strongest currency this year and one
of the best-performing stock markets. Foreign
Edited by
direct investment is up more than 40% in 2023,
Cristina Lindblad even before Tesla Inc. starts building a proposed
$5 billion factory. Not since the signing of the North
American Free Trade Agreement in the 1990s has
the country held the kind of allure for investors that
it has right now.
Yet, Mexico has a history of missing what
could’ve been its moments. During the past three
decades, even a trade deal with the world’s big-
gest economy—which, just like today’s wave of
so-called nearshoring, brought plenty of foreign
investment—couldn’t pull Mexico out of a rut.
Since 1994, the year Nafta took effect, growth
has averaged about 2% a year, well below par for
developing economies, and nowhere near enough
to lift millions of Mexicans out of poverty. Turkey,
 ◼ ECONOMICS Bloomberg Businessweek September 18, 2023

① ② An industrial
construction site
in Monterrey, a
favorite location for
manufacturers setting
up in Mexico
③ A sign in Nuevo León
state trumpets a future
Tesla Gigafactory
④ A traffic jam near
a cargo depot in
Monterrey

23

Malaysia and Poland are just three examples of
nations that were poorer than Mexico at the start
of this century and are now substantially richer.
And there are plenty of obstacles, old and new,
ALEJANDRO CEGARRA/BLOOMBERG (3). TESLA SIGN: JULIO CESAR AGUILAR/AFP/GETTY IMAGES. DATA: US CENSUS BUREAU
that connect to satellites, allowing autonomous
driving—somewhere nearby, instead of shipping
them all the way from China. Taiwan-based Quanta
Computer Inc., Campa’s employer until recently,

that could cut the current boom short. The govern-
ment of President Andrés Manuel López Obrador
has repeatedly clashed with business interests as
it seeks to bolster the state’s role in the economy.
Mexican companies have been reluctant to borrow
and make the investments that could help turn a
growth spurt into something more enduring. And
the country is up against fierce competition, from
Vietnam and other nations, in the race to replace
China as a supplier to the US.
What’s more, even the investments Mexico
is already getting are putting its infrastructure
stepped up to meet the demand from a plant in
Monterrey, the capital of Nuevo León state. “We
started to outfit the building by August, and by
December we were producing,” he says. Soon, Tesla
itself will be a neighbor, with construction of the ▼ Monthly share of US
imports, 12-month rolling
Monterrey Gigafactory due to start this year. average
Campa describes how the plant kept getting hit China
by power blackouts that took a chunk out of its pro- Mexico
ductivity, because the city’s electrical grid strug- Canada
gles to keep up with its fast-growing industries. At
such moments, he says, his thoughts on Mexico’s
prospects turned gloomy. He wondered if “much 20%

under growing strain, amid bottlenecks created of nearshoring will go elsewhere—because we don’t
by erratic power transmission, limited industrial have the capacity to receive it.”
space and water scarcity. For all the pitfalls, there’s no doubt that parts
Pedro Campa Eliopulos, a tech executive in the of Mexico look like industrial boomtowns right 15

northern industrial hub of Monterrey, has a close-up now. In Monterrey, dust from the diggers is every-
view of Mexico’s potential for liftoff—and the limita- where as new plants spring up. Warehouses are
tions. Two years ago, when Tesla was poised to open sold before the ceilings and the doors get installed.
a factory in Texas, it was seeking a supplier to make Industrial space has grown 30% since 2019, accord- 10

the “brains” of its electric vehicles—the computers ing to real estate adviser CBRE Group Inc. 1/2017 7/2023
 ◼ ECONOMICS
That’s partly because of the rush to provide
components for Tesla. AGP Group makes wind-
shields, China’s DSBJ makes electronics parts,
Italy’s Brembo makes brakes—and they’re all set-
ting up or expanding factories.
All told, more than 30 companies have moved to
Nuevo León since Tesla announced plans to build
factories there and in Texas, according to Iván Rivas
Rodríguez, Nuevo León’s economy minister. “It was
a request from Tesla to its suppliers, telling them,
‘You have to come to North America,’ ” says Rivas,
who sees his own job as making sure the deals close.
It’s not all about Tesla, though. Other car-
makers including General Motors, Kia and BMW
have announced EV investments in Mexico since
the start of 2021. Electronics and home appliance
makers are expanding in the center of the country.
Across the border from California, the aerospace
and plastics industries are growing.
Industrial parks are filling up fast. Nationwide,
vacancies fell to 2.1% last year, according to the
Mexican Association of Private Industrial Parks. In
Monterrey, getting a lease typically requires a 10-year
commitment now. The association estimates that
some three-quarters of renters are foreign compa-
24 nies. And a survey by Spanish bank BBVA found that
1 in 5 of the new arrivals are Chinese businesses—
many of which are looking to sidestep US tariffs.
Industrial real estate developer Corporación
Inmobiliaria Vesta SAB—which raised almost
$450 million in a US initial public offering in July,
the biggest by a Mexican company in more than
a decade—says it’s accelerating a $1.1 billion pipe-
line of projects as nearshoring revs up demand.
⑤ ⑥
Bloomberg Businessweek September 18, 2023
Prologis Property Mexico SA and its parent
company are planning a $1.2 billion investment in
warehouses and land.
Local landowners are among the big winners,
too. “We’ve spent 15 years saying, ‘We’re here,
we’re here’—and then, boom!” says José María
Garza De Silva, the third generation in his family at
the helm of developer Grupo GP, whose early proj-
ects included housing developments and the city’s
first shopping mall. The company is a stakeholder
in Monterrey’s biggest industrial park.
Still, Nuevo León’s natural resources might
impose one set of limits on growth. A drought last
year left reservoirs almost empty and thousands
of residents without water. Local industry had to
accept a smaller share of the state’s supplies, and
the government is racing to build a new aqueduct
to bring water to Monterrey.
Then there’s the question of whether domestic
investment will pick up—which could help spread
the benefits of the nearshoring boom more widely,
and shift the economy onto a faster growth track.
Absent that, some economists say Mexico will just
end up importing more components to be assem-
bled for export, with little value added locally.
Northern Mexican lender Banco Base SA has
seen its loan book expand some 75% in the past five
years. That’s partly thanks to the renewed inter-
est in exporting to the US, says Gabriela Siller, the
bank’s director of economic analysis. But she’s
⑤ A demonstrator
concerned that Mexico isn’t making the most of protesting electricity
this latest surge in investment. blackouts in Monterrey
⑥ Residents also
“Nearshoring is an opportunity in Mexico, one endured water
that we’re not taking full advantage of,” says shortages last year
PROTEST: MAURICIO PALOS/BLOOMBERG. WATER SHORTAGE: MARIAN CARRASQUERO/BLOOMBERG
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 ◼ ECONOMICS
Siller. For reasons that include high interest rates
and an entrenched informal economy, smaller busi-
nesses haven’t been able to use credit to expand,
she says. “Many companies don’t want to take
risks—the local ones more than the foreign ones.”
And what investment there is tends to be concen-
trated in a handful of places, like Nuevo León.
That’s essentially what happened under Nafta—
and it’s the outcome López Obrador says he’s
determined to prevent this time around. Known
as AMLO, the popular president is entering his
final year in office and wants to leave his Morena
party well-placed to hold on to power in elections
next summer. “We’re seeking to make growth in
Mexico more horizontal,” AMLO—who hails from
the relatively poor southern state of Tabasco—told
reporters in April. He’s repeatedly pointed to the
water shortage in places such as Nuevo León as
the kind of problem that arises when growth in
the economy, and consequently the population,
is lopsided.
AMLO has earned a reputation for being anti-
business. He’s tried to curtail the role of foreign
companies in Mexico’s energy markets and earlier
this year dispatched troops to renationalize a pri-
26 vately run railway line, before reaching an accord
with its billionaire owner. On the other hand, the
president was actively engaged in talks with Elon
Musk about the Tesla investment and says he wel-
comes job-creating foreign companies—he just
would like to see them spread more evenly across
the country.
So far, the leading contenders in next year’s
presidential election say they’ll continue pushing
to develop the south. Claudia Sheinbaum, who’s
AMLO’s protégée, has promised to see through many
of his plans. Xóchitl Gálvez, a businesswoman and
senator who’s the main opposition candidate, says
she’ll seek to channel more investment into renew-
able energy, as well as better training for women to
expand the country’s technical workforce.
Mexico made its reputation in world manufac-
turing with what are called maquilas—factories that
sprung up as early as the 1960s, mostly along the US
border. It was a profitable model of assembly-line
production, employing low-wage labor. Under
Nafta, exports got an additional boost, accelerating
the growth of northern cities such as Monterrey.
But the trade deal also enabled a surge in imports
of corn and other US-grown foods that made
small-scale farming less viable—emptying out the
Mexican countryside and entrenching the wealth
gap between north and south.
López Obrador keeps a notoriously tight grip on
the public purse, but he’s made an exception for
Bloomberg Businessweek September 18, 2023
US Dependence on Mexican Goods Has Increased
Share of US imports from Mexico, January 2017 to June 2023
2017 to 2023 ● 2023 trade value 40%
$151b
Electrical equipment
Agricultural products
Computers and electronics
30
Transportation and autos
Nonmetallic minerals
Fabricated metals
$43b
Plastics and rubber
20
Beverages and tobacco
Machinery
$81b
Furniture
Food
$30b
10
DATA: US CENSUS BUREAU, BLOOMBERG. SEASONALLY ADJUSTED
public investments aimed at leveling up the south.
Projects underway include a rail link between the
Gulf of Mexico and the Pacific, which goes by the
grand name of Interoceanic Corridor. Officials envis-
age the route as lined with industrial parks and say it
could eventually rival the Panama Canal.
The problem, from an investor’s point of view,
is that all these locations are simply farther from
the US. When Mauricio Garza, the director of
Nuevo León’s biggest industrial park, is pitching
customers, he never forgets to mention that you
can drive to a border crossing in less than three
hours without hitting a single red light.
Ultimately, Mexico’s appeal to global businesses
rests on “its geography and its free-trade agreement”
with the US, says Gerardo Esquivel, a former dep-
uty chief of the country’s central bank. Those two
advantages are going to bring more investment flows
“even if Mexico doesn’t do anything,” he says.
Overall, Esquivel is upbeat about the boost
Mexico’s economy will get from nearshoring, citing
estimates that it could end up adding as much as
0.7 percentage point of gross domestic product each
year. “It seems little, but it’s not, considering that we
grow 2% per year,” he says. “Going up to 2.7% or 3%
a year would be great.” �Maya Averbuch and Leda
Alvim, with Felipe Hernandez and Heitor Caixeta
THE BOTTOM LINE Mexico has logged a more than 40% jump in
foreign direct investment this year, but, as in the past, the country is
struggling to broaden the benefits from such a windfall.
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 Bloomberg Businessweek September 18, 2023

BANKMAN,

FRIED

& SON
31

They’re renowned legal scholars.

Their son is on trial in one of
the world’s biggest fraud cases

By Max Chafkin and Hannah Miller

PHOTOS: GETTY IMAGES (2); JOSH EDELSON (1)

Photo illustration by Arsh Raziuddin

 Bloomberg Businessweek
round the Bankman and Fried house, Larry David
A was a family favorite. So the parents were under-
standably excited when they got the email from their
son Sam. He wrote that his company, FTX, would
be airing a commercial during the 2022 Super Bowl and that
David was starring in it.
The curmudgeonly comedian would play a series of skep-
tics throughout history, basically Neolithic and Elizabethan
versions of his character from HBO’s Curb Your Enthusiasm.
Someone would present an invention—the wheel, the light-
bulb, the Walkman and, finally, FTX—and David would dismiss
each one in quick succession. The ad would warn viewers that
if they didn’t invest in crypto, they were missing out on an his-
toric opportunity to get rich. The tag line: “Don’t be like Larry.”
Sam Bankman-Fried’s parents loved it. “Surreal,” wrote
Barbara Fried. His dad, Joseph Bankman, gushed over how
happy and proud he was. A few days later, employees received
some additional feedback from Sam’s younger brother, Gabe.
He asked if his dad could have a role in the commercial, saying
he was too humble to make the request himself.
The inquiry was odd in a sense. Bankman had no formal
role at FTX at the time. Nor did Gabe, who was running an
FTX-backed nonprofit dedicated to preventing pandemics.
But executives at FTX understood that corporate roles, espe-
cially as they related to the co-founder and chief executive
32 officer, were much blurrier.
Not long afterward, Bankman showed up on set for a
scene in which David vehemently opposed the Declaration
of Independence. When told “the people shall have the right
to vote,” David responded incredulously: “Even the stupid
ones?” Bankman, wearing a powdered wig, shouted, “Yes!”
FTX paid roughly $20 million to create and air the 60-second
spot. Around the same time, Bankman joined the company
as an employee.
A person familiar with the commercial’s production—
who, like most people interviewed for
Bankman-Fried with
this story, requested anonymity to avoid Nassau courtroom
being associated with a messy bank-
ruptcy, numerous class-action lawsuits
and several criminal cases—says the deci-
sion to give the boss’s dad a role made
a certain sense within the upside-down
logic of FTX. In a way, Bankman was the
company’s founding father.
Both parents have distinguished
careers that long precede their son’s
alleged fraud. They met in the 1980s at
Stanford University, where they taught
at the law school for more than three
decades, living on campus and raising
two sons. Bankman, an expert on taxes, is
renowned for his work making the US tax
code friendlier to lower-income citizens.
Fried, an authority on legal ethics, was
prominent in progressive political circles.
September 18, 2023
At the time the ad aired, critics were warning that FTX was
luring naive investors with extremely risky financial instru-
ments that were mostly banned in the US. Those investors
would see their money vanish when the funds were diverted,
without their knowledge, to a hedge fund that Bankman-
Fried also owned. FTX collapsed and filed for bankruptcy
in November 2022.
Leading the bankruptcy process is John Ray III, who did
the same for Enron and has described this case as worse. He’s
accused Bankman-Fried of using customer funds to enrich
himself, family members and other insiders, and is seeking to
reclaim some of that money. More ominous for the Bankman-
Frieds is the criminal case, set to begin in New York City on
Oct. 2. Prosecutors haven’t accused the parents of wrongdoing,
but charges against their son, whose net worth at its height was
estimated at $26 billion, include fraud, money laundering and
bribery. The case could send Bankman-Fried to prison for the
rest of his life. He pleaded not guilty and has characterized the
losses as the result of inept, but not criminal, management.
Bankman and Fried have steered clear of much of the
scrutiny that’s enveloped FTX. That’s at least in part because
they’ve yet to deliver a full accounting of their roles in helping
their son build a sprawling business and political-influence
operation. Instead, they’ve generally been portrayed as spec-
CLOCKWISE FROM TOP: EDUARDO MUNOZ/REUTERS/REDUX. STEPHANIE KEITH/BLOOMBERG. BRITTAINY NEWMAN/THE NEW YORK TIMES/REDUX. KATANGA JOHNSON/BLOOMBERG
tators, who, often in tears, offer emotional support to their
son at frequent court appearances. But their names will
almost certainly come up during the trial. The defense team
has signaled its strategy may, in part, rest on advice Bankman-
Fried received from lawyers, including his parents.
A spokeswoman for the couple, Risa Heller, declined to
make Bankman or Fried available for interviews. She’s said
previously that neither one had much to do with FTX beyond
being a supportive parent. Fried never worked for the com-
pany, and Bankman’s brief tenure mostly focused on philan-
thropy, according to Heller. Last year, Bankman-Fried told the
New York Times that his parents “weren’t
his mother in a
involved in any of the relevant parts” of
his company.
Former employees and business part-
ners say this wasn’t the impression they
had at the time, and legal filings sug-
gest Bankman and Fried were crucial to
their son’s transfiguration from schlubby
startup nerd to hyperconnected crypto
mogul. The couple profited tremen-
dously from FTX, netting $26 million in
cash and real estate in 2022 alone. They
were regular fixtures at the company’s
offices, offered words of encouragement
to employees and were included in inter-
nal company communications. Their rep-
utations and connections were essential
to FTX’s success.
Their kid seemed “bred for the role
of crypto exchange founder and CEO,”
Bloomberg Businessweek September 18, 2023

as a fawning profile published by Sequoia Capital, one of politics. Sam and

Bankman
FTX’s biggest investors, put it. The article, which attempted Gabe, even as teen-
to explain why one of Silicon Valley’s most respected venture agers, sometimes
capital firms had chosen to give $150 million to a young man joined in the con-
who was caught playing video games on his computer in the versation. Bankman
middle of an investor pitch meeting, offered two pieces of evi- and Fried were
dence in support of its assertion. The first was that Bankman- proud and commit-
Fried worked briefly at a Wall Street trading firm. The second ted do-gooders. The
was that his parents were Stanford law professors. couple didn’t marry
because, as they
o one in Silicon Valley likes to think of themselves told friends, it was

N as privileged. Ayn Rand-reading VCs and entrepre-

neurs tend to bristle at the suggestion that their deci-
sions are anything other than a product of calculated
reasoning. Yet the valley’s knee-jerk elitism is so blindingly
obvious that it seems almost beside the point to bring up.
unfair that same-sex
couples couldn’t do
the same. “They felt
that they should
not take advan-
Bankman-Fried

Investors overwhelmingly favor companies run by White tage of something

men, often hailing from a tiny group of elite colleges, while
shunning anyone who deviates from their superficial sense
of what a successful founder should look, talk and act like.
Some openly discriminate against founders over the age of
30, against founders with an accent and against anyone who
comports themselves as if they’re not already rich. God help
you if you show up to a pitch meeting wearing a suit.
The most privileged place within this world of extreme priv-
ilege is Stanford—the birthplace of companies such as Hewlett-
Packard, Sun Microsystems, Cisco, Yahoo!, Google and PayPal.
Fried—a product of Harvard, Harvard Law School, the US Court
of Appeals for the Second Circuit and the law firm Paul, Weiss—
arrived in 1987 as a tenure-track professor and rented a house
on campus. A year later she met Bankman, a graduate of the
University of California at Berkeley and Yale Law School who’d
come to Stanford on a trial teaching gig after practicing as a tax
lawyer in Los Angeles. Barb and Joe, as they’re known on cam-
pus, went public with their relationship after Bankman secured
a tenure-track job the following year. They moved in together,
and when Fried’s rental came up for sale in 1991, they bought it.
The home where Sam Bankman-Fried grew up, and where
he spent the first half of 2023 under house arrest, sits at the
end of Cooksey Lane. It’s valued at $3.6 million, though that’s
more the result of Palo Alto’s decades-long real estate boom
than a comment on its luxuriousness. The home is a fairly
modest gray Craftsman, with four bedrooms, three bath-
rooms, a generous porch and a swimming pool, sitting on
a big lot surrounded by tall trees on all sides. Just behind
the property is the Lou Henry Hoover House; the modern-
ist estate, once home to former President Herbert Hoover, is
where Stanford’s own president lives.
During his childhood, Bankman-Fried was surrounded by
a revolving group of youngish intellectuals—law professors
and law students, of course, but also sociologists, engineers,
artificial intelligence researchers, classicists and social scien-
tists. On Sunday nights, Bankman would order takeout or cook
something simple like pasta, and they’d cram 15 guests into
the dining room and sit and talk, often about philosophy and
that wasn’t open to
others,” says Paul
Brest, a former
dean of Stanford
Law School and a
longtime friend.
“They’re deeply Fried
ethical people.”
In his younger 33
d ays , B a n k m a n
had a mop of dark,
curly hair, which
h i s s o n wou l d
inherit, along with
an ingratiating
manner, which his
son would not. The
couple sent their kids to Crystal Springs Uplands School, a
$60,000-a-year prep school packed with Silicon Valley’s nepo
babies. By then, Bankman had become one of the foremost
experts on American tax policy. He advised California’s gov-
ernment on a pilot program to let the state do people’s taxes
for them. The program attracted fierce opposition from tax
preparation companies and small-government absolutists
and made Bankman something of a hero to reform-minded
liberals.
To fellow academics, Bankman was an empathetic and for-
giving mentor. Jay Soled, a Rutgers University professor, recalls
Bankman comforting him after he fumbled a presentation.
“That was the kind of guy Joe was,” he says. “There would
be a next time, and you could only improve.” In 2009, while
still teaching a full course load, Bankman enrolled in medical
school to become a clinical psychologist. After completing his
internship, he began moonlighting as a cognitive behavioral
therapist while teaching an optional class, developed with
Fried, to help law students manage anxiety.
Fried was an even bigger intellectual than her husband
and, though well liked on campus, she has a reputation for
 Bloomberg Businessweek September 18, 2023

provoking anxiety among students as much as for helping laundering. Alameda struggled to open bank accounts.
them manage it. Her academic work centers on a branch of Bankman-Fried needed lawyers. Fortunately, a very, very
ethics known as consequentialism, or the idea that the results good one was available. His dad wasn’t an expert in crypto,
of our actions are more important than abstract notions of but at the time Alameda started, no one was. “From the start,
right and wrong. These ideas became something of a fam- whenever I was useful, I’d lend a hand,” Bankman said on
ily religion. The philosophy is about doing good for as many an FTX podcast in August 2022. Noting the company didn’t
people as possible, but a less charitable way to summarize it have lawyers at the time, he added, “I think my utility there
is “the ends justify the means.” was pretty obvious.”
Fried’s most famous paper focuses on the “trolley prob- Former Alameda staffers say Bankman helped draft early
lem,” the well-known thought experiment involving a train legal documents. Invoices from Fenwick & West, Alameda’s
destined for tragedy. It was mostly used by philosophers to law firm, list him as an attendee in meetings, showing he was
debate ethical choices: Should you divert a train and kill some- involved not only on tax issues but also in the development
one standing on the next set of tracks or do nothing and let a of marketing materials for FTX and FTT, the made-up cur-
crowd of people on the main rency Bankman-Fried issued
A courtroom sketch of Bankman-Fried’s arrest after a US
path die? Fried’s paper argued federal judge revoked his bail when he launched his crypto
that the problem was bunk and exchange and the flimsy asset
obscured the real-life moral on which a Jenga tower of
choices policymakers faced— imagined wealth would sit.
for instance, how much aid to FTX was based in Hong
give to the poor or how much Kong, until the government
health care to give to the unin- there began cracking down
sured. “There are hundreds on crypto in 2021. A person
of thousands of pages written familiar with FTX’s operations
on this,” says Brest. “My sense says Bankman played a key
is that after Barbara finished role in the decision to relo-
34 with the trolley problem, there cate to the Bahamas, where
wasn’t anything left to be said.” there were few restrictions
Bankman-Fried put his on digital currencies. The spe-
mother’s self-righteousness cifics were arranged by some-
at the center of FTX’s market- one Bankman personally
ing. His company might be offi- recruited—Daniel Friedberg,
cially in the business of selling a former Fenwick & West law-
crypto, but that was merely a way to generate revenue for life- yer who became FTX’s general counsel.
saving causes. An advertising campaign that ran in major fash- To his employees, Bankman-Fried gave the impression he
ion magazines and featured Bankman-Fried and the Brazilian consulted his dad constantly. When someone would offer
supermodel Gisele Bündchen included a quote from the FTX a legal suggestion, he’d often say it sounded good but he
founder: “I’m in on crypto because I want to make the big- wanted to “call Joe” first, according to a former staffer, who
gest global impact for good.” Fried’s work would be a recur- added that almost all the lawyers who worked for Alameda
ring trope in profiles of her son and was often used to suggest seemed to be friendly with Bankman.
Bankman-Fried was a less cynical breed of billionaire. Other ex-employees say that, especially compared with
Fried’s second-most-famous article is more relevant Bankman-Fried—who sometimes struggled to make eye con-
to her son’s current situation. Published in 2013 as a cover tact and could be blunt, bordering on cruel, when dealing
story in the Boston Review, a highbrow quarterly magazine, with employees—the father had a way with people. Training
the essay argued for a more lenient approach to dealing with as a psychotherapist had made him an excellent listener, and
lawbreakers. “The philosophy of personal responsibility he was an energetic conversationalist. He asked employees
has ruined criminal justice,” Fried wrote. Her article’s title: about their personal lives, joined in for games of padel (a
“Beyond Blame.” pickleball-like sport that employees were crazy about) and
showed up at company dinners. Fried also attended FTX
romises of do-goodery aside, running a crypto dinners but appeared less frequently in the office. They

P
JANE ROSENBERG/REUTERS/REDUX

business was always legally complicated. Bankman- both served as mediators between staff and their child. If
Fried started a hedge fund called Alameda Research Bankman-Fried said something mean or indecipherable, his
in 2017 to exploit price differences between crypto- dad would try to translate or simply say he understood his
currencies traded in Asia and those in the US. Soon the fund son could be difficult. He was seen, another employee recalls,
was moving huge sums of money between continents in ways as a “cute old man,” a capable but nonthreatening figure who
that looked—as he boasted on a podcast—exactly like money was there to keep his son from losing control.
Bloomberg Businessweek
But the most important role Bankman and Fried played
was to give their son credibility with people who might not
otherwise be inclined to do business with a sketchy upstart.
In 2021, when Bankman-Fried approached Sequoia Capital
about making a big investment, the firm was interested in
backing a global crypto exchange but had concerns about
potential legal and regulatory risks, according to two people
familiar with the deal.
FTX was based offshore and operating on the edges of the
law. The founders of many competing firms seemed, to put
it mildly, ethically flexible. Binance’s Changpeng Zhao was
under investigation by authorities in the US and elsewhere.
He denied wrongdoing but refused to say where, exactly, his
company’s headquarters was. The co-founder and then-CEO
of BitMEX, Arthur Hayes, had been indicted for failing to try to
stop money laundering on the platform. According to a federal
criminal complaint, he’d bragged that he’d based BitMEX in
the Seychelles, a tiny East African archipelago, because it cost
“just a coconut” to bribe regulators there. He resigned and
ultimately surrendered to authorities before pleading guilty.
FTX was in the same basic business as Binance and BitMEX,
but Bankman-Fried was adamant that his long-term goal was
to secure the approval of US regulators. Plus, he had some-
thing those companies didn’t: an endorsement from a former
commissioner of the US Securities and Exchange Commission.
Sequoia was convinced to invest, say people close to the deal,
after a phone call from a prominent ex-SEC official who’d con-
sulted with the firm informally on previous deals and now
teaches at Stanford. This former official spoke in support
of FTX’s legal strategy—which involved operating overseas
while it worked to win approval from US regulators—and said
Bankman-Fried also happened to be the son of his friends.
The endorsement was part of a pattern. “Both parents
really opened doors for Sam,” says a person who was involved
in Bankman-Fried’s effort to get American politicians to
embrace his firm.
By that time, Fried had started a left-wing super PAC,
Mind the Gap, which styled itself as the Silicon Valley wing
of the #resistance movement. The group advised high-profile
“I think Joe wanted to
help his son, and he got
caught in the quandary
of what was happening.
You want to think
the absolute best of
your kids”
September 18, 2023
tech donors, including former Google CEO Eric Schmidt and
LinkedIn co-founder Reid Hoffman, on where to direct cam-
paign contributions. The circle of elite donors got a new
member in 2020: Fried’s son, who gave more than $5.5 mil-
lion to Democrats and Democratic Party-aligned groups that
year, instantly making him a DC player. In 2022, he gave
about $40 million.
Bankman-Fried gave directly to candidates recommended
by Mind the Gap. Nishad Singh, a former FTX executive who
pleaded guilty to funneling funds from FTX customers to
political causes supported by Bankman-Fried, donated $1 mil-
lion to Mind the Gap in 2021, making him the PAC’s largest
donor for the most recent election cycle. Mind the Gap hasn’t
been accused of wrongdoing.
Bankman, meanwhile, often accompanied his son to
meetings with regulators and elected officials. Bankman also
appeared at FTX events as a spokesman for the company’s
charitable ambitions. He still advocated on behalf of tax
reform, but now he’d sometimes toss in a new interest: crypto.
During his appearance on the FTX podcast, Bankman
touted a pilot program he was running in South Florida that
would give poor people digital currency wallets in lieu of bank
accounts. “If you’re not part of the financial system, every-
thing is harder,” he said. “It’s expensive to cash checks. It’s
expensive to move money around. So that’s kind of a national
disgrace.” FTX, Bankman promised, was going to fix that. 35
n magazine profiles and TV interviews, Bankman-
I Fried professed austerity. He wore beat-up sneak-
ers, lived with roommates and drove a Toyota
Corolla—with all of the savings going to charitable
causes, he said. “You pretty quickly run out of really effec-
tive ways to make yourself happier by spending money,”
he told a Bloomberg reporter in early 2022. “I don’t want
a yacht.”
In reality, Bankman-Fried and his inner circle spent with
such abandon that the office could feel, as the person who
worked on the Super Bowl ad describes it, like the Emerald
City in The Wizard of Oz. The company bought hundreds of
millions of dollars of luxury real estate, including a $30 million
penthouse apartment in the fanciest resort in the Bahamas,
where Bankman-Fried and his cohorts lived. They chartered
private jets for themselves and, because Amazon.com doesn’t
consistently service the island, for their online packages. And—
as bankruptcy filings would make clear—they even bought a
52-foot yacht. It was purchased by Alameda for Sam Trabucco,
the company’s co-CEO at the time, who named it Soak My Deck.
Bankman-Fried’s parents seemed to share in the spoils.
They flew first class, sometimes private. After landing in the
Bahamas, they regularly stayed in a $16 million beachside
apartment. FTX bought that dwelling, along with three
dozen others on the island, at a cost of roughly $250 million.
Through their spokeswoman, Bankman and Fried have said
they saw the home as company property, not theirs.
Bankman-Fried expressed a similar sentiment in an
 Bloomberg Businessweek
interview at a New York Times conference. “I know it was
not intended to be their long-term property,” he said. “I don’t
know how that was papered in.”
So here’s how it was papered in: A bill of sale, obtained
through a public records request in the Bahamas, shows that
on April 7, 2022, Bankman and Fried signed as co-owners of
the apartment, with a Bahamian notary as witness. The docu-
ment makes no mention of FTX and refers to the property as
a “vacation home.” “The house was used as temporary hous-
ing while Joe worked in the Bahamas,” the spokesperson for
the couple said in a statement. “Outside counsel confirmed to
Joe and Barbara that FTX would have all beneficial ownership
of the house and agreed to document that in writing.”
Around the same time, Bankman received a $10 million
gift from his son. A lawsuit filed by Ray, the FTX bankruptcy
chief, claims Bankman-Fried got the money by borrowing it
from an account that contained customer funds. According to
the complaint, he did so after consulting the person who by
this point had become a top adviser on legal matters personal
and professional: his dad. The lawsuit alleges that the loan
was never formalized—there’s no loan agreement, promissory
note “or other indication that the funds were not simply taken
from Alameda by Bankman-Fried to enrich his family.” His
father moved almost $7 million to personal bank accounts;
the rest he kept in crypto on FTX.
36 Given the rising prices of digital currencies at the time,
keeping some of his nest egg on FTX might’ve seemed like
a logical decision for Bankman, not to mention an oppor-
tunity to live his newly adopted values, but within months
a market wide selloff caused him to lose $1 million and ulti-
mately endangered FTX itself. As the company lurched
toward insolvency, Bankman-Fried publicly claimed all was
well while turning to his father to help minimize the dam-
age. “FTX has enough to cover all client holdings,” he wrote
(and later deleted) on Twitter, the social media platform now
known as X. “We don’t invest client assets.”
Behind the scenes, his father was offering a very different,
and ultimately more honest, message: FTX was in trouble
and needed cash. On Nov. 7, when Bankman-Fried was post-
ing falsehoods, and the next day, he and his dad were holed
up with other executives, trying to deal with what they char-
acterized as a bank run, says a person with knowledge of the
operation. Bankman communicated the same to investors,
including the short-lived Trump White House press secretary
and financier Anthony Scaramucci, who says he first heard
about FTX’s troubles on Nov. 7.
Scaramucci says Bankman, in a phone call that morning,
described a “liquidity mismatch” of roughly $1 billion. But in
a second call later that day, Bankman said the figure was actu-
ally $4.5 billion. Finally, Scaramucci heard from another FTX
employee who said the real amount was $7 billion. “I think
Joe wanted to help his son, and he got caught in the quan-
dary of what was happening,” Scaramucci says. “You want
to think the absolute best of your kids.”
In the days that followed, Bankman was included on
September 18, 2023
“It’s hard to wrap one’s
head around ‘how could
they not know?’
The most sense I can
make of it is that it
was blind faith.
They didn’t have the full
picture”
emails to the Bahamian attorney general and the country’s
top securities regulator, who’d been tipped off about the pos-
sible misappropriation of funds and were sending increasingly
frenzied messages asking, in short, what the hell was going on.
Bankman-Fried, cc’ing his dad, attempted to put them off. He
mentioned a “liquidity gap” and promised the company was
doing its best to find investors. In a subsequent email, which
his father was also copied on, he offered to pay back Bahamian
investors before anyone else—an offer that federal prosecu-
tors have suggested was an attempt to, essentially, buy influ-
ence in the country.
Just before the bankruptcy filing, Bankman urged regulators
and creditors to avoid rushing to judgment. His initial position,
says the person familiar with the discussions, was that FTX’s
managers were just kids who’d made a mistake. They’d give
the money back, he explained, and then everyone would be
able to move on with their lives.
Bankman and Fried didn’t, however, try to return the cash
gift. They haven’t explained why, but Ray’s lawsuit, filed on
behalf of FTX’s creditors, suggests a reason: They need the
money to fund their son’s criminal defense.
ankman-Fried was arrested in mid-December,
B extradited to the US and released on bail. The bail
package, $250 million, was secured by bonds from two
of his parents’ colleagues at Stanford, as well as the
deed to the family home, where Bankman-Fried was ordered
to live while he awaited trial. The sudden turnabout was jarring
to friends and Stanford faculty members, who’d only just got-
ten used to the idea that the kid they’d seen at Joe and Barb’s
was a crypto billionaire. Now they were attempting to wrap
their heads around the accusation from prosecutors that he’d
actually been the mastermind of one of the largest frauds in
DAVID MCINTYRE/ZUMA PRESS
US history. Security barriers went up, blocking the road lead-
ing to the house. Students and members of the media stopped
by to gawk; the Bankman-Frieds bought a German shepherd,
they told friends, because they were worried about their safety.
“There was all this morbid intrigue,” says Tim Rosenberger,
Bloomberg Businessweek
who graduated from the law school earlier this year. “Were
they going to hire a new professor? Who was going to teach
tax law?”
In group chats populated by former FTX employees, a
debate has raged over whether Bankman and Fried knew about
the alleged crimes. Friends of the couple, meanwhile, have
struggled to fathom how two people who were famous for
being ethical could have been
The Bankman and Fried house
so close to such a massive eth-
ical lapse. In August prosecu-
tors accused Bankman-Fried
of leaking damaging informa-
tion about a former employee
as part of an attempt to intim-
idate witnesses. His lawyers
denied the charge, but he was
sent to Brooklyn’s Metropolitan
Detention Center.
As her son was taken into
custody, Fried, who’d been
watching tearfully from the
spectators’ gallery, tried to
approach him. “That’s my
son!” she said when a US marshal stopped her. She watched
as Bankman-Fried, following standard protocol, removed his
jacket, took off his tie and bent over to remove the laces from
his dress shoes. Bankman held his arm around Fried’s shoul-
ders while she sobbed.
Friends say they’re worried about the couple. Since
Bankman-Fried’s arrest, neither parent has taught a class.
Bankman canceled his courses, and Fried, who retired from
the school two months before FTX’s collapse, resigned from
her political nonprofit. “To have something like this happen
to a family of intelligence and public spiritedness,” says John
Donohue III, a fellow Stanford professor and longtime fam-
ily friend, “that’s devastating.”
“It’s hard to wrap one’s head around ‘how could they not
know?’ ” says another friend, who requested anonymity. “The
most sense I can make of it is that it was blind faith. They
didn’t have the full picture.”
That’s certainly plausible. If the narrative laid out by pros-
ecutors is accurate, Bankman-Fried was sociopathic in his
deception—conning not just investors but also business part-
ners and even his own employees. It’s not a stretch to think
he might have used his own parents—along with their tow-
ering academic careers—to pump an exploitative enterprise.
Bankman-Fried claimed to be a billionaire many times over.
Why shouldn’t he buy his mom and dad a nice home? And
why shouldn’t his dad get to hang out with Larry David on a
Super Bowl shoot?
But even if they didn’t know about the alleged misappro-
priation of funds, critics say, the parents deserve part of the
blame. Fried’s ethical compass could explain how her son
might have been able to overlook obvious moral failings in
service of what he perceived as the greater good. To follow this
September 18, 2023
train of thinking: What’s a little misappropriation of funds if
the end result is billions of dollars for world-saving charities?
Meanwhile, Bankman was involved in providing legal
advice that now looks, at the very least, less than sound. He
participated in a number of decisions—including the launch
of FTX, the creation of FTT, the company’s courtship of pol-
iticians and the dealings with regulators in the Bahamas—
that have been criticized by
on Stanford’s campus
regulators and prosecutors as
potentially illegal. Bankman
also was involved in the hiring
of Friedberg, FTX’s general
counsel, who’s been accused
of enabling the fraud and
working to cover up efforts to
expose it, including by paying
off potential whistleblowers.
The allegations, made in a law-
suit on behalf of FTX credi-
tors, included a quote from
Bankman to his son, urging
him to rely on Friedberg “so
we have one person on top of
everything.” Friedberg has denied wrongdoing and hasn’t been
charged with a crime, but critics say there was enough in his
background—including a stint at a Canadian online poker web- 37
site that was accused of cheating players while he was there—
to give pause to someone with a clearer set of eyes.
And then there’s Stanford itself. Bankman-Fried’s arrest
came just a month after Elizabeth Holmes was sentenced to
11 years in prison in connection with fraud at her medical
device company, Theranos Inc. She’d founded the company
on campus as a student and recruited well-known faculty
members to serve as employees and directors. The Holmes
case—coupled with the resignation of Stanford President Marc
Tessier-Lavigne over allegations of manipulated data in sev-
eral academic papers—has caused some professors and stu-
dents to ask why the university hasn’t been quicker to identify
cases of misbehavior.
Defenders of the university, including Donohue, point out
that Stanford wasn’t the cause of Bankman-Fried’s alleged
crimes; it was, at most, a backdrop for them. But backdrops
matter. Coming from a place such as Stanford and having
parents of high achievement changes how the world sees
your shortcomings. What might be perceived as a sign of
unseriousness—playing video games during a meeting, say—
becomes unmistakable evidence of brilliance.
Over the past 10 months, Bankman-Fried has tried to shift
the blame to former employees, lawyers and corporate rivals
and insisted his mistakes were ones of sloppiness rather than
malevolence. “I f---ed up” was how he put it in a planned
congressional testimony written before his arrest. He was,
he seemed to be saying, just a kid in way over his head. <BW>
�With Benjamin Bain, Ava Benny-Morrison, Annie Massa and
Katanga Johnson
 Bloomberg Businessweek September 18, 2023

38
James Dolan has spent $2.3 billion
in an attempt to reimagine live events.
A project that once looked like
a white elephant may actually end up
being a good idea

By Devin LEONARD
Photographs by Mikayla WHITMORE
 39

Sphere-gazing
from a well-placed
parking garage
 Bloomberg Businessweek
E V ER A
STS L shaking and scents wafting through the building. Kevin
A Y
L
EA
THE
RS ,
FOR LAS VEGAS PLEASURE
seekers might have been puzzled as they gazed westward
from the Strip. Looming in the distance was a 366-foot-tall
sphere. The dark orb bore a familial resemblance to the
Death Star but lacked any signage offering a clue to its pur-
pose. It was obviously an attraction, but what kind?
If the Sphere were actually a space station, its commander
would be James Dolan, the irascible scion of the family that
controls some of New York’s most famous venues and two
of the city’s sports franchises. He’s a figure of dubious celeb-
rity on his home turf, where he’s blamed for the seemingly
perpetual mediocrity of the Knicks and derided for fronting
what some would consider a high-priced vanity roots-rock
band, JD & the Straight Shot. For the better part of a decade,
Dolan has been at work on the enormous spherical structure
in the Nevada desert in an unlikely bid to establish himself
as a man of vision.
Dolan has his own preferred sci-fi metaphor for the
building: He’s said it was inspired by Ray Bradbury’s clas-
sic The Veldt, in which children can project anything
they imagine on their nursery’s walls. With that image
40 in mind, he and his company set out to build an event
venue with 17,500 seats, an interior wallpapered with
“the highest-resolution LED screen on Earth” and a glow-
ing exterior that looked in early renderings like a fireball
dropped from the sky. The world’s bigger musical acts
would be offered the privilege of doing extended residen-
cies and experimenting with the Sphere’s novel technology.
During the day, the Sphere would morph into a tourist attrac-
tion, outdoing a giant-screened IMAX theater experience with
its own superpumped arsenal of “immersive entertainment”
Phases of the Sphere
High-concept art, digital jack-o’-lanterns and high-priced ads
September 18, 2023
flourishes, including wind effects, temperature shifts, seats
Reichard, editor of the trade publication Arena Digest, strug-
gles to find the appropriate words to describe it. “It’s just so
far advanced in terms of capabilities, I don’t have any base-
line comparison,” he says.
Locating the Sphere in Las Vegas was an obvious choice,
but the venue would be only the first in a global constella-
tion. Dolan set out to build a second Sphere in London when
work on the first one was just beginning.
This had the potential to go badly, as anyone who’s read
all the way to the end of The Veldt knows: The children dream
up an African grassland so realistic that lions devour their
parents. The Sphere’s narrative arc seemed to be bending in
a similarly troubling direction, as pandemic-related delays
pushed its opening date back years and cost increases added
more than $1 billion to its original estimated price, eventually
bringing the total to $2.3 billion. Dolan shuffled the project
between different family-controlled companies, recombining
assets that had previously been split apart and selling oth-
ers to help fund the exorbitantly expensive venue, which is
now part of an entity known as Sphere Entertainment Co.
Even a 15-second Super Bowl ad announcing that U2 would
be headlining a series of kickoff shows, scheduled to begin
on Sept. 29, did little to alter the minds of those who’d writ-
ten the Sphere off as an all-but-certain disaster. “How many
red flags do you need to see that this is just a boondoggle in
the making?” asks Scott Roeben, founder of Vital Vegas, a
lively blog about the casino town.
Then, on July 4, the Sphere’s exterior began to swirl
with images of clouds, stars and molten lava. A leering
jack-o’-lantern appeared, then the fiery planet Mars, a geo-
desic dome, a snow globe, a hideous gigantic eyeball and
video-game-worthy tableaux of extraterrestrial and under-
sea worlds. Pedestrians stopped to marvel. Traffic slowed.
Bloomberg Businessweek
Twitter users piled on with superlatives, from “freaking
amazing!” to “so epic!!!”
Within a week, Sphere Entertainment’s shares, previously
in the doldrums, were up 25%. It turned out that Dolan’s pet
project was looking way cooler than many had expected.
“The whispers in the industry for a long time have been
somewhat dismissive of this,” says Nathan Hubbard, former
chief executive officer of Ticketmaster and co-founder of the
music startup Firebird. “There’s going to be a lot of people
with their foot in their mouth.”
IT’S NOT SO EASY TO CHEER FOR JAMES DOLAN. HIS
family’s fortune largely flowed from their cable company—not
the sort of business that tends to have appreciative customers.
His tenure with the Knicks has been marked by poor on-court
performance, head-scratching personnel moves and a pro-
tracted conflict with beloved former star Charles Oakley, who
was forcibly removed from Madison Square Garden during a
2017 game after allegedly heckling Dolan. (Litigation stemming
from the event is ongoing.)
Dolan has drawn criticism for vowing to use facial recog-
nition technology to identify antagonists, whether they’re
“confrontational” fans or lawyers who’ve sued his compa-
nies, and ban them from his arenas. When the New York
State Liquor Authority embarked on an investigation of the
lawyer-barring policy, Dolan threatened to halt alcohol sales
during hockey games. “They’re basically doing this for public-
ity, so we’re going to give them some publicity,” he told Fox 5,
looking as though nothing would give him more pleasure.
(He never followed through.)
Dolan declined to be interviewed for this article. But soon
after the lighting up of the Sphere’s outer skin, he made a
surprise appearance in July at the venue, where reporters
had been invited for a demonstration of its sound system.
Dolan looked slightly disheveled in his blue blazer and white
September 18, 2023
polo shirt, but he still had the air of someone who responds
best to genuflection. A publicist told journalists that Dolan’s
presence showed how important the Sphere’s audio qual-
ity is to him. “That’s a lie,” Dolan scoffed. “I was in town for
another reason.”
Still, since he was there, he was eager to show it off. Dolan
assured the crowd that the Sphere’s sophisticated technology
meant audiences would experience their favorite artists in a
new way. He also suggested that musicians who are used to
getting away with sloppiness at other venues would be in for
a surprise. “Mistakes won’t be covered up by distortion,” he
warned. “If you sing a wrong note, everyone’s going to hear it.”
Then he took a seat while others described the way the
audio system would use algorithms to ensure that the howls
of a lead singer or the bowing of a string section sound the
same to everyone, no matter where they sit. “Tell ’em about
the seats!” Dolan interrupted, spurring an explanation of
how they’d been designed to replicate human skin, so the
sound in the arena won’t change no matter how many seats
are filled. He then sat back, grinning at times, as his staff
cranked up the system to play demos featuring the Beatles,
J.Lo, Pitbull and U2, before closing with a rendition of Queen’s
Bohemian Rhapsody that swelled to a deafening crescendo.
“If you want to blow your ears out, we’ll blow your ears out,”
Dolan boasted.
41
THAT THE SPHERE HAS COME THIS FAR SPEAKS TO
Dolan’s perseverance—or perhaps his obstinacy. The proj-
ect’s origin dates to 2016, the year he and his family sold
their longtime crown jewel, Cablevision—then the fifth-largest
cable-TV system in the US—to billionaire Patrick Drahi’s Altice
for $18 billion. This might have freed Dolan up to devote more
time to JD & the Straight Shot. Instead, he surprised David
Dibble, Cablevision’s former chief technology officer, during
a dinner in New York by drawing a globelike shape on a
 Bloomberg Businessweek
notepad and telling him it was a rough sketch of the venue
of the future. “We don’t even have to have a sign,” Dibble
remembers his boss saying. “They’re going to see that build-
ing and say, ‘Yep, MSG.’”
It would be Dibble’s job, as head of the newly created
MSG Ventures, to find the tech that could make the Sphere a
reality. He says he set off on a global tour, meeting with poten-
tial suppliers who often informed him that he and his boss
were out of their minds. A beach-ball-like building would be
an acoustical nightmare; why were Dolan and his employees
even thinking about staging rock concerts in one? “It’s like tak-
ing a giant laundry basket full of pingpong balls and tossing
them on the kitchen floor, they’re just bouncing all over the
place,” Dibble acknowledges. “That’s your audio experience.”
To help with the sound system, Dibble’s team invested an
undisclosed amount in a German company called Holoplot
that had created a means of beaming announcements around
cavernous rail stations. To work on illuminating the building,
it purchased Obscura Digital, a San Francisco-based creative
studio specializing in immersive fare that had recently pro-
jected skyscraper-size photos of Jennifer Aniston and Audrey
Hepburn on the Empire State Building to celebrate the 150th
anniversary of Harper’s Bazaar. The challenge was develop-
ing content for the enormous high-resolution inner screen
that didn’t make audiences snacking on popcorn feel like
42 vomiting. “It can make you very, very sick,”ck,” says Travis
Threlkel, the former chief creative officer er of Obscura
Digital, who worked on the Sphere forr three years
before leaving Dolan’s company in 2019 9 and is now
co-founder of Minds Over Matter, a similar lar firm. “You
know, motion sick.” Dolan subsequently tly decided to
scrap projection in favor of LED lighting, g, which
the company believed would be more e life-
like. It says it’s still laboring to ensure view-
ers don’t get queasy.
The Sphere was to be located on
18 acres of vacant land near the Strip, p,
leased from the late billionaire Sheldon n ital sensor to capture images just as film
Adelson’s Las Vegas Sands Corp..
Adelson’s company would contribute te
$75 million to help fund the construction ion of a
pedestrian bridge linking the Sphere with its
sprawling Venetian resort.
Local politicians were thrilled about out the
prospect of Sphere at the Venetian—the n—the
venue’s official name. “Now that’s what at
I’m talking about right there,” said
Lawrence Weekly, then a mem-
ber of the Clark County Board of
Commissioners, at a 2018 hearing
on the project. “That’s how you
change the game.” Dolan offered
his own wet kiss to, as he put it,
“all of Las Vegas and Nevada”
at a groundbreaking ceremony
September 18, 2023
that same year featuring a troupe of shovel-wielding dancers.
“You’re the right place for this,” Dolan said. “You showed us
you’re the right place.”
His company unveiled its preliminary estimate in 2019:
$1.2 billion to build, with an opening scheduled in 2021. Then
Covid-19 sent up the cost of labor, steel, computer chips and
all kinds of other things needed for a billion-dollar devel-
opment project. Subcontractors put liens on the property,
saying they hadn’t been paid. In December 2020, Dolan’s
company terminated Aecom Hunt, the Sphere’s general con-
tractor. The firm responded with a breach-of-contract suit in
Clark County District Court in Nevada, saying it was still owed
$5 million. Dolan’s company countersued, blaming Aecom
Hunt for the Sphere’s cost overruns. By June 2021 the project’s
estimated price had swelled to $1.8 billion. (Neither Sphere
Entertainment nor Aecom Hunt would discuss the litigation.)
At the time, the live music industry was still struggling
to recover from the pandemic. Dolan’s company warned in
a public filing that the Sphere had to be substantially com-
pleted by September 2023 or Las Vegas Sands could termi-
nate its lease for the property. So the company kept pouring
in cash, and not just on the primary site. In 2021 the company
won approval to build what was effectively a mini-Sphere:
a 100-foot-tall replica of the domed theater in Burbank,
California. It wa
was here that employees of what would be
known as SphSphere Studios would experiment with devel-
oping content for the Vegas venue.
One of the problems they still needed to solve was find-
ing the best way
w to capture high-resolution images suit-
able for the Sphere’s
Sp enormous inner screen. Initially, the
Studios team cobbled together 15 different cam-
Studio
eras mounted on a rack, stitching the results
era
together into a single image. But the device
to
was too weighty and the stitching process too
w
ccumbersome. So they designed their own
single-lens camera known as Big Sky, the
centerpiece of which was a 3-by-3-inch dig-
does in a traditional movie camera.
Other people in the industry warned
Dolan’s camera people that a sensor that
size would crack or melt. But Big Sky ended
up working, and Dolan’s company has since
patented much of its technology. Executives
decline to say how much the camera cost.
“We can put it this way,” says Andrew
Shulkind, a senior vice president at
Sphere Studios and a cinematogra-
pher who’s worked on movies such
as Steven Spielberg’s A.I. Artificial
JAMES DEVANEY/GETTY IMAGES
Intelligence and David Fincher’s
Panic Room. “It was worth it to
us.” Whatever numbers may have
been involved, the executives say,
Dolan Dolan didn’t flinch.
Bloomberg Businessweek September 18, 2023

FINALLY, DOLAN’S COMPANY STRUCK A DEAL WITH to promote. “If you want to put Britney’s face on that,” he
U2 to open the Sphere by its September 2023 deadline. Bono, says, “you’re going to be very careful.”
U2’s frontman and shoulder-rubber of world leaders, seemed
characteristically ebullient during a visit to the venue with IN LATE AUGUST, DOLAN PARTICIPATED IN A SPHERE
the band’s guitarist the Edge, captured on video Entertainment quarterly earnings call to reas-
by Apple Music. “How cool is that?” he said, sure investors on the eve of the opening. He
standing outside the enormous building, spoke enthusiastically about the venue and
still forbiddingly dark. “It’s light years alluded to future residencies by artists
ahead of everything that’s out there,” “maybe not as high-profile as U2, but
the Edge agreed. close”—while also confessing that he
Upon entering the Sphere, the “It’s all kind of hadn’t planned to spend so much.
rock stars gushed about its advanced amazing. But look, While Dolan did hold out the pos-
sound system and the imagery they it all has to work. sibility of building other Spheres, he
might conjure up on the massive Who do we blame if said he’d rely on business partners to
LED screen. “It’s all kind of amazing,” help pay for them. Initial success in
it doesn’t work?”
Bono said, gazing around the building. Vegas could help attract interest. But
“But look, it all has to work. Who do we the very things that make the Sphere
blame if it doesn’t work?” ideal for Las Vegas could work against
Bono will have reason to be forgiving of it elsewhere.
Sphere Entertainment—even if things go awry This is the case in London, where the public
creatively, they’re set to work out for his band finan- reception has been notably less enthusiastic. After
cially. It’s been widely reported that U2 is being paid $10 mil- years of fierce debate, Sphere Entertainment in March 2022
lion to be Dolan’s test case and will snag 90% of the ticket got signoff from the local development corporation over-
sales for its stint, which has been extended to 25 shows. The seeing the former parking lot in the working-class Stratford
band will perform its 1991 album, Achtung Baby. The com- area of East London where the venue is slated to go. The
pany declined to discuss its deal with U2, but says the shows project must still be considered by London Mayor Sadiq 43
are almost sold out. Khan, and he’s being pressed by residents to withhold his
Dolan’s company has revealed that Hollywood auteur approval. The mayor’s press office declined to comment.
Darren Aronofsky is directing Sphere’s first immersive movie, In May the London Assembly’s environmental committee
Postcard From Earth. The movie, which premieres on Oct. 6, issued a report condemning light pollution in the city, urging
will feature, among other things, footage of sharks and the Khan to reject Dolan’s shining orb. Dolan’s executives have
innards of a volcano. While such stuff has always been stan- said the London Sphere won’t be illuminated as brightly as
dard IMAX fare, having Aronofsky—a filmmaker best known its Vegas sibling or for as many hours of the day. Even so,
for hard-to-watch films about heroin addicts and psychotic four years in, nothing has been built.
ballerinas—is a potentially intriguing twist. Audiences had bet- Lyn Brown, the member of Parliament representing the
ter be impressed, given that tickets start at $49. area where the Sphere would rise, says Dolan’s company is
Sphere Entertainment is recruiting creative types to do “frankly very confused” if it thinks Stratford is similar to Las
installations on the building’s exterior, which it calls the Vegas. “We are not in the middle of a desert with few people
Exosphere; the first, a swirling “AI data sculpture” by media art- nearby who will have their lives blighted,” she says. “Some
ist Refik Anadol, debuted on Sept. 1. It also sees the Exosphere of my constituents who’ve overcome many barriers to find
as a revenue source and has boasted that companies will be a home now face living next to an enormous orb that will
able to use it to hawk their brands not just to drivers and pave- beam directly into their apartments.”
ment pounders, but to passersby in airplanes overhead. In early Perhaps no one has a better feeling for this than Ceren
September, YouTube launched the first major Exosphere ad Sonmez and her husband, Alessandro Galletta, who live in a
campaign, decorating the surface with football helmets to pro- third-floor apartment with Sid, their cat, directly overlook-
mote subscriptions offering NFL games. ing the site on which the Sphere could one day emerge in all
Dolan’s company won’t say how much money it’s receiving, its blazing glory. Sipping strong Turkish tea, the couple say
but Martin Porter, head of out-of-home advertising for Dentsu they bought their plant-filled apartment knowing something
Media US, an ad-buying agency, says Sphere Entertainment would inevitably sprout on the adjacent property. “This is
is seeking $650,000 a week from prospective advertisers to London,” Sonmez says. “Of course something’s going to be
grace the Sphere’s exterior. “It’s very expensive compared built there! How could I ever possibly have imagined that it
to anything else on the market,” he says. Dolan’s company would be this?”
declined to comment. Porter adds that the Sphere’s globe- As a sort of peace offering, Dolan’s company has offered
shaped screen won’t be flattering in every situation. He offers residents of such buildings a different kind of dramatic back-
the example of Britney Spears, who has a forthcoming memoir drop: blackout curtains. <BW>
 Bloomberg Businessweek September 18, 2023

By Adam Minter

44 Your Old Button

Somewhere, Wai

Guatemalan retailer Megapaca turns Americans’ used clothes into

 Bloomberg Businessweek September 18, 2023

Photographs by Daniele Volpe

n-Down Is Here 45

iting to Be Resold
Warehouse in Escuintla (left); store floor in Guatemala City

fashion-forward finds—and it’s now selling them right back to the US

 Bloomberg Businessweek
tanding atop several long,
S sturdy wooden tables at an
industrial park in Escuintla,
Guatemala, 40 young men
and women pull shirts,
dresses, slacks and other garments out of
a 10-foot-high wall of clothing imported
from the US. They wear T-shirts in the
bright orange favored by their employer,
Megapaca, the largest importer and
retailer of used clothing in Central
America. In a seven-hour shift, they’ll
sort thousands of garments into bins
designated for shoes, trash and men’s,
women’s and children’s clothes. It’s the
first stage of an intricate winnowing pro-
cess at this 475,000-square-foot distribu-
tion center.
Last year, Megapaca imported
45 million pounds of used goods from
46
Bales after unloading
the US and sold 70 million items. To
pull that off, it employed 6,000 people
in Guatemala, Honduras, El Salvador
and southern Mexico, where it col-
lectively operates 123 stores. The
money is very good: Megapaca says
that it generated $200 million from its
in-person and online retail business in
Gustavo and Mario Peña
2022, and that this year it’s on target
to do better.
Mario Peña, the company’s boy-
ish 53-year-old co-founder and gen-
eral manager, walks around the wall of
apparel. On the other side, workers are
lifting 80-pound bags of sorted clothes
into a shipping container bound for a
thrift shop in Gold Coast, Australia—a
new wholesale side of the business
that Megapaca has been developing.
“We buy the clothes from the US, sort
them, then sell and ship them,” Peña
says. “We’re cheaper than sorting in
Gold Coast, and we do it better.” There
are, according to Peña, 29,540 pieces of
clothing in those Australia-bound bags,
sorted to appeal to Gold Coast surfers
and others who like to thrift.
On Sept. 15, Megapaca was set to
open a US website, targeting Central
American expatriates who grew up lov-
ing the brand. It won’t be easy. Online
thrift stores such as ThredUp Inc. have
struggled to turn a profit. But Peña isn’t
discouraged—within three years, he
expects to open Megapaca’s first phys-
ical store in the US. Emerging markets,
long the destination for clothing cast-
offs from rich countries, are ready to
sell them back.
rom 2002 to 2022 the
F quantity of used cloth-
ing Americans exported
annually to the world more
than doubled, to 1.66 bil-
lion pounds. This growth was enabled
by the rise of fast-casual clothing sold
at places such as H&M and Forever 21,
which many Americans treat as dis-
posable and flip into donation bins. In
2022, Guatemala imported just over
September 18, 2023
250 million pounds, more than any
other country.
The trade in used clothing is often
depicted as a kind of “dumping,”
whereby affluent countries offload their
unwanted fashion on emerging markets.
Yet the commercial reality is more com-
plex: Every container exported from the
US is purchased by an importer, who
also assumes the cost of shipping and
the risk that the clothes will turn out to
be less than profitable.
Peña isn’t the sort of person you
dump on. He sees trash as a cost—the
stubborn leftovers that can’t be mon-
etized. “We have enough garbage in
Guatemala,” he says as he strides through
the Escuintla distribution center, roughly
30 miles south of Guatemala City. The
lush area is surrounded by farms and,
Sorters at work
increasingly, large South Korean-owned
textile and apparel factories that export
fast fashion to the US.
Peña grew up comfortably in
Escuintla, one of three sons of an engi-
neer and homemaker. He describes him-
self as sensitive to Guatemala’s economic
inequalities. As we observe the sorting,
he grows reflective about a gardener
employed by his family. “One day he was
working, slipped and tore up his knee.
Instead of saying something about his
knee, he said, ‘Thank goodness it wasn’t
my pants.’ Guatemala was poor.”
Before us, the sorters categorize
clothes into bins representing 26 catego-
ries, from “sleeveless blouses” to “casual
pants.” Arriving garments are culled and
separated into finer and finer catego-
ries, then moved along for pricing and
delivery. Some items, such as shoes, are
cleaned to increase their value.
Peña leads me up a set of metal stairs
Bloomberg Businessweek
to a landing where 15 employees in
rubber aprons stand over wash basins,
scrubbing grime from newly arrived
shoes. An experienced employee—paid
the minimum wage (roughly $400 per
month) plus benefits (Megapaca says
these run about $250 per month)—can
turn muddy sneakers into a collector-
quality pair in roughly three minutes.
“Washing adds two to three dollars to
the selling price of the shoe,” Peña tells
me. That adds up quick: During my visit,
Megapaca’s inventory in Guatemala
included over 150 tons of shoes.
The company employs a 54-person
information technology department and
a sophisticated in-house data manage-
ment system connecting warehouses to
stores and its Guatemalan e-commerce
site (a Honduran site is also in the works).
Washing shoes
Among other advantages, the system
provides real-time data on what custom-
ers are buying and for how much. That
data is fed back to warehouse floors like
the one in Escuintla, where touchscreen
monitors are positioned throughout the
last stage of the sort line. The most expe-
rienced and accurate sorters are respon-
sible for pricing. They tap the monitors
to bring up apparel categories and sur-
vey prices suggested by an algorithm.
I watched one sorter who was going
through clothes bound for Guatemalan
stores examine a small floral-print girls
sweatshirt. There were small tears, but
the color was still bright. Guatemala is
hot year-round at its lower elevations
though, and moving a long-sleeved gar-
ment means selling it at a lower price.
The computer suggested prices ranging
from 17 quetzales to 91 quetzales ($2.17
to $11.56). Accounting for the tears, the
sorter chose 29 quetzales, then affixed
a newly printed price tag to the collar.
The tag included a QR code that
would track when and where the gar-
ment was sold—information that would
in turn be fed back into Megapaca’s data-
base, allowing the algorithm to further
refine and update the suggested prices
shown on the warehouse floor. The QR
code also includes the original source
of the garment (in this case, a US thrift
chain). That data in turn becomes a tool
to procure better used clothes. Steven
Bethell, co-founder of Bank & Vogue
Ltd., a large Ottawa-based clothing sup-
plier to Megapaca and other sorters
worldwide, explains how it works: “They
can tell me, ‘Get us [items from] that part
of New York, not that part of New York.’
They know where stuff that they can sell
is located.”
Pricing and tagging
It’s a level of precision more
commonly associated with new apparel
retailers than Central American thrift
shops, and Peña knows it. “In a Third
World country, we can never do some-
thing better than the US or Germany,” he
says to me with a clear note of sarcasm.
“I say, ‘No, we can do better.’ ”
When Peña was 14, he spent a few
weeks in Montgomery, Alabama, as a
sister-city exchange student. He was
astounded to see American students
toss unused ketchup packets in the
trash. “That’s when I started thinking
about bringing waste to Guatemala.” As
an adult, he served in the military, sold
auto parts, sold time shares and spent
10 months managing a McDonald’s.
Then, in 2001, with the backing of his
brother Gustavo and one other part-
ner, he went to the US, rented a car
and drove around the country, vis-
iting used- clothing dealers. In New
September 18, 2023
Jersey, he purchased his first shipping
container full of clothes, from a
Chilean-born exporter.
In the early 2000s, used clothes
were already flowing into Guatemala,
scooped up with enthusiasm by a poor
population eager for new fashions.
Then, as now, the country’s consumers
perceived that East Asian manufactur-
ers were sending better-quality apparel
to developed countries while reserving
lower-quality items for countries with
lower price points. Guatemalans keen to
emulate American styles were also more
likely to find them in clothes imported
from the US.
The Peñas figured they’d wholesale
the goods to dealers who would han-
dle the retail end. “Then one day the
power bill came due, and we needed
47
cash flow,” Mario says with a laugh. So
they opened their warehouse doors
to the public, let people pick through
the inventory and made $66 in a day.
“That’s when we knew we had a retail
business.” Today they mostly sell
through their own retail operation.
arly one weekday morn-
E ing, Jose Rivera, back-office
manager at Megapaca, is
driving down Escuintla’s
Fourth Avenue, a busy
street overflowing with narrow shops
and carts selling everything from plastic
dishware to used underwear. “You can
see the old way of selling used clothes
here,” Rivera tells me. He points to ven-
dors operating closet-size street-side
booths, from which T-shirts and trousers
hang. In Guatemala, shops like this are
informally known as pacas. (The word
translates more directly as “bales.”)
 “My main goal is to open stores in the US, because that’s the only way
to be the No. 1 used-clothing retailer in the world”
Rivera slows the car as we approach
a small, dark storefront with a hand-
made sign. Ropa Americana (“American
Clothing”), it says, and from the car
we see some poorly lit inventory. “For
locals, the price point is around 5 quet-
zales,” Rivera says, referring to the sweet
spot for all garments on Fourth Avenue
and places like it. “At Megapaca, we’re
about three times that. But we don’t
compete on price. We’re into service
and better stores.”
They’re also into fashion and mar-
keting. Rivera turns onto the highway,
and as he accelerates, we pass a truck
emblazoned with Megapaca’s bright
orange logo and a woman in a bikini
photographed from behind. Images like
this have become ubiquitous in Central
America. Megapaca’s brand presence
48
Label with QR code
exceeds that of Walmart Inc., which
operates 10 Supercenters in the country,
and of Zara, which operates exactly one
store. Indeed, Megapaca’s target market
is the same up-and-coming middle-class
consumer targeted by these lesser-profile
(in Guatemala) brands. “A few years ago,
we noticed that people who show up in
cars spend three times more than people
who don’t,” Rivera recounts. “So we like
a big parking lot for our stores.”
To prove the point, he drives to
the Interplaza Escuintla, a shopping
mall with a parking lot lined by fast-
food chains, including Panda Express,
Pizza Hut, Taco Bell and Little Caesars.
Inside the mall, we ride up an escala-
tor, gliding past a second-floor gym
with a dozen women in name-brand
athletic wear jogging on treadmills.
Above them, on the third floor, an illu-
minated Megapaca sign stretches across
a gaping entrance.
The store is a 20,000-square-foot
expanse reminiscent of a Target.
Clothes are hung on racks, orga-
nized by size and color. The shoes
are similarly organized and impecca-
bly clean—an employee is pushing a
mobile orange shoe-washing station up
and down the aisles, wiping away scuffs
and dirt acquired when customers try
them on. Color-coordinated fashion
displays drawn from the current inven-
tory are hung along the walls, provid-
ing inspiration to shoppers. One of
them alternates pink hoodies and black
sequined T-shirts, differentiated up
close by Nike and Minnie Mouse logos
or by Zara tags.
Once an item arrives in the store, it’s
placed alongside others that have come
in that week. Pieces are discounted
Pacas in downtown Escuintla
weekly, across a cycle that can last up
to nine weeks, eventually ending up at
a 90% discount. The discount levels are
pegged to color-coded dots included on
the price tags affixed at the distribution
center. The colors rotate weekly, allow-
ing store staff to know within seven days
when a garment was placed on the racks.
Signage tells shoppers which color is
30% or 50% or 70% in a given week.
This system—a Dutch auction,
whereby an item’s price drops until
a buyer is found—provides Megapaca
with what it says is a sell-through
rate in excess of 80%. In compari-
son, the average US thrift store has a
sell-through rate of about 33%. The
affluent Guatemala City professional
in search of something stylish to wear
out to the club pays full price; what
he leaves behind may eventually go to
a young family, a working mom or a
low-income coffee farmer. As for the
20% or less of Megapaca’s inventory
that doesn’t sell in the stores, it goes
back to the distribution center, where
it’s sold to wholesalers who supply mar-
kets in the countryside.
Other thrift stores, both online
(ThredUp) and physical (Goodwill
Industries International Inc. and Japan’s
Bookoff ), use some version of a Dutch
auction, too. But they lack sophisticated
pricing algorithms at the buying and
sorting stage, and they’re generally far
less disciplined than Megapaca in their
discounting. Goodwill typically marks
down from full price directly to 50% off;
Megapaca’s first price drop is 15%, and
it doesn’t hit half off until a garment has
lingered on the rack for a month.
On the morning I visit, I see a couple
of families browsing the 30% and 50%
off racks in search of children’s clothes.
In the shoe section, parents debate
between New Balance or Skechers
sneakers for their preadolescent son.
Elsewhere, teenagers browse through
branded team apparel, pulling out the
occasional Major League Soccer T-shirt.
The 90% discount racks are largely
empty save for oversize clothes and win-
ter apparel. It’s quiet, but on the week-
ends, when Megapaca does more than
half its business, the stores are packed
with phone-wielding treasure hunt-
ers who post pics of the crowds—and
their finds—on Instagram, TikTok and
YouTube.
On the way back to Megapaca’s ware-
house, Rivera stops at a Cafe Barista
drive-thru for coffee. As the attendant
passes a black coffee through the win-
dow, he notices the logo on Rivera’s
shirt. “I love Megapaca,” he says. “I need
to get back, it’s been too long.”
Bloomberg Businessweek
fter work, Peña sits at
A the bar in his sprawl-
ing home overlooking
Guatemala City and his
private helicopter pad,
watching baseball on TV. (He’s a huge
New York Yankees fan.) He’s drinking
red wine and enjoying fish ceviche pre-
pared by his wife, Dinora. Recently,
he says, she showed him a dress she’d
purchased from Shein, the ultralow-
cost Chinese fast-fashion retailer.
“ ‘That’s the enemy,’ I told her. They’re
the competition.”
In 2015, Peña recalls, he held a meet-
ing with his shareholders and told them
they could either expand across Central
America or “sit here rubbing our bel-
lies.” That year, Megapaca established
warehouses, IT and retail stores in
Loading trucks
Honduras. It added Mexico in 2020 and
El Salvador in 2021.
“My main goal,” he says, “is to open
stores in the US, because that’s the
only way to be the No. 1 used-clothing
retailer in the world. And I think we can
do better than the US because we can
sort clothes cheaply here.” Goodwill,
whose inventory is donated, has more
than 3,000 stores and has been gener-
ating over $5 billion in annual revenue
for years. (It provides social services with
the money it earns.) Savers Value Village
Inc., the largest privately held thrift
chain in the US, generated $1.4 billion in
revenue from over 300 stores in 2022.
So what does Megapaca bring to
the table? “There’s a whole genera-
tion of people in Guatemala, Honduras
and El Salvador who grew up with
Megapaca and moved to the US,” says
Antonio Gallizio, chief strategy offi-
cer with Muran Group, a 70-year-old
used- clothing trading company that
operates out of South Carolina. Earlier
this year, Muran and Megapaca formed a
joint venture to launch the US Megapaca
site. “Ultimately the goal is to bring that
joy in thrifting—whatever it is Mario
invented down there—to that squeezed
US consumer,” Gallizio says.
As of 2021, there were 3.8 million
Central American migrants in the US.
And they have money: Every year, tens
of billions of dollars are remitted from
the US to Guatemala, Honduras and
El Salvador. Given this financial inter-
change, Megapaca and Muran’s mar-
keting plan for the US site includes
advertising—in Guatemala. “Refer a
friend or relative to the US store and
get 10% off your next purchase at a
Megapaca store,” Gallizio says, by way of
Discounts indicated by tag color
an example. Guatemalans who want to
send clothes to friends or relatives in the
US will also be able to do so via the site.
The new online shop will offer items
at Central American prices, but it will
also have a larger selection of higher-
quality (and higher-priced) used
items than the ones found in Central
American stores. The US site won’t be
using a Dutch auction. Instead, it will
offer weekly discounts and promo-
tions, with discounts pegged to the
changing seasons, a shift the partners
say will be more familiar to American
consumers. “It’s another way that
Megapaca is pushing the envelope,”
Bank & Vogue’s Bethell says. “If you
go to LA and visit the Latino parts of
the city, there are all kinds of groceries
that are Latino-facing. This could be a
similar thing.”
Goods will be shipped from ware-
houses in the US, where Muran is
September 18, 2023
deploying AI-enabled image-recognition
software to assist with sorting and
reduce labor costs. (Megapaca plans
to deploy the technology in Guatemala
eventually.) Shipping costs could end
up eroding some of Megapaca’s price
advantages, but the company and
Muran are confident the brand will
still resonate with its target consumers.
The US site isn’t intended only
to make money—it will also provide
Megapaca with market intelligence that
would help it take the next step into US
stores. “What do people want in Texas?
California?” asks Rivera. “This helps us
find out.”
There’s precedent for an emerging-
market secondhand dealer to sell
clothes right back to the US. For years,
imported-clothing sorters in Pakistan
49
have been trained to recognize vintage
items such as 1970s-era Led Zeppelin
T-shirts. These are typically sent
back to the US and marked up at a
premium. (In 2022 the US imported
nearly $15 million in used cloth-
ing from Pakistan, at least some of
which was originally acquired at ’70s
rock concerts.) Megapaca recently
entered the vintage export business,
too. The company also sends to the
US recycled fibers that it produces
from leftover cuttings at Guatemala’s
apparel factories.
But Megapaca doesn’t just want to
export Led Zep T-shirts and fibers; it
wants those once-rejected midmarket
Gap tees going back, too. “For years,
product moved one way,” Rivera tells
me as we step out of the car. “Now
we’re learning it can go in other
directions.” <BW> �Minter is a columnist
for Bloomberg Opinion
 P
Wood-fired short
rib, slow-cooked for
12 hours, served with

Wh
crispy pepper and
smoked yogurt at
Gallada in Istanbul

ere
in
U
the R
S
W
or

U
ld to

I
Ea
tT

The 13 most exciting

restaurant openings around
T
his

the globe. By Kate Krader

S
Fa

51
ll

54
Where wilderness
is paradise

56
The latest sleight of
hand from bartenders

58
Aloha! That’ll
be $2,500

59
Museum-ready
snapshots

September 18, 2023

Edited by
Chris Rovzar

Businessweek.com
 DINING Bloomberg Pursuits
It’s time to get out and expand your culinary horizons,
because global growth is on the menu for restaurateurs this
season. After years of stalled projects, the budgets are big-
ger, the footprints larger and the conceits more inspired, as
chefs everywhere pile on the reasons why people should put
down their pans and go out to eat.
In August, online data-sourcing platform Statista reported
that the value of the full-service restaurant industry—places
where food is ordered, then brought to you—is projected to
climb to $1.8 trillion in 2030, from $1.5 trillion last year.
Chefs are taking the opportunity to introduce themselves
to new audiences. This month, Mauro Colagreco, chef-owner
of the three-Michelin-starred Mirazur, makes his UK debut
at the £1.4 billion ($1.8 billion) Raffles London, the site of
Winston Churchill’s wartime offices. A new spot in Australia
from Aboriginal chef Mark Olive in the Sydney Opera House
offers a taste of the Indigenous cooking in which he specializes.
Others are testing out new concepts. Istanbul-based
Mehmet Gürs is creating an ambitious food hall at a new Dubai
dining development in the sky. The team behind the hit Indian
restaurant Dhamaka in New York City is getting ready to launch
its inaugural Filipino effort in the East Village.
Some high-profile chefs have decided this is a good time
to go home after making their name elsewhere. French-born
Dominique Crenn, who has a small empire of exquisite din-
ing spots in San Francisco, returned to open Golden Poppy,
52
a colorful restaurant in Paris that channels the energy of her
adopted California. Daniela Soto-Innes, who became a star at
Cosme in New York, is opening a solo restaurant in her native
Mexico, in the surf town of Punta de Mita.
In other words, it’s going to be a busy fall for anyone looking
for the most exciting new places to eat. Here are the 13 spots
to put on your to-do list.
THE AMERICAS
Dishes at Ubuntu include okra, arancini and grits
Ubuntu, Los Angeles
At her original postage-stamp-size Cadence in New York, Shenarri
Freeman turned vegan soul food into a big deal. Her new restaurant in
West Hollywood is larger in both scale and scope: Here she highlights
specialties from West Africa, serving miso-laced jollof rice arancini
and making grits with the supergrain fonio topped with caramelized
oyster mushrooms. The wine list consists of bottles from Black-owned
vintners such as Kumusha and House of Brown. Open now
September 18, 2023
LPM Restaurant & Bar, Las Vegas
The elegant French restaurant, which evokes sunny Mediterranean
waterfronts, has outposts around the world, from its home base
in London to Miami and Hong Kong. At its newest home in the
Cosmopolitan hotel, the space will be decorated with belle epoque
artwork and over-the-top flower displays. Chef and co-owner Raphael
Duntoye will oversee dishes including yellowtail with citrus dressing
and grilled, olive-paste-marinated lamb cutlets with eggplant caviar.
Opens in November
Eel ginger at Naks
Naks, New York
The Unapologetic Foods group, whose restaurants Dhamaka and
Semma have made New York a top destination for Indian food, now
wants to make the city care about Filipino cuisine. Longtime Dhamaka
chef de cuisine Eric Valdez will prepare unconventional versions of
dishes from his native country, such as KFC (fried chicken with fish
sauce) and imbaliktad, a gingery stir-fry made with bison rib-eye
instead of beef. Opens in late September
Rubra, Punta de Mita, Mexico
After running the kitchen at the acclaimed Cosme in New York, Daniela
Soto-Innes is bringing her elevated Mexican food to the 50-seat
rooftop restaurant overlooking the ocean at the upcoming W Punta
de Mita, in the state of Nayarit. She is planning dishes such as abalone
with seaweed tepache, the fermented pineapple drink, with her
women-led team. The wine list will feature bottles from Baja California.
Opens in December
EUROPE
Mauro Colagreco at Raffles London at the OWO, London
The mastermind behind Mirazur in Menton, France, which ranked No. 1
MCDONOUGH. UBUNTU: WONHO FRANKE LEE. REMAINING: COURTESY COMPANIES
on the World’s 50 Best Restaurants list from 2019 to 2021, is splashing
PREVIOUS PAGE: COURTESY PENINSULA HOTELS. THIS SPREAD, NAKS: PAUL
into the UK with three dining outposts at Raffles London at the OWO.
Colagreco’s signature spot next to the grand staircase will offer both
artfully decorated a la carte and tasting menus that turn local produce
into heroes—think carrots with turbot and nasturtium sauce. He’ll
also serve guests at the 20-seat Mauro’s Table, in a room that evokes
the days when Winston Churchill stalked the Old War Office hallways.
Opens in late September
Montrose House, Edinburgh
One of the UK’s best—but not well-enough-known—dining rooms
is the picturesque Timberyard, in an old warehouse near Edinburgh
Castle. The team’s new venture is an ambitious wine bar in an
1880s turreted building that will take advantage of the restaurant’s
40-plus-page list of bottles. The ground floor will host the bustling
lounge; the upper floor will house a six-table dining room with a
DINING Bloomberg Pursuits
four-course menu. Co-owner Joseph Radford will oversee the 100%
European wine selection; the food, from Timberyard executive chef
James Murray and Montrose House head chef Moray Lamb, will
include plates like trout-roe-topped deviled eggs and blood pudding
toast with pear mostarda and sherry. Opens in late fall
Ikejime fish at Golden Poppy
Golden Poppy, Paris
Dominique Crenn, whose Bay Area Atelier Crenn made her the first
US-based female chef to win three Michelin stars, has opened her
most casual restaurant yet, in the new 9th arrondissement hotel
La Fantasie. In the colorful space, where patterned wallpaper runs
amok, she combines California energy with French touches, offering
banana pancakes topped with a dollop of smoked caviar as well as dry-
aged sea bream, served whole, for €110 ($118) as part of her meat-free
menu. Open now
Guethary, Mallorca, Spain
The wood-fired, seafood-focused repertoire at Elkano has amassed
a cult following that included Anthony Bourdain. In late summer,
it expanded from its flagship location in the Basque region to the
country’s current hot spot, Mallorca. Guethary, in the Iberostar
Selection Playa de Palma hotel, is run by Aitor Arregi—the son of
Elkano’s founder—who sources prawns, octopus, monkfish and lobster
from the Mediterranean Sea. The menu is finalized minutes before
service starts, based on what’s available, and the wine list emphasizes
organic and biodynamic bottlings from the island along with offerings
from elsewhere in Spain and France. Open now
Gallada, Istanbul
There’s just one place in Istanbul with two Michelin stars: Turk Fatih
Tutak. To follow it up, chef-owner Fatih Tutak has created an Asian-
accented Turkish gem on the roof of the Peninsula Istanbul, where
terrace seats overlooking the Bosphorus are the most in-demand.
The set menus range from €130 to €180, with such selections as tuna
tartare adorned with tomato, tahini and yuzu, plus 60-day dry-aged
rib-eye with soy butter. Cocktails include the Kuala Lumpur, a mix of
cognac, kalamansi and kaffir-lime leaf. Open now
September 18, 2023
OCEANIA
Midden by Mark Olive, Sydney
The land where the Sydney Opera House sits was once the gathering
place for the native Gadigal people. At his restaurant underneath the
building’s iconic white sails, Indigenous chef Mark Olive evokes this
history in dishes including rock oysters with wattleseed vinaigrette
and braised wallaby shank with native tomatoes. High tea features
kangaroo mini-pies and lemon myrtle scones. Open now
ASIA
Arrazuna by Mehmet Gürs, Dubai
When it opens, the One Za’abeel development will be jam-packed
with stars such as Anne Sophie Pic and Tetsuya Wakuda, all cooking
in a long covered bridge that’s suspended 300 feet in the sky. One of
the most compelling options is Arrazuna, a pioneering food hall from
Turkey’s star chef, Mehmet Gürs, where eight open kitchens will serve
food and flavors from all over the Middle East. Opens in late 2023
53
Pomelo tartlet at Matera
Matera, Singapore
Inside the 1940s-era Fullerton Waterboat House is this airy, Asian-
accented Italian restaurant with floor-to-ceiling windows overlooking
the bay. Chef Bjoern Alexander, who won fame at Octavium in Hong
Kong, offers tasting menus starting at S$78 ($57). Snacks such as fried
spicy beef chips are followed by courses like tuna accented by burrata
sauce and caviar. And don’t miss the giant, lychee-wood-smoked red
prawn, with prawn toast. Open now
Hairy crab with caviar at Kanesaka
Kanesaka, Hong Kong
Unlike many windowless sushi spots, this offshoot of the two-Michelin-
starred Tokyo counter from Shinji Kanesaka (who also recently opened
a spot in London’s 45 Park Lane) has broad views of the city from its
fifth-floor location in the Central district. The menu highlights Edomae
sushi, the traditional style from Japan. Opens in late September
 TRAVEL Bloomberg Pursuits September 18, 2023

wonders on our catch, I suspect,

Owners Eert will be ample reward for our efforts.
and Murray
It’s my third day at the resort,
which means I probably should’ve
known to expect some kind of luxu-
rious surprise a lot sooner than din-
ner. But I don’t see it coming when
Laterra Lawson, our guide, reveals
a stash of limes, cilantro, cucum-
bers and tomatoes in her cooler
and starts whipping up prawn cev-
iche on the spot. Welcome to the
“new” Nimmo Bay Resort.
I first visited Nimmo Bay Heli-
Resort in 2008, when it was pri-
marily a fishing lodge, ready to
satisfy patrons’ insatiable desire
for hauls of king salmon and
hours of fly-casting. Former US
presidents and A-list actors were

Born to annual guests, drawn equally to

the untapped fisheries and the
convivial personality of founder

54
Be Wild
A succession plan
reinvented the world-
famous Nimmo Bay
Resort and made it
better than ever
By Crai Bower
“Do you want to go pull the spot prawn
traps?” asks Georgia Mingay, our guest
experience coordinator at Nimmo Bay
Resort, after we’ve returned from our
morning waterfall hike. We’re deep
in the Great Bear Rainforest, part of
the world’s largest coastal temper-
ate rainforest, on Mackenzie Sound,
which connects Nimmo Bay to British
Columbia’s Inside Passage. Guests
arrive by floatplane for several days of
immersive experiences.
“Sure,” I reply happily, knowing
Craig Murray.
Since then, much has changed.
For one thing, salmon have all
but disappeared—local popula-
tions have declined 90% since 1960.
And while Murray is still an adviser, he
has passed control of the business to
his oldest child, who in July revealed
a reimagined Nimmo Bay Resort that’s
gone from a “fish and whisky” lodge for
C-suite types to an immersive experience
where guests of all ages discover a par-
adise populated with brown bears and
humpback whales.
Originally from Toronto, Murray cre-
ated Nimmo in 1981 as a retreat not just
for his discerning guests but for him-
self and his young family, to live and
work far from society’s trappings. Sons
Fraser and Clifton were brought up
cleaning fish, tending to maintenance
and doing whatever it took to succeed.
Georgia, the youngest Murray, assisted
her mother, Deborah—the lodge’s chef—
in the kitchen, highlighting the daily
catch and seasonal produce.
That became the weight on Fraser’s
shoulders. He believed it was incumbent
upon him, as eldest, to keep his family’s
legacy afloat. In 2011 he slowly started
assuming duties as Nimmo’s chief exec-
utive officer; his wife, Becky Eert, took
over marketing and human resources.
A top-to-bottom, luxury-leaning make-
over ensued.
Although the succession and Nimmo’s
metamorphosis both took time to real-
ize, the resort’s bottom line has steadily
grown since Fraser’s takeover, netting
a 1,000% increase in annual sales, from
$1 million to $10 million over the past
eight years (excluding 2020 and 2021,
when Canada’s borders were closed due
to Covid-19).
For the younger Murray and Eert,
the first priority was upgrading infra-
structure. From 2014 to 2023, the out-
dated rustic cabins were gradually
PHOTOGRAPHS BY JEREMY KORESKI

that running the winch and extract-
ing this West Coast delicacy from the
traps fits into Nimmo’s philosophy
of exposing guests to all elements of
the surrounding ecosystem. Letting
the chef back at the resort work his
The salmon population began to
decline in the ’60s due to loss of habi-
tat, overfishing and, more recently, cli-
mate change. Without fish, there could
be no fishing lodge. Nimmo needed to
pivot hard to survive.
replaced with more luxurious stand-
alone cottages, each with private decks
and floor-to-ceiling windows facing the
bay. Next came a spa overhaul, which
added two new treatment rooms front-
ing a forest-shrouded 100-foot waterfall.
TRAVEL Bloomberg Pursuits September 18, 2023

Will Haven, a Nimmo Bay Resort guide Cabins and helipads at the resort

near the sauna; That morning, the marine layer—a

Helicopter experiences are still
available here—one guest ordered two
for a full day of sightseeing during my
stay. But today all the fishing is catch-
and-release. Although salmon, the ubiq-
uitous entrée in the Pacific Northwest,
never appears on the menu during my
four-night visit, the ocean and its more
sustainable bounty—such as halibut and
Dungeness crab—remain a focus.
Consider the “Snorknick,” a unique
snorkeling-inspired lunch in which
guests settle into a floating picnic table
on Nimmo Bay. (The water rarely gets
warmer than 58F; wetsuits are pro-
vided.) A free-diver collects and prepares
sea urchins, grills sea cucumber and
serves other local delicacies, accompa-
nying them with single-estate sparkling
wines produced in British Columbia’s
Okanagan Valley.
The seafloor-to-table Snorknick expe-
rience arose from Fraser’s indefatiga-
ble imagination. Among the things he’s
recently designed and built: Vesper, a
James Bond-worthy tender, which con-
veys guests on wildlife safaris; a glass
room that provides panoramic seating
and two “wellness
docks,” each tucked
into inlets within
10-minute boat rides
from the lodge.
“Fraser hatches
10 new ideas a day
that we filter down
to one or two,” says
Eert. And all are run
by Irv Speck, the
local Gwawa′enuxw chief and Fraser’s
childhood friend, who’s considered
Nimmo Bay’s guardian as well as a
favorite guide at the resort.
What ties most of Fraser’s eclec-
tic ideas together is a desire to push
the boundaries of wellness and culi-
nary travel, especially as they relate to
Nimmo’s natural surroundings. Rather
than reserve rooms à la carte, guests
book retreats, which start at three
nights for $8,699 per person.
The price includes meals, with
the option to add activities such as
stand-up paddleboarding by a waterfall
or hiking to a platform in the middle
of the rainforest where you can prac-
tice yoga or get a massage surrounded
by birdsong.
On our last day at Nimmo, Mingay
arrives at breakfast to offer a roster
of daily excursions. My partner, Patti,
and I pick a wildlife safari followed
by an afternoon in a hot tub on one
of the wellness docks. The (always pri-
vate) excursions start not at prescribed
times but whenever guests feel ready
to begin.
vapor that provides essential moisture
in this ecosystem during the dry season—
forms a collar above the Sitka spruce for-
ests, and we enter Sullivan Bay to find
five humpback whales, their massive
flukes bending, elevating and disappear-
ing on feeding dives.
We watch for an hour before setting
out to nearby islets popular with har-
bor seals, disembarking on one to have 55
a staring contest with 30 whiskered crea-
tures. While we’re distracted, our guides
prepare a picnic for two, complete with
table and chairs, in a tiny clearing.
“Fraser would like to put a wood-
fired bathtub here,” one of them casually
mentions as we depart. Knowing Fraser,
I can’t imagine it won’t happen.
Fifteen minutes away, we motor into a
hot tub dock, tucked in yet another inlet.
A nap-inducing daybed lies at one end; at
the other is a pair of Adirondack chairs
and a table outfitted with local guide-
books, binoculars and a wine bucket.
Snacks and other libations are sealed in
Yeti containers.
“Don’t feel any rush to return,” our
guide informs us before pushing off and
leaving us be. “We had one guest who
stayed for 10 hours.”
Patti and I take turns diving into the
cool water and climbing out to submerge
in the steaming cedar tub. An afternoon
breeze cools the air, and I contemplate
calling the lodge to be collected.
Instead I slip beneath the wool blan-
ket on the daybed, tossing more cares
and concerns into the water to be carried
out to sea on the receding tide. <BW>
 DRINKS

Gain Clarity
Bartenders are embracing techniques
to create drinks that don’t taste like
what they look like. By Kara Newman
Photograph by Melissa Hom
Clarified cocktails are like little magic tricks. Light-colored and
mostly transparent, they disguise a powerhouse of flavors.
Removing solids and cloudy particles from a drink via
high-tech methods or simple filtration “hides the flavors in
plain sight,” says Nacho Jimenez, owner of Superbueno, a
Mexican American cocktail bar in New York.
His yellow-tinged Vodka y Soda is one such impressive
sleight of hand. It appears mild-mannered, like a tall glass
of lemonade, but packs complex layers of guava and spice
from pasilla peppers as well as velvet falernum, a low-proof
liqueur. The first sip “gives you this aha moment,” he says.
“You try it and say, ‘This is something else.’ ”
That surprise factor is one reason clarified cocktails are
56 everywhere right now. Once they were considered a niche
curiosity; now serious cocktail programs typically offer at least
one. Some bars, such as Hush, at Washington’s Viceroy hotel,
or Jelas in New York, devote their entire menus to them.
Many are made via a process dubbed “milk washing,” a
recently revived style. It works when combined with an acidic
ingredient, such as citrus. When milk is added, the acids in
the citrus bind to the proteins in the dairy, which causes it to
curdle. The curds and other solid particulates are then easy
to remove by straining through a cheesecloth, coffee filter or
superbag—a flexible fine-mesh sieve.
The process can take several hours or up to two days,
depending on the thickness of the batch and how many times
it’s filtered. Some mixologists prefer agents such as agar-agar,
a seaweed-derived gelatin that turns the liquid into gel; the
remaining fluid that can be squeezed out becomes the drink.
Others use a centrifuge to spin apart liquids and solids.
Bartenders love these drinks because once they’re
Just Add ... Milk?
batched, they can be poured quickly, making them ideal for Vietnamese Coffee Sheep’s Milk Martini
busy bars. The technique can also incorporate ingredients This vodka-coffee combo Created by Omar Jacks, bar
that don’t always play well in cocktails, such as chunky fruit may draw comparisons to manager at Cane & Table
purees—or matcha, which doesn’t dissolve well into alcohol. deep-hued espresso martinis, in New Orleans, this mad
Taking out those particulates creates a smoother drink, but the resemblance between scientist’s riff on a martini uses
but bartenders say the process specifically yields a notably the drinks ends there. At Jelas, sheep’s milk to clarify a fragrant
silky texture, and that is the true selling point. At Jelas, a milk- which means “clear” in Malay, mix of Norden Aquavit, lemon,
the ingredients are filtered Demerara syrup, lemongrass,
washed margarita transforms from citrusy into a “velvety,
through a combination of jalapeño and fresh thyme. The
vegetal, almost spice-forward” drink, according to co-founder evaporated milk and whole milk, resulting blend is mixed with
Colin Stevens. “It definitely tends to subvert expectations,” giving the cocktail a translucent gin and served in a coupe glass,
he says. “But it’s one of our most reordered drinks, because brown hue and gentle baking garnished with a small rosebud
it’s such a pleasant surprise.” spice notes. and lemon peel.
DRINKS Bloomberg Pursuits Month 00, 2023
From left: Jura’s Vietnamese Coffee; Whiskey
Cloud, an ode to the New York Sour; Die Die Must
Try, with shochu and Champagne; and margarita

Six outrageous clarified cocktails worth ordering

Second Place Finish
Maybe the most creative
milk-washed cocktail comes
from Madame George, a bar
below gin palace Valerie in
Manhattan. Mint chocolate chip
ice cream is used to clarify a mix
of pisco, green Chartreuse and
crème de cacao. “I wanted to do
a play on a grasshopper without
it being creamy or stuck in the
dessert realm,” says beverage
director Marshall Minaya.
The Elixir of Long Life
What starts as a classic Last
Word (gin, Luxardo maraschino
liqueur) is combined with clarified
lime juice and green Chartreuse
that’s been filtered through a
rotovap, a lab-grade vacuum
distiller, instead of milk. It’s on the
menu at Barmini by José Andrés,
an experimental cocktail “lab” in
Washington, and tastes like an
herbaceous Last Word, but it’s
crystal clear.
Butternut Milk Punch
At the forward-thinking cocktail
den Common Decency, at the
NoMad Hotel in London, this
milk punch looks like a simple
old fashioned because of its
amberlike coloring. But it’s
actually a complicated mix
of bourbon, rum and sweet
vermouth that’s complemented
by the bright, tart flavors of
lemon, pineapple and, yes,
juiced butternut squash.
Sailor’s Cup
The Punch Room in Tampa uses
clarified ingredients throughout
its drink menu. This Caribbean-
inspired drink combines
whiskey and applejack with
cacao and spices, plus Earl Grey
tea and coffee liqueur. It’s all
washed with condensed milk for
a lush texture and soft flavor
that, according to director Tural
Hasanov, “tastes something
like Chardonnay.”
 CRITIC Bloomberg Pursuits
Kona Village’s Moana pool
Island Soul
Can Hawaii’s spirit of aloha thrive
when rooms cost $2,500 a night?
58
By Jen Murphy
Kona Village, Hawaii’s most ambitious resort in decades, isn’t
exactly new. The hotel first opened in the mid-1960s in an
improbable location on the Big Island—between 300-year-old
lava flows and fields with ancient petroglyphs—that at the time
could be reached only by boat or plane.
Guests loved the lo-fi, castaway-cool vibe: Phones were
banned, coconuts functioned as “do not disturb” signs (still
a thing), and the staff felt like family. Then, in 2011, a tsunami
decimated the resort. A campaign to “Save Kona Village”
cropped up on Facebook, raising $125,000 for its employees;
some past guests banded together to try to buy the property.
From then to now, Hawaii tourism has transformed. In
2019 the islands’ 1.5 million residents welcomed 10.4 million
visitors—stressing the state’s fragile beaches and heritage sites.
When that dropped to zero in March 2020, government officials
saw an opportunity to pivot toward a model of tourism man-
agement favoring fewer, higher-paying, eco-conscious travelers
over an unsustainable number of value seekers. Kona Village’s
July reopening as a member of the posh Rosewood resort fam-
ily is a pricey litmus test for that strategy, especially as the
state’s tourism business struggles following the Maui wildfires.
Kona Village encourages guests to go barefoot and ride
complimentary bikes to two glistening pools or the spa,
which is built into a lava flow. Moana, the fancier of its two
restaurants, serves devoutly local fare such as kalua pork
and ulu agnolotti—albeit with an outstanding selection of
white Burgundy. Its 150 rooms are bungalow-style with out-
door showers; some have swinging daybeds and private
September 18, 2023
pools. But compared with other island resorts, none of this
is particularly impressive considering the Four Seasons Resort
Lanai and Halekulani on Oahu, inter-island competitors,
can cost $1,000 less per night and come with Toto toilets,
Nespresso machines and other modern amenities.
As Hawaii’s most expensive hotel, Kona Village’s smallest
rooms go for $2,500 per night—the same as a week’s stay at an
average hotel in the state, according to the Hawaiian Tourism
Authority. A two-bedroom suite now starts at $5,800 a night;
dinner can run an additional $400.
Faith Trotman, who visited the former Kona Village about
50 times, says she won’t be visiting this version. “A two-room,
beachfront hale used to cost $2,000 a night and included all
of your meals,” she says. “A cocktail is now $27. I’d have to sell
my house to afford a family vacation.” Bill Partmann, founder
of Save Kona Village, recognizes that it’s too expensive for the
old guests. “Annual stays probably aren’t realistic for me any-
more, but what matters most is that the island I love is bene-
fiting from tourism jobs and dollars,” he says.
Many times during my three-night stay, I wondered if
the $2,500 starting rate was simply the price of doing truly
responsible business. The resort’s efforts to operate in a
sustainable and culturally sensitive way—led by developer
William Morrow, who honeymooned there in 1995—foster a
thoughtful experience and are a reason to stay. It’s home
to the largest private collection of solar panels in the state,
which fully powers the resort, as well as on-site reverse-
osmosis and wastewater treatment plants. It expects to be
carbon neutral by 2050.
Throughout the eight-year-long renovation, great effort
was taken to preserve its 81 acres with the advice of locals
and lineal descendants. Invasive vegetation was cleared from
anchialine pools that connect underground with the ocean
and are home to rare, endemic species such as red shrimp.
When remnants of an old cookhouse were discovered, the
team moved a newer building’s foundation to save what was
left of the original structure. (Turns out it belonged to a for-
mer employee’s great-great-grandfather.) Even simple experi-
ences like fishing have been re-created with purpose. Guests
now cast for invasive tilapia in a lagoon and use it to feed
injured monk seals at a local rehabilitation center.
“We want to compete with the best hotels in the world,”
Sandra Estornell, the resort’s managing director, tells me over
a breakfast of still-warm passion fruit kouign-amann pastries.
“We’re a luxury brand just like Cartier. We’re not for everyone.”
Estornell has even trained new staff to toss the formali-
COURTESY KONA VILLAGE, A ROSEWOOD RESORT
ties like addressing guests by Mr. or Mrs. and to treat guests
like friends. Based on my experience (everyone called me Jen
rather than Ms. Murphy), she’s done a sensational job.
The highlight of my evenings wasn’t a mai tai or torch-
lighting ceremony. It was talking with my housekeeper, Trudy
Underwood, who told me how she was there “around 1960”
when her dad took oil executive and eventual Kona Village
co-founder Johnno Jackson on a bumpy, off-road drive as he
scouted out a special slice of paradise to build a new resort. <BW>
THE ONE Bloomberg Pursuits September 18, 2023

Sharper Image
You don’t need color when Leica’s M11 camera can
capture your world in moody monochrome
By David Rocks Photography by Takamasa Ota

If you think there’s the soul of a Robert Capa

or Henri Cartier-Bresson lurking deep inside
your creative heart, you might find it with
Leica’s new $9,195 M11 Monochrom, the fifth
entrant in the brand’s series of noncolor THE COMPETITION
cameras. Leica’s sturdy bodies and sharp • Although it has a smaller 26mp sensor,
lenses have been the gold standard for the $2,200 Pentax K-3 Mark III Monochrome
photography since the company first released still delivers luscious images. And it offers
a portable 35 millimeter camera in 1925. autofocus and image stabilization, features
The M11 harks back to those analog roots: It that the Leica (intentionally) lacks.
doesn’t have autofocus, and you must control • Leica’s more modest Q2
the aperture by hand—though ISO and Monochrom, at $6,200
shutter speed can be set to automatic. including a fixed lens,
has a 47mp sensor—
huge, but smaller than
THE CASE 59
the M11’s. Its greater
Most digital cameras have a filter that
level of automation
sorts the spectrum into red, green and blue
will smooth the way
elements. The M11 doesn’t, so more light
for less experienced
reaches its 60 megapixel sensor, meaning
photographers.
you’ll get hyperdetailed images with
• The $1,800 Fujifilm X-Pro3 can
less distortion. There are a few 21st
shoot in color, but its filters are
century goodies such as a 3-inch
intended to emulate the company’s
touchscreen, light metering to get
film of bygone days, including
the exposure just right and a phone
several monochromatic options. And
app to easily share your work. The
unlike the M11, it can shoot video.
only drawback is the price. “For
that, you could get a good
used car,” a friend says, “and
it would be in color!” The
counterargument is that this
level of investment indicates
serious commitment. $9,195
(body only); leicacamerausa.com
 ◼ LAST THING

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Hot, Hot Heat
Talking about weather this extreme requires
a specialized vocabulary

This summer’s heat

waves broke records
across the planet—
and brought once
obscure phrases
to prominence. But
what is a six sigma
event, exactly?
To clarify, we’ve
compiled a glossary
of terms that you
will, sadly, be hearing
more and more.
�Bloomberg Green
● HEAT DOME
A heat dome forms when
hot, sunny conditions in a
particular location lead to
an area of high pressure.
That amplifies the heat and
can cause the jet stream—a
fast-flowing river of air in
the atmosphere—to contort
around the area, creating
a weather pattern that can
remain stuck in place for
days or even weeks.
● EXCESSIVE
HEAT WARNING
The National Weather
Service issues this warning
when the apparent
temperature—a combination
of observed temperature ● WET-BULB GLOBE TEMPERATURE
and humidity—is expected
to reach or surpass 110F It’s not the heat that gets you. It’s not even the humidity. It’s
and not fall below 75F for the combination of heat, humidity, wind strength, sunlight
at least 48 hours. To cope angle and cloudiness. To quantify this combination, scientists
with the heat, limit your time check the “wet-bulb globe temperature,” a reading taken
outdoors—and drink water. using a device that simulates the body’s response to air.

60

● RED FLAG WARNING

An increasingly familiar
indicator on the National
Weather Service map, red
flag warnings are reserved
for days of exceptional
● EL NIÑO ● MEGADROUGHT wildfire danger. The
warning generally indicates
Thought to have existed for eons, El Niño is a natural climate A megadrought is a period of very low soil moisture that that it’s going to be hot,
phenomenon characterized by warmer-than-normal waters lasts a long time. Scientists have no precise definition; they windy and dry. In other
in the eastern tropical Pacific Ocean. El Niño (Spanish for know it when they see it. And they see it in the American words, all the ingredients
“the little boy”) can raise the global average temperature and West, where conditions since 2000 are worse than they’ve for explosive wildfires are in
cause regional weather shifts. been in at least 1,200 years. place. Just needs a spark.

● SIX SIGMA ● ATTRIBUTION SCIENCE ● MASS MORTALITY

Data scientists refer to Scientists know climate Extreme heat poses a risk
deviations from the norm change is playing a role to almost every living thing
in terms of sigmas. The in the extraordinary levels on Earth. While there is
ILLUSTRATIONS BY JORDAN SPEER

higher the sigma, the rarer
● FIRESTORM the event. Two sigma events
are unusual, three sigma
Firestorms form when intense wildfires superheat events are rare. The failure
the air, causing it to rise. A hallmark of a firestorm is of Antarctica’s sea ice to
a pyrocumulonimbus, a towering cloud that mirrors replenish has been called a
thunderstorm clouds, usually without rain. The systems six sigma event—something
can send embers flying and sometimes even whip up that happens once in about
fire tornadoes. 7.5 million years.
of heat around the world.
Attribution science is a tool
that lets them quantify just
how much. Using climate
models, researchers can
simulate and analyze
today’s world and the pre-
industrial one, then look at
the differences.
no set definition of mass
mortality in the context of
climate change, extended
periods of higher-than-
normal temperatures have
been implicated in mass
die-offs of trees, coral
and ocean creatures in
recent years.
 helps you
train
tune
deploy

AI
so you
can create
the right AI
for your
business.

ibm.com/watsonx

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and service names might be trademarks of IBM or other companies. A current list of IBM trademarks is available on ibm.com/trademark. ©International Business Machines Corp. 2023.
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