July 25, 2025 • 48 mins
This week, BlackRock’s Rick Rieder talks about the resilience of the US economy in the face of uncertainty on tariffs and a growing federal debt burden. And, amidst US child care struggles, private equity finds a way in. Plus, Former Treasury Secretary Lawrence H. Summers discusses slashes to Medicaid through President Trump’s “One Big Beautiful Bill”. Later, FIFA comes to North America, and Toronto is hoping for an economic win.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:18):
This is Wall Street Week. I'm David Weston, bringing you
stories of capitalism. Early childhood education is as important as
it is challenging for millions of Americans. It turns out
that it's also an investment opportunity. We look at the
large and growing role of private equity in raising our children,
plus what that one big beautiful bill means for childcare
(00:41):
and healthcare. Our special contributor Larry Summers takes us through
where he thinks we may be going wrong. And the
World Cup is coming to North America with all the excitement,
all the potential, and all the costs surrounding it. We
bring you to the host city of Toronto to hear
why it thinks it's making a sound investment. But we
(01:02):
start with the question puzzling so many investors these days.
Why are the US equity markets poised for growth while
economists are predicting a slowdown. Rick Reader is Blackrug's Chief
investment Officer of Global Fixed Income and head of the
Global Allocation Investment Team.
Speaker 3 (01:20):
The service economy is what drives this economy today. It's
not a goods oriented economy. It's not a commodity.
Speaker 4 (01:25):
It's not an.
Speaker 3 (01:26):
Export oriented, not a heavy manufacturing, service oriented, so most
of what drives the economy is resilient to what is
a goods slowdown in goods. Second thing that I wouldn't
have anticipated. I would have thought, you've got more pricing
transmission in but it's pretty incredible how companies moved. In fact,
now some of it in the near term, companies took
(01:47):
it into margin.
Speaker 2 (01:48):
So give us a sense rick of where this economy
is headed, because if you look at the stock market,
it looks really good, it's really going places. At the
same time, if you look at the markets, they say,
well, we're going to have a rip cutter two who this year.
Normally you wouldn't cut rates into robustly growing market.
Speaker 3 (02:05):
So it's pretty extraordinary. I mean, it almost never happens
in time. So the a couple things happen. First thing,
I think all financial assets there is an extraordinary amount
of cash and money that has to flow somewhere. And
the technicals and equities are great because companies are buying
back their stock. So I think the equity markets are
reflecting really good technicals. Earnings have been pretty good. But
I think there's something different at play in terms of inflation.
(02:27):
What's going to happen with productivity and innovation, Inflation is
going to come down. And the reason to bring interest
rates down, which I'm a believer in, is the housing
market is under pressure. So the real impact of interest
rates on the economy today, I don't think it is
in the historic sectors of who spends on coppacks, anything
about AI spend, how the banks manage the risk. It's
(02:47):
about housing and today if you look at the housing
market and particularly what impacts lower income. The people that
borrow today are lower income and they're adversely impacted infected
by where these rates are. If we get the rate down,
you actually can bring how home prices down, you build
more houses, you'll actually reduce inflation. So I think it's
quite consistent to bring the interest rate down even though
the economy is operating at a pretty good level. Where
(03:10):
we're going is to a lower level of inflation, and
I think we can bring it down. I mean, think
about inflation break evens today depending on which part of
the curve are two and a half to two and
three quarters. So the funes rate, even if you bring
it down to three and a quarter you're still above
the rate of inflation, so I think we got plenty
of room to drop it. Even though the economy is
operating well.
Speaker 2 (03:29):
Does the yield curve on the treasury indicate we do
have a bigger problem in the place we think. Look
at the thirty year for example, we're significally over five
down hanging in up there. So the short end nice
under control, long end not so much.
Speaker 3 (03:43):
So I think the long end of the yield curve
becomes untethered. First of all, the Fed generally can control
the front end, and the front end stays tethered to
the Fed funds rate. Long end of the yield curve
has a couple of things that I think are not
to its benefit. One, we've got to issue a lot
of debt going forward. I mean, think about the size
of the bill side, the deficits. We're going to issue
a lot of debt. The long end is a hard
place to invest. It used to be that the long
(04:05):
end protected you against the equity market. If inflation ends
up being higher, which I don't necessarily anticipate, then what
will happen is equities and long end will get hit.
So the long end of the yield curve today, given
that you can get so much yield if you're an
investor in the front end, the long end doesn't become
that attractive.
Speaker 2 (04:22):
You say, one of the problems with the long end
of the yield curve actually how much debt the United
States government has to take on, and the so called
one big Beautiful Bill doesn't seem to be helping that
situation much. How big a problem is that, and how
much of the problem right now we're saying is we
term premiu. People are starting to doubt a little bit
whether we're going to repay it.
Speaker 3 (04:40):
So there's only one way to deliver the economy. You've
got to outrun the debt. You've got to outgrow it.
So there is a plausible outcome where you get nominal
GDP running at four and a half to five. If
we get that interest rate down to three, gosh, now
you could start to deliver, but it takes a really
long period of time. Listen, I think the one engine
today's we are going to have a bigger debt burden.
(05:01):
And not only do it, are we going to have
a bigger debt burden, you have to fund it domestically
because international doesn't buy as much as long as we grow,
then you could work through it. You know what I
worry about is you get shocks to the system.
Speaker 2 (05:12):
Well, how big is AI? I mean you mentioned that's capex,
a lot of capacks going for right now, a possible
engine for growth, I guess in productivity principally right, how
big could that be?
Speaker 3 (05:22):
I think if you take it with AI, you take robotics,
you take automation, you take software, you take cloud, you
take energy, you take cooling. I think people underestimate how
dramatic this is going to be. And I think our
world a year or two hence is going to see
things that nobody's ever seen before in terms of innovation, productivity.
(05:43):
And you think about what happens the things that you know,
everybody talks about autonomous cars, but you talk about all
the services, all the things that can be created at
a lower price point. I think it's remarkable. I think
it's remarkable. You know, part of why we talk about
you know, who do you own in the equity market,
these big cap company that utilize data effectively. It doesn't
have to be necessarily the bag seven, although they're pretty
(06:04):
good companies generally. Gosh, you think about the companies to
utilize data to expand their mode and how they utilize
how you know, the price points they got operated at,
how they advertise, how they run their business efficiently using software,
et cetera. Part of what I think this is the
most exciting investment period I've ever been around. We're going
to see more dramatic change than Internet, than really mobile telephony.
(06:24):
It's a pretty amazing time.
Speaker 2 (06:26):
You mentioned Internet, which is the last time I reased
when there was really a substantial increase in productivity the
late nineties into the early ought we saw is AI
bigger than that, So.
Speaker 3 (06:36):
You know, there's interesting thing around. I've spent a lot
of time thinking through this. Internet took some time to
develop and the adoption rate and by the way, if
you go back in time, electricity, telephone, rail, it all
took a period of time. This is almost instantaneous. How
fast and by the way, you know, I think one
of the incredible technologies the last couple of decades was
(06:58):
GPS technology. Part of while literally get up every morning
and in the weekends and you try and think about
which companies are going to benefit from these all these
new companies that are that are coming about. I said
I think it's going to happen faster and be more profound.
You know, it's hard to say the Internet was pretty incredible.
It's hard to say it'll be bigger. But it's certainly
gonna happen faster.
Speaker 2 (07:17):
But the market must be pricing in some of that already.
We're seeing a lot of the AI. Why are you
confident it's not pricing all of it in?
Speaker 3 (07:25):
You know, if you go back to the Internet public,
you go back to ninety eight, ninety nine, two thousand,
you were putting multiples on no cash flow. Most of
these companies that I so first certainly when you look
at the bags seven and you look at the multiples
on those companies, actually they're not that scary. I mean,
if you when you assume their growth rate, these companies
throwing off thirty to thirty five forty percent return on
equity or higher for a couple of them, and you're
(07:48):
throwing off cash, which by the way, allows them to
buy back their stock. You think about those companies in
the ninety eight ninety nine he was sort of hoping
that they would take off, and most of them didn't.
These companies are well and trench and thought, now you
go into other areas and you think about, gosh, you know,
there are some parts of it, they're a bit of
a flyer, and there are some multiples on some things,
(08:09):
and so that you have to evaluate what is the
business prospect, what's the available market. But I would say
that you know, the big hyper scalers, the big semiconductor companies,
the big software companies, and I would argue, you know,
even the companies that utilize data efficiently, even the huge retailers,
media delivery companies like Boy, they're pretty pretty spectacular as
(08:32):
to their rate of growth and making money along the way.
And that's that's different.
Speaker 2 (08:37):
Given that view on the economy and the markets where
they are, where they're headed. What's the best way to invest?
Give us your perspective from Blackrock. Yeah, what are you
seeing that's particularly attractive right now?
Speaker 3 (08:47):
So, you know, I still believe in growth and technology
and equities and and I think, you know, running more
of a barbell, that is, you know, I don't like
a lot of the small cap equities that you know,
there's some and some areas that are okay. I like
these big caps, particularly in and around tech by the way,
healthcare technology, by the way, leisure and hospitality. I think
(09:08):
the world part of this is the derivative ais people
have more time. Leisure, travel, entertainment, I think is a
big part. So that's what I like. On the equity side, well,
I think rates should come down. I'm kind of hoping
they don't because this environment, we can build six six
and a half seven percent yielding assets or portfolios that
don't really have to stretch and that can stay in an
(09:28):
investment gray generally on average bad. I mean, if you
could buy growth and income and then, by the way,
maybe a little bit of hard asset, whether that's gold
or some crypto, you know, not scale to the size
of your debt and equity, but I think that creates
balance in a portfolio.
Speaker 2 (09:45):
You mentioned crypto, which has become quite the topic in
Washington these days, and to be stable coin, because all
of a sudden everybody wants a stable coin. It seems
like is that really fundamentally going to change the financial system.
Speaker 3 (09:57):
So crypto war stable coiner both, I mean, they're you know,
relate it's stable coin. I actually think will be quite
helpful in that it will utilize it a there's a
benefit to the currency and the dollar utilization. Ultimately, b
it will soak up some of it. Do we have
a lot of treasures, We've got an issue. It will
soak up some of that. Not a tremendous but it
will soak up some of that. So I think that'll
(10:17):
be real utility. How we moved in the tokenized assets,
in tokenized investments, how we think about payments mechanism. I
think stable coin will be a very big deal crypto.
I think general crypto, I actually think. I mean, I
own some of the portfolios. You talk about volatility. I
own it in moderate size. But it's one of those things.
(10:37):
The adoption rate around the world is so extraordinary coming up.
Speaker 2 (10:42):
We trust an awful lot to the markets, but does
that include caring for our children. We look into the
growing role of private equity in early childhood education. That's
next on Wall Street Week. This is a story about
(11:03):
having the markets raise our children. Since the days of
Adam Smith, we've trusted the invisible hand to do all
sorts of things for us, from telling us when our
government is borrowing too much.
Speaker 4 (11:14):
The ninety three deaths production purgem it was very heavily
focused on depth production, and I think rightly argument it
turned out to be correct that markets would react very
favorably if we were serious to guiding us in our
career path.
Speaker 5 (11:25):
The number of jobs that we've created in life sciences
over the last couple of years ago thousands of new
life sciences jobs in Jersey. But we're making major investments
because we know it's a crowded field.
Speaker 4 (11:38):
And another flat.
Speaker 2 (11:40):
As parents, our children are priceless, which means that any
value attached to them or their well being cannot be enough.
But there is a business built around early childcare, with
consumers and suppliers setting prices based on revenue and costs,
and even investors putting up capital on which they expect
a return.
Speaker 6 (12:00):
I was kind of like, at my wits end at
the end of twenty twenty four, I had taken a
break from real estate because I was like, I don't
know how to do this without full time childcare, okay,
And I just remember opening up my journal and the
first thing I wrote down was like fine childcare, and
I was like, I don't know how to do this.
The eggs are done now.
Speaker 2 (12:21):
Ashley Perdy's kids are one of roughly eleven million children
under the age of fifteen who spend time in paid
childcare in the United.
Speaker 6 (12:30):
States in the car, being home with three kids was
amazing for time, but then it was like I would
be home, just like daydreaming and like fantasizing about going back.
Speaker 7 (12:43):
To work here.
Speaker 2 (12:45):
Childcare is uniquely expensive in the US, comprising a higher
proportion of average income than it does anywhere else in
the world. According to Childcare Aware of America, the national
average cost for children under school age for one year
was eleven five hundred and eighty two dollars in twenty
twenty three. But that cost is only the tip of
(13:08):
the iceberg.
Speaker 1 (13:09):
This isn't a gym, right, This is a sector where
educators are literally building the brains of young children and
providing the care that families rely on to be able
to flourish.
Speaker 2 (13:20):
Elliott Haspell is a senior fellow at Kapita and author
of the forthcoming book Raising a Nation Right Now.
Speaker 1 (13:27):
We see middle income and upper middle income and affluent
parents using licensed formal childcare. Largely that's because they can,
they can afford it, or at least try to afford it,
and also because those tend to have the highest proportion
of families that have two earners in the workforce.
Speaker 2 (13:42):
What can be a major challenge for young parents turns
out to be a potential opportunity for equity investors.
Speaker 1 (13:50):
They take up right now somewhere between ten to twelve
percent of the childcare sector, and they're growing at a
time when many childcare programs are struggling to stay open.
The profit chains are growing because they're able to do
debt financing right. They're able to access capital markets in
a way that the individual programs, nonprofit programs, church based
(14:10):
programs just can't.
Speaker 2 (14:12):
The strong demand for early childcare is one way for
private equity investors to make money, but there is another
potential revenue source, the real estate the centers occupy.
Speaker 1 (14:23):
Classic sort of part of the private equity playbook that
we know from other sectors is what are no sale leasebacks?
Speaker 8 (14:29):
Right?
Speaker 1 (14:29):
This idea that you take a site that owns its
own facility or owns the land and basically force it
to sell off to to another landlord. The profits from
those sale go up to the private equity firm as
opposed to back into the site. The site now has
to lease back the facility or the land that they
previously own, so they now have a new line of
debt We have definitely seen this strategy play out in childcare,
(14:51):
and in fact, the childcare real estate is one of
the most valuable pieces of assets that many of these
chains have.
Speaker 2 (15:00):
Adam Newman is founder and managing partner of Titan Partners,
specializing in early childhood education, and he knows the long history.
Speaker 7 (15:08):
Some of the first and earliest investors in early childhood
education started back in the eighties. The two largest players today,
KinderCare Learning and Bright Horizons Family Solutions, received investment from
private equity firms late seventies mid eighties and really served
as bellweathers for what has become over the last couple
(15:31):
decades a much more active and vibrant private equity investment
community focused on early childhood education.
Speaker 2 (15:38):
What about the nature of the marketplace in early childhood
education makes it attractive for private equity? I mean, what's
the opportunity?
Speaker 7 (15:46):
It is a capital intensive market that requires a degree
of professionalism and investment that oftentimes exceeds what individual owner
operators can do themselves. There's also a fair degree of complexity,
particularly as you move across states. What they are doing
is taking a fragmented ecosystem and striving to drive efficiency
(16:11):
and scale in ways that more independent owner operators are
oftentimes unable to do themselves.
Speaker 2 (16:19):
But that's not to say that private equity plays as
large role in all parts of the early childcare business.
At least thus far, investors have been careful to pick
their spots.
Speaker 7 (16:30):
The part that the private equity world tends to play
in are those two middle segments, the national chains and
the independent centers.
Speaker 2 (16:38):
Newman estimates that the two segments targeted by private equity,
national chains and independent centers account for about thirty nine
percent of the children in care today, and he expects
that portion of the business to grow to about forty
five percent of the total market over the next five years.
But all that private equity participation is not without its detracts.
Speaker 1 (17:00):
There's a for profit chain called Guidepost Monatssory, and it
was it's a venture capital backed chain, and what happened
is they ended up growing so fast, they got way
over leveraged, they stopped being able to pay their rent,
and they actually ended up having to close over forty
to fifty of their sites in a matter of months,
and then the parent company just a few weeks ago
(17:23):
actually filed for bankruptcy. Other countries have seen childcare chain collapses.
The largest for profit chain in the Netherlands in the
twenty tens, which was private equity owned, collapse the government
had to step in. In Australia in two thousand and eight,
the largest for profit childcare company in the world, called
ABC Learning, collapsed because it was again over leveraged.
Speaker 2 (17:46):
On the other hand, those who deal regularly with private
equity investments in early childhood care say that in some
ways it's the safest form of investment, as investors will
make sure things go right for their own self interest.
Speaker 7 (18:01):
If you think about it, the headline risk for a
bad investment in early childhood business is pretty significant. If
you think about the LPs that sit behind a lot
of these private equity firms, the last thing they want
to read about or see is an investment made by
one of their private equity firms that has had a
(18:22):
pretty nasty headline because of quality or other concerns. So
in many ways, a private equity owner theoretically should be
bringing a greater degree of rigor and attention to some
of those issues. Now, the reality is, as some of
these chains get increasingly large, you're still dealing with hundreds
of sites and there is a degree to which you
(18:45):
lose control over what might happen at the edges of
that network, but that can happen in any environment.
Speaker 2 (18:51):
Two investors rolling up childcare centers requires careful calculation to
stay profitable, But to parents, the math isn't as important
as the care.
Speaker 9 (19:01):
Kids are not widgets, kids are not products, and you
really don't see the outcome for years to come.
Speaker 2 (19:08):
Becca Balance is now a Democratic congresswoman representing her home
state of Vermont. She earlier served for eight years in
the Vermont Senate, including as Majority Leader and as President
pro Tempore, where she worked to get legislation passed addressing
the lack of adequate childcare in her state.
Speaker 9 (19:27):
It's been a challenging landscape for many years now. We
have a confluence of forces that has made it very
challenging for us here in this very rural state. So
we have a demographic crisis. We have a lot of
elderly folks here in Vermont, not as many young families.
You have had a situation from out where there hasn't
(19:50):
been enough childcare slots in childcare centers for the number
of people that want to go back into the workforce.
Speaker 2 (19:58):
In twenty twenty three, Vermont passed a childcare bill that
provides one hundred and twenty five million dollars of public funding,
giving more than seven thousand families access to childcare assistance.
Speaker 9 (20:10):
Over the early years of this, you know, ten year push,
we set benchmarks for ourselves, and some of them were
very ambitious trying to get to a solution. By twenty
twenty five, you had champions within the legislature, you had
a governor who also understood that it was holding us back,
and you had a democratic legislature a Republican governor.
Speaker 10 (20:34):
It was clearly a bipartisan issue.
Speaker 9 (20:36):
And then we worked really hard to bring in business
partners from across the state in all different industries for
them to make the case that this was not just
good for the individual kids and their families, it was
good for businesses, it was good for the economy.
Speaker 10 (20:50):
And it's not easy to raise a payroll tax.
Speaker 9 (20:52):
You know, you can imagine all of the forces at
work there that didn't necessarily want to go down that road.
But we had so many large scale meetings with so
many stakeholders from across the states saying, well, what are
all the different possibilities that we could look at and
in the end, that was the one that we felt
(21:13):
like in Vermont was the case that we could make
because we had.
Speaker 10 (21:17):
So many businesses already on board.
Speaker 9 (21:19):
That might not be the case in another state or municipality.
Speaker 2 (21:24):
A Vermont nonprofit organization estimates that the law will serve
as a three hundred and seventy five million dollars boost
to the economy when parents are able to enter or
re enter the workforce. Vermont's efforts may be a step
in the right direction, but nationally, early childhood education is
still a pressing problem for many American parents. Whatever the
(21:47):
risks and opportunities in private equity's growing role in early
childcare for both investors and for children and their parents,
everyone agrees that it's not the ultimate answer for the
lack of affordable care, and it doesn't address large segments
of the population where the needs don't match investors' goals.
Speaker 7 (22:09):
The portion of the population right now that is probably
underserved are not the affluent, but it is probably the
bottom two quartiles who are desperately looking for options that
are reasonably high quality, but where there's just a fixed
number of seats available at the local public pre K
program or the local head start program. So I think
(22:30):
private equity, you know, increases capacity a bit, but doesn't
I don't think fundamentally change solving for the demand that
exists out there.
Speaker 9 (22:39):
That kind of investment is really looking at short term
gains and looking at solutions that are very much oriented
towards the.
Speaker 10 (22:53):
Economy of the thing.
Speaker 9 (22:55):
And I think when you're dealing with children, those be
the drivers. You have kids who are coming from all
different backgrounds right now, and it's critically important that the
childcare facility, that early education site is meeting the needs
of those kids and their experiences as they come through
(23:16):
the door. And the experiences of families here in Brattleborough
are not going to be the same as families up
in Little Fairfax, Vermont, or in Burlington, Vermont. And so
that is my hesitation with believing that the solution is.
Speaker 10 (23:30):
Private equity investing in these chains.
Speaker 9 (23:33):
And I also think it's not a great solution for
rural America because families want to know the people and
the entities that are watching their children. It's the most
precious thing that you.
Speaker 2 (23:48):
Have coming up. Speaking of children, what does that one big,
beautiful bill mean for the children of America? And the sick.
Our special contributor Larry Summers, that's why he doesn't like
what he sees. This is a story about borrowing from
(24:15):
Peter to pay Paul. President Trump's One Big Beautiful Bill
found a way to pay a lot of Paul's through
reduced taxes, but taking funds away from Peters who have
been dependent on things like Medicaid. Our special contributor Larry
Summers of Harvard has been outspoken about what he says
it will cost us over the long run.
Speaker 8 (24:37):
David, this is the biggest cutback in the US social
safety net in history. Measured relative to GDP. It's substantially
larger than anything that happened in Ronald Reagan's revolutionary nineteen
eighty one tax cut legislation. It's substantially larger relative to
the economy than the welfare reform that took place during
(25:00):
Bill Clinton's time. So this is a big deal. It's
going to mean that some number it's hard to evaluate exactly,
might be ten million, might be twelve million. People are
going to lose their Medicaid benefits. It's going to mean
that ancillary services that are hugely important for people getting
(25:21):
a ride to the hospital, so they can get their dialysis,
being able to go to a rehab facility when they
can't take care of themselves, but they no longer need
to be in a hospital. That kind of thing is
going to be cut back. It's going to mean no
economic lifeline for desperately important rural hospitals, some of which
(25:43):
are going to close. But here's a crucial point that
I don't think has gotten enough attention in the debate.
People focus on the moral aspect, and that's important what's
going to happen to some of the most vulnerable among us,
But this has consequences for everybody. When people come to
(26:04):
the hospital later and secker with more that needs to
be done and there's no government support for their care,
the bills of all the rest of us are going
to go up. When hospitals are filled with people who
don't need to be in a hospital, but are there
(26:24):
only because there's no other place for them to go,
there's less access to care for others when they have
an emergency. When rural hospitals close, that means less access,
not just for the poorest people. When these costs mountain
(26:49):
ultimately have to be born, that's ultimately going to translate
into higher taxes and greater premiums when the people have
eventually get second enough that they qualify for the supported
medical care.
Speaker 10 (27:09):
So this is both.
Speaker 8 (27:11):
Immral and wrong, and it is imprudent and is going
to burden the American middle class.
Speaker 2 (27:22):
It's part of a larger pattern I think many people
have detected in the bill overall, which is a shift
in wealth from some of the poorest among us to
some of the wealthiest among us. We can talk about
whether that's a moral thing to do or an immoral
thing to do, but what does it mean in macroeconomic terms,
in terms of growth over the long term.
Speaker 8 (27:44):
David, My values point me towards wanting us to be
a more equal society. I don't think that those making
a state wills to their children of thirty million dollar
should be the beneficiary of new large esh at a
(28:05):
time when we've got a massive budget deficit. But I'm
going to be honest with you. I don't think honest
economists should make all arguments in favor of the policies
they prefer. And the reason to oppose this bill is
that it's unfair, that it's inefficient, that the deficits are
(28:31):
going to do a great deal of damage. But I'm
not going to tell you that because of the inequality,
we're going to get major reductions in economic growth. Yes,
we're gonna get major reductions in economic growth because we're
on a trajectory to cutting back R and D in
very dangerous ways. Yes, we're going to get reductions in
(28:56):
economic growth because we're going to cut back support or
other kinds of public investment in education and in infrastructure.
But the main reason to be against inequality is because
it's wrong, and because some of the investments you make
(29:17):
to reduce inequality have very high payoffs.
Speaker 10 (29:22):
But while it.
Speaker 8 (29:23):
Would support the policies I generally favor, I am not,
as an economist going to say that we have convincing
evidence that as a systematic matter, reducing inequality raises economic growth.
Speaker 2 (29:39):
Even as Trump's big bill will shrink the country's social
safety net, overall, one increase in federal spending will go
towards supporting families, including through a single payment of one
thousand dollars for a savings account for newborns. But Summer
says he's worried it isn't enough.
Speaker 8 (29:56):
My suspicion is that it is so sub scale that
most of the costs will go into administering the thing
relative to benefits that will change people's lives. So I
don't think we know yet. And maybe this will be
an acorn that plants a very valuable trade that will
(30:17):
grow over time. But I haven't yet seen the blueprint
that convinces me of feasibility. At the current scale.
Speaker 1 (30:29):
We put in some of the lowest percentage of our
GDP into early care and education in the United States
of any developed country, and it's because we haven't yet
made that leap from the idea that actually the care
and learning of young children is very much a public concern.
Speaker 2 (30:44):
Elliott Haspell at the think tank Campita says market forces
alone aren't enough to solve the childcare crisis in the
United States, and the government needs to be doing more.
Speaker 1 (30:55):
Child care is not a market good. This fair former
Terachery Secretary Janet and Is called it a textbook example
of the failed market doesn't work, so you're going to
need some sort of government intervention. We can also look
across the world and see other countries inclaning just above
us in Canada that have made major reforms in the
past few decades, all of which are underpinned by significant
(31:17):
permanent increases in public support of a public private system
to make sure that families have access to good childcare options,
that educators are paid well, programs are high quality, and
again there are guardrails in place to make sure that
public money is serving the public good.
Speaker 2 (31:36):
Haspell's view that government should play a bigger role in
helping new parents is shared by Congresswoman Becca Ballant, who
was a former teacher herself.
Speaker 9 (31:46):
The struggles that working families have right now, they are
not the same struggles as people had twenty years ago.
You know, you've got young people carrying.
Speaker 10 (31:54):
A lot more debt.
Speaker 9 (31:56):
They have costs that did not keep paid with inflation.
They exceeded them, whether they were housing costs or healthcare costs.
So I always say to people, I'm in my fifties,
I always say to voters who are grousing about younger families,
I say, what they're doing actually is something very different.
Speaker 10 (32:14):
Than I did.
Speaker 9 (32:15):
And what folks in you know, my parents' generation did
that the economic strain on them is more acute. And
so there is this understanding that we need to gain
that you've got families who are absolutely stretched, and it
is within our best interest as legislators, as people looking
(32:39):
for solutions to see this as part of the ecosystem
of the economy and not an add on. This is
how you make economies thrive, and certainly other countries have
figured this out before we did.
Speaker 2 (32:52):
Even as state and federal lawmakers take steps to invest
more in American families and childcare, Summers says, we shouldn't
be looking to Trump's big bill to save our kids.
The costs might well outweigh the benefits, especially for future generations.
Speaker 8 (33:09):
I think the borrowing that we're engaging in and the
risks that that posures to the economy may well do
more harm to my children and my one year old
granddaughter than the putative new programs that are contained.
Speaker 2 (33:32):
Up Next, the World Cup is coming to North America
in a year's time. Cities across the US, Mexico, and
Canada are stepping up big time to make it possible.
But is the investment likely to pay off? That's next
on Wall Street Week. If this is a story about
(34:01):
the beautiful game. From Maradona to Messi, Pelly to Pushkash,
the biggest stars in the world have left their mark
on the FIFA World Cup, and whether you call it
football or soccer. The world will be watching as new
stars are born when the US, Canada and Mexico play
host the next year. While many of us will be
focused on who wins on the pitch, the sixteen host
(34:23):
cities face a challenge to make sure they win off
of it. The FIFA World Cup is one of the
biggest spectacles in sport. Forty eight teams, one hundred and
four matches, one winner or maybe two. Sure one team
will lift the iconic trophy, but with an estimated eleven
(34:45):
billion dollars in revenue coming in, FIFA might be the
real winner before a single ball is kicked.
Speaker 11 (34:52):
It's the biggest event ever. It's more than four billion
viewers all around the world, and we will make it
the biggest not only sports event, but the biggest social
event that we can think of.
Speaker 12 (35:06):
Johnny, We're going to have to extend my second term
because twenty twenty six, I'm going to have to extend
it for a couple of years. I don't think any
of you would have a problem with that, but I
hope you're going to remember me in twenty four for sure.
Speaker 2 (35:20):
Since the World Cup was awarded to the US Canada,
and Mexico. During President Trump's first term, sixteen host cities
have been ramping up infrastructure spending to prepare for the tournament.
Speaker 13 (35:31):
I think as a host city, you know, we know
this is a big investment.
Speaker 2 (35:35):
Sharon Bollenbach is the executive director of the FIFA World
Cup twenty twenty six Toronto Secretariat.
Speaker 13 (35:42):
Our budget here in Toronto is three hundred and eighty
million and that has been approved by council. It is
in terms of funding partners, we have significant funding partners
from our federal government as well as our provincial government
and then of course the City of Toronto, so it's
really all three levels government are contributing and the City
(36:02):
of Toronto's portion is around one hundred and eighty million,
and much of that comes from so that we can
reduce the burden on sort of the tax space. Much
of that portion that the city is contributing to the
event is coming from some reserve funds. We're putting in
place a municipal accommodation tax as a source of revenue
(36:22):
for a temporary period over the course leading into the
tournament and for the couple of months after as well.
We have a big commercial revenue strategy around bringing in
host city supporters and other hospitality, sales and opportunities for
corporate and other businesses and so on in the city.
Speaker 2 (36:44):
Toronto's upgrades include better public transit and the development of
training centers, but a sizable portion of the budget is
going towards upgrading Bimo Field, where Nick Eves is the
Chief Operating Officer.
Speaker 14 (36:56):
FIFA minimum requirement is to get the stadium up to
a forty five thousan five hundred capacity. Today the stadium
holds about thirty thousand, so we'll be building a temporary
ten thousand on the north end, another seven thousand on
the south end. The north end structure in addition to
that temporary seating, will also have a permanent two levels
of hospitality suites, which of course will be usable for
(37:19):
the World Cup matches. All of that work must be
complete by March in order for us to then go
and host some test matches here to really sort of
dry run and experience some of this new infrastructure that's
been put into place.
Speaker 11 (37:32):
So on the first phase of.
Speaker 14 (37:33):
Construction we're on schedule. We will be on schedule for
the second phase because ultimately we have to hit that
March date. To host the test matches and then we
need to hand the stadium over to FIFA thirty days
from the opening match.
Speaker 2 (37:45):
As it turns out, FIFA requires a lot from hosts
beyond just stadium capacity. In a published list of government guarantees,
FIFA lists the quote significant mid and long term socioeconomic
benefits for host countries that to justify a list of
requirements that include tax exemptions for the tournament and support
in security, public transport and infrastructure. And it also takes
(38:09):
over external advertising spaces. So Toronto's Beimo Field becomes Toronto
Stadium and MetLife Stadium becomes New York New Jersey Stadium.
Speaker 13 (38:20):
It's the biggest, broadest, most diverse, kind of far reaching
World Cup there has ever been, and so with that
has come a lot of learnings, and I think FIFA
have learned a lot quite frankly as well about working
with three countries, working with sixteen host cities. So there's
been some things and elements of the agreement and of
(38:41):
the requirements that have been laid out from day one,
there's been some elements that have shifted, and that's been
open dialogue and open communication and an understanding of what
are some of the realities that are happening in Toronto
that might be different than the realities happening in Vancouver
or happening in Los angele are happening in New York
(39:01):
or Dallas. So there's been some shifts and some ability
for us to work together with FIFA to determine what
some of those things are. But FIFA, definitely, you know,
this is their tournament. This is their tournament. They own
the property as it were, and so they will come
in I think it's May early May and sort of
take over the stadium. They will manage their portions of
(39:24):
this tournament and work with us. They understand our budget,
they know what our budget is. We've had to push
back on some things. You know, there's been some good
dialogue on some of the items where we just don't
have the budget to maybe meet some of some of
the requirements that have been in place, and so that's
been a bit of give and take. You know, what
(39:45):
are the primary things that we want to make sure
in place and what are those things that maybe we
can we can adjust and change a little bit. So
that's again been an open dialogue FIFA. So I have
to say I have been great partners. We've had the
ability to really discuss openly some of the elements, understanding
it's their tournament and they've run it for many, many
(40:08):
years as we all know.
Speaker 2 (40:10):
And FIFA certainly knows how to make money off of it.
The eleven billion dollars in revenue it expects to receive
will come largely from broadcast deals, ticket packages and sponsorships.
Andrew Zimboleist is a professor of economics at Smith College
and author of Circus Maximus, The economic gamble behind hosting
the World Cup and Olympics. There's a good deal of
(40:32):
revenue that doesn't come back to the cities who are
sponsoring these things, particularly, it goes to FIFA. What happens
to the money to FIFA? Where does that money go?
Speaker 15 (40:41):
Well, it goes to making sure that Jiohnny Infantino has
a very comfortable and luxurious life for one and his
various deputies. But more importantly, the vast majority of the
money goes to soccer federations around the world. So each
of the participants in FIFA, the Internet Soccer Association, each
(41:02):
of the country participants has a national soccer association and
they're in charge of developing soccer in their country. They
spend money for youth youth soccer programs, They spend money
for facilities, they spend money to train referees and officials
and so on. So most of the money, the overwhelming majority,
probably ninety percent of the money that is generated for
(41:23):
FEVER gets reinvested back into reinvested back into the soccer
development worldwide.
Speaker 2 (41:31):
So where do the host cities see a return. They
get none of FIFA's windfall, but expect to make money
through revenue streams like increased tourism, job creation, and global exposure.
For Toronto, that's expected to result in six hundred and
eighty six million dollars of positive economic output for the
greater area, according to a report from Deloitte and FIFA.
(41:53):
Adam vancouverden Is Canada's Secretary of State for Sport and
a former Olympic champion in kayaking.
Speaker 16 (42:00):
It is a big upfront investment, but we know that
it's going to pay off. For example, the federal government
is investing two hundred and twenty million dollars between Toronto
and Vancouver to ensure that these thirteen games are world class,
safe and really really exciting for Canadians. The provincial governments
are also coming forward with hundreds of millions of dollars,
and the cities are also investing, as our private companies
(42:22):
and FIFA especially, So it's an exercise and collaboration, like
I said, but the result is a massive positive economic
output that Canadians, Canada, Canadian businesses, everybody will see the
benefit from that. Likely we're going to see about two
billion dollars increase to our GDP, as well as about
three point eight billion dollars efforts of four billion dollars
in positive economic output. We're talking about almost twenty five
(42:44):
thousand jobs to be attributed to the FIFA World Cup
in twenty twenty six, So the economics are very very sound.
It looks like it's going to be a huge boon
for Canada's economy, but I'm sure the same is true
in the United States and New Mexico as well.
Speaker 2 (42:58):
Yet not everyone is convinced.
Speaker 15 (43:01):
So you put the costs and the revenues together, you
can get a variety of different outcomes, but more likely
than not, there's not a financial benefit for the host city,
although virtually every one of the sixteen cities in North
America will have an increased flow of tourism into the city.
Virtually everyone I suspect very often the soccer tourists, the
(43:23):
soccer fans, replace the normal fans. So somebody who might
otherwise be thinking about a trip to Vancouver, Canada to
watch some of the World Cup games might decide Ge
is as nice as Vancouver is, and it is a
great city. As nice as it is, I'm not going
to go there when the World Cup is happening because
I'm not going to be able to get a ticket
to the game, or I don't want to spend five
hundred dollars to get a ticket to the game, and
(43:45):
so why would I want to put up with the
congestion and the higher hotel prices. And so what happens
is the soccer tourists substitute for the normal tourists. The
normal tourists are the ones that spread the word best
about the city, and tourism in cities is best at
advertised by the actual visitors who come and they go
home and they talk to their friends, neighbors and relatives
(44:05):
about what a nice city it is and the different
pleasures that they had when they were in the city.
If the World Cup tourists are replacing the normal tourists.
That's not good for long run tourism as a general principle.
The other thing that's true is that FIFA requires the
host city to basically cancel all sales taxes and related
taxes on things that are related to the games. If
(44:25):
the tourists come to the city and they go to
what's called the fan fest for the World Cup in
the city, the city is required to put on a
fan fest and they buy things at the fan fest,
say they buy food, that's money being spent on hamburgers
and hot dogs. That's not being spent at a normal
tourist restaurant in the city. A normal tourist restaurant in
the city will produce sales taxes and revenue for the
(44:47):
host city, but if it's being spent at FanFest, there's
no taxes allowed. Same thing with ticket prices. They're not
allowed to charge a sales tax on ticket prices. So
the city can actually be losing money because if they
were playing a normal sport in the summertime and people
were buying tickets to be a sales tax on that,
that would be revenue to the city. But when they're
hosting the World Cup, they're not allowed to have that.
Speaker 2 (45:09):
There's a lot of talk about long term benefits from
hosting World Cup Games. How sure can we ever be
that in fact it's worth it.
Speaker 15 (45:19):
There's always the hope when you host a sport mega
event and you're put in quotes onto the world stage
to a degree that you hadn't been before. There's always
the hope that there'll be more people around the world
who now want to visit your city, and there'll be
more companies around the world who now want to trade
with them for your products, and there'll be more investors
(45:41):
around the world who now want to invest in your city.
We don't have any evidence that that happens. Those claims
have been made frequently, they're made, certainly abundantly in the
case of London in twenty twelve when they hosted the
Summer Games, but there really isn't any evidence. Good companies
don't trade with a city or the country because they
hosted a sport mega event, and they don't invest in
(46:03):
a city for that reason. They invest in cities because
they have good resources, because they have a good labor force,
because they have good fiscal legislation, because they have good transportation,
and good location visa via their markets. And I think
that if everything aligns properly, if the city already has
the ready made soccer stadium or stadiums, and they already
have the transportation infrastructure and security infrastructure, and FIFA is
(46:27):
giving them some of the more interesting games during the
course of the World Cup, then the revenue side could
go up a little bit and the cost side could
be moderated, and at the end of the day, maybe
they generate a small surplus.
Speaker 2 (46:41):
Ultimately surplus or not. The World Cup's reach goes far
beyond the spreadsheet, and perhaps few know that better than
Canada's Olympic champion turned politician.
Speaker 16 (46:52):
I know the power of sport. It has the power
to change lives for the better. When we invest in
physical activity programs and recreation opportunities young people, for families,
and for older folks alike, we get positive social outcomes.
But we also see the economic benefits. We see reductions
in healthcare costs, we see less of a strain on
our judicial system. We see kids happier, healthier and more connected,
(47:13):
and our community is really coming to life. And that's
what I expect to see with FIFA when it comes
to town We're going to celebrate the beautiful game. We're
going to celebrate the opportunity to play host for six
incredible games here in Toronto and seven across the country
in Vancouver. But I know that in every city across Canada,
you're going to be celebrating the great game of soccer.
Speaker 2 (47:35):
Much has been made in recent years about the booming
business of sports, and next year's World Cup looks set
to be no different. But perhaps the lasting legacy of
a successful tournament won't lie on the bottom line, but
what happens inside the white lines that does it for us.
Here at Wall Street Week, I'm David Weston. See you
next week for more stories of capitalism.
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:18):
This is Wall Street Week. I'm David Weston, bringing you
stories of capitalism. Early childhood education is as important as
it is challenging for millions of Americans. It turns out
that it's also an investment opportunity. We look at the
large and growing role of private equity in raising our children,
plus what that one big beautiful bill means for childcare
(00:41):
and healthcare. Our special contributor Larry Summers takes us through
where he thinks we may be going wrong. And the
World Cup is coming to North America with all the excitement,
all the potential, and all the costs surrounding it. We
bring you to the host city of Toronto to hear
why it thinks it's making a sound investment. But we
(01:02):
start with the question puzzling so many investors these days.
Why are the US equity markets poised for growth while
economists are predicting a slowdown. Rick Reader is Blackrug's Chief
investment Officer of Global Fixed Income and head of the
Global Allocation Investment Team.
Speaker 3 (01:20):
The service economy is what drives this economy today. It's
not a goods oriented economy. It's not a commodity.
Speaker 4 (01:25):
It's not an.
Speaker 3 (01:26):
Export oriented, not a heavy manufacturing, service oriented, so most
of what drives the economy is resilient to what is
a goods slowdown in goods. Second thing that I wouldn't
have anticipated. I would have thought, you've got more pricing
transmission in but it's pretty incredible how companies moved. In fact,
now some of it in the near term, companies took
(01:47):
it into margin.
Speaker 2 (01:48):
So give us a sense rick of where this economy
is headed, because if you look at the stock market,
it looks really good, it's really going places. At the
same time, if you look at the markets, they say,
well, we're going to have a rip cutter two who this year.
Normally you wouldn't cut rates into robustly growing market.
Speaker 3 (02:05):
So it's pretty extraordinary. I mean, it almost never happens
in time. So the a couple things happen. First thing,
I think all financial assets there is an extraordinary amount
of cash and money that has to flow somewhere. And
the technicals and equities are great because companies are buying
back their stock. So I think the equity markets are
reflecting really good technicals. Earnings have been pretty good. But
I think there's something different at play in terms of inflation.
(02:27):
What's going to happen with productivity and innovation, Inflation is
going to come down. And the reason to bring interest
rates down, which I'm a believer in, is the housing
market is under pressure. So the real impact of interest
rates on the economy today, I don't think it is
in the historic sectors of who spends on coppacks, anything
about AI spend, how the banks manage the risk. It's
(02:47):
about housing and today if you look at the housing
market and particularly what impacts lower income. The people that
borrow today are lower income and they're adversely impacted infected
by where these rates are. If we get the rate down,
you actually can bring how home prices down, you build
more houses, you'll actually reduce inflation. So I think it's
quite consistent to bring the interest rate down even though
the economy is operating at a pretty good level. Where
(03:10):
we're going is to a lower level of inflation, and
I think we can bring it down. I mean, think
about inflation break evens today depending on which part of
the curve are two and a half to two and
three quarters. So the funes rate, even if you bring
it down to three and a quarter you're still above
the rate of inflation, so I think we got plenty
of room to drop it. Even though the economy is
operating well.
Speaker 2 (03:29):
Does the yield curve on the treasury indicate we do
have a bigger problem in the place we think. Look
at the thirty year for example, we're significally over five
down hanging in up there. So the short end nice
under control, long end not so much.
Speaker 3 (03:43):
So I think the long end of the yield curve
becomes untethered. First of all, the Fed generally can control
the front end, and the front end stays tethered to
the Fed funds rate. Long end of the yield curve
has a couple of things that I think are not
to its benefit. One, we've got to issue a lot
of debt going forward. I mean, think about the size
of the bill side, the deficits. We're going to issue
a lot of debt. The long end is a hard
place to invest. It used to be that the long
(04:05):
end protected you against the equity market. If inflation ends
up being higher, which I don't necessarily anticipate, then what
will happen is equities and long end will get hit.
So the long end of the yield curve today, given
that you can get so much yield if you're an
investor in the front end, the long end doesn't become
that attractive.
Speaker 2 (04:22):
You say, one of the problems with the long end
of the yield curve actually how much debt the United
States government has to take on, and the so called
one big Beautiful Bill doesn't seem to be helping that
situation much. How big a problem is that, and how
much of the problem right now we're saying is we
term premiu. People are starting to doubt a little bit
whether we're going to repay it.
Speaker 3 (04:40):
So there's only one way to deliver the economy. You've
got to outrun the debt. You've got to outgrow it.
So there is a plausible outcome where you get nominal
GDP running at four and a half to five. If
we get that interest rate down to three, gosh, now
you could start to deliver, but it takes a really
long period of time. Listen, I think the one engine
today's we are going to have a bigger debt burden.
(05:01):
And not only do it, are we going to have
a bigger debt burden, you have to fund it domestically
because international doesn't buy as much as long as we grow,
then you could work through it. You know what I
worry about is you get shocks to the system.
Speaker 2 (05:12):
Well, how big is AI? I mean you mentioned that's capex,
a lot of capacks going for right now, a possible
engine for growth, I guess in productivity principally right, how
big could that be?
Speaker 3 (05:22):
I think if you take it with AI, you take robotics,
you take automation, you take software, you take cloud, you
take energy, you take cooling. I think people underestimate how
dramatic this is going to be. And I think our
world a year or two hence is going to see
things that nobody's ever seen before in terms of innovation, productivity.
(05:43):
And you think about what happens the things that you know,
everybody talks about autonomous cars, but you talk about all
the services, all the things that can be created at
a lower price point. I think it's remarkable. I think
it's remarkable. You know, part of why we talk about
you know, who do you own in the equity market,
these big cap company that utilize data effectively. It doesn't
have to be necessarily the bag seven, although they're pretty
(06:04):
good companies generally. Gosh, you think about the companies to
utilize data to expand their mode and how they utilize
how you know, the price points they got operated at,
how they advertise, how they run their business efficiently using software,
et cetera. Part of what I think this is the
most exciting investment period I've ever been around. We're going
to see more dramatic change than Internet, than really mobile telephony.
(06:24):
It's a pretty amazing time.
Speaker 2 (06:26):
You mentioned Internet, which is the last time I reased
when there was really a substantial increase in productivity the
late nineties into the early ought we saw is AI
bigger than that, So.
Speaker 3 (06:36):
You know, there's interesting thing around. I've spent a lot
of time thinking through this. Internet took some time to
develop and the adoption rate and by the way, if
you go back in time, electricity, telephone, rail, it all
took a period of time. This is almost instantaneous. How
fast and by the way, you know, I think one
of the incredible technologies the last couple of decades was
(06:58):
GPS technology. Part of while literally get up every morning
and in the weekends and you try and think about
which companies are going to benefit from these all these
new companies that are that are coming about. I said
I think it's going to happen faster and be more profound.
You know, it's hard to say the Internet was pretty incredible.
It's hard to say it'll be bigger. But it's certainly
gonna happen faster.
Speaker 2 (07:17):
But the market must be pricing in some of that already.
We're seeing a lot of the AI. Why are you
confident it's not pricing all of it in?
Speaker 3 (07:25):
You know, if you go back to the Internet public,
you go back to ninety eight, ninety nine, two thousand,
you were putting multiples on no cash flow. Most of
these companies that I so first certainly when you look
at the bags seven and you look at the multiples
on those companies, actually they're not that scary. I mean,
if you when you assume their growth rate, these companies
throwing off thirty to thirty five forty percent return on
equity or higher for a couple of them, and you're
(07:48):
throwing off cash, which by the way, allows them to
buy back their stock. You think about those companies in
the ninety eight ninety nine he was sort of hoping
that they would take off, and most of them didn't.
These companies are well and trench and thought, now you
go into other areas and you think about, gosh, you know,
there are some parts of it, they're a bit of
a flyer, and there are some multiples on some things,
(08:09):
and so that you have to evaluate what is the
business prospect, what's the available market. But I would say
that you know, the big hyper scalers, the big semiconductor companies,
the big software companies, and I would argue, you know,
even the companies that utilize data efficiently, even the huge retailers,
media delivery companies like Boy, they're pretty pretty spectacular as
(08:32):
to their rate of growth and making money along the way.
And that's that's different.
Speaker 2 (08:37):
Given that view on the economy and the markets where
they are, where they're headed. What's the best way to invest?
Give us your perspective from Blackrock. Yeah, what are you
seeing that's particularly attractive right now?
Speaker 3 (08:47):
So, you know, I still believe in growth and technology
and equities and and I think, you know, running more
of a barbell, that is, you know, I don't like
a lot of the small cap equities that you know,
there's some and some areas that are okay. I like
these big caps, particularly in and around tech by the way,
healthcare technology, by the way, leisure and hospitality. I think
(09:08):
the world part of this is the derivative ais people
have more time. Leisure, travel, entertainment, I think is a
big part. So that's what I like. On the equity side, well,
I think rates should come down. I'm kind of hoping
they don't because this environment, we can build six six
and a half seven percent yielding assets or portfolios that
don't really have to stretch and that can stay in an
(09:28):
investment gray generally on average bad. I mean, if you
could buy growth and income and then, by the way,
maybe a little bit of hard asset, whether that's gold
or some crypto, you know, not scale to the size
of your debt and equity, but I think that creates
balance in a portfolio.
Speaker 2 (09:45):
You mentioned crypto, which has become quite the topic in
Washington these days, and to be stable coin, because all
of a sudden everybody wants a stable coin. It seems
like is that really fundamentally going to change the financial system.
Speaker 3 (09:57):
So crypto war stable coiner both, I mean, they're you know,
relate it's stable coin. I actually think will be quite
helpful in that it will utilize it a there's a
benefit to the currency and the dollar utilization. Ultimately, b
it will soak up some of it. Do we have
a lot of treasures, We've got an issue. It will
soak up some of that. Not a tremendous but it
will soak up some of that. So I think that'll
(10:17):
be real utility. How we moved in the tokenized assets,
in tokenized investments, how we think about payments mechanism. I
think stable coin will be a very big deal crypto.
I think general crypto, I actually think. I mean, I
own some of the portfolios. You talk about volatility. I
own it in moderate size. But it's one of those things.
(10:37):
The adoption rate around the world is so extraordinary coming up.
Speaker 2 (10:42):
We trust an awful lot to the markets, but does
that include caring for our children. We look into the
growing role of private equity in early childhood education. That's
next on Wall Street Week. This is a story about
(11:03):
having the markets raise our children. Since the days of
Adam Smith, we've trusted the invisible hand to do all
sorts of things for us, from telling us when our
government is borrowing too much.
Speaker 4 (11:14):
The ninety three deaths production purgem it was very heavily
focused on depth production, and I think rightly argument it
turned out to be correct that markets would react very
favorably if we were serious to guiding us in our
career path.
Speaker 5 (11:25):
The number of jobs that we've created in life sciences
over the last couple of years ago thousands of new
life sciences jobs in Jersey. But we're making major investments
because we know it's a crowded field.
Speaker 4 (11:38):
And another flat.
Speaker 2 (11:40):
As parents, our children are priceless, which means that any
value attached to them or their well being cannot be enough.
But there is a business built around early childcare, with
consumers and suppliers setting prices based on revenue and costs,
and even investors putting up capital on which they expect
a return.
Speaker 6 (12:00):
I was kind of like, at my wits end at
the end of twenty twenty four, I had taken a
break from real estate because I was like, I don't
know how to do this without full time childcare, okay,
And I just remember opening up my journal and the
first thing I wrote down was like fine childcare, and
I was like, I don't know how to do this.
The eggs are done now.
Speaker 2 (12:21):
Ashley Perdy's kids are one of roughly eleven million children
under the age of fifteen who spend time in paid
childcare in the United.
Speaker 6 (12:30):
States in the car, being home with three kids was
amazing for time, but then it was like I would
be home, just like daydreaming and like fantasizing about going back.
Speaker 7 (12:43):
To work here.
Speaker 2 (12:45):
Childcare is uniquely expensive in the US, comprising a higher
proportion of average income than it does anywhere else in
the world. According to Childcare Aware of America, the national
average cost for children under school age for one year
was eleven five hundred and eighty two dollars in twenty
twenty three. But that cost is only the tip of
(13:08):
the iceberg.
Speaker 1 (13:09):
This isn't a gym, right, This is a sector where
educators are literally building the brains of young children and
providing the care that families rely on to be able
to flourish.
Speaker 2 (13:20):
Elliott Haspell is a senior fellow at Kapita and author
of the forthcoming book Raising a Nation Right Now.
Speaker 1 (13:27):
We see middle income and upper middle income and affluent
parents using licensed formal childcare. Largely that's because they can,
they can afford it, or at least try to afford it,
and also because those tend to have the highest proportion
of families that have two earners in the workforce.
Speaker 2 (13:42):
What can be a major challenge for young parents turns
out to be a potential opportunity for equity investors.
Speaker 1 (13:50):
They take up right now somewhere between ten to twelve
percent of the childcare sector, and they're growing at a
time when many childcare programs are struggling to stay open.
The profit chains are growing because they're able to do
debt financing right. They're able to access capital markets in
a way that the individual programs, nonprofit programs, church based
(14:10):
programs just can't.
Speaker 2 (14:12):
The strong demand for early childcare is one way for
private equity investors to make money, but there is another
potential revenue source, the real estate the centers occupy.
Speaker 1 (14:23):
Classic sort of part of the private equity playbook that
we know from other sectors is what are no sale leasebacks?
Speaker 8 (14:29):
Right?
Speaker 1 (14:29):
This idea that you take a site that owns its
own facility or owns the land and basically force it
to sell off to to another landlord. The profits from
those sale go up to the private equity firm as
opposed to back into the site. The site now has
to lease back the facility or the land that they
previously own, so they now have a new line of
debt We have definitely seen this strategy play out in childcare,
(14:51):
and in fact, the childcare real estate is one of
the most valuable pieces of assets that many of these
chains have.
Speaker 2 (15:00):
Adam Newman is founder and managing partner of Titan Partners,
specializing in early childhood education, and he knows the long history.
Speaker 7 (15:08):
Some of the first and earliest investors in early childhood
education started back in the eighties. The two largest players today,
KinderCare Learning and Bright Horizons Family Solutions, received investment from
private equity firms late seventies mid eighties and really served
as bellweathers for what has become over the last couple
(15:31):
decades a much more active and vibrant private equity investment
community focused on early childhood education.
Speaker 2 (15:38):
What about the nature of the marketplace in early childhood
education makes it attractive for private equity? I mean, what's
the opportunity?
Speaker 7 (15:46):
It is a capital intensive market that requires a degree
of professionalism and investment that oftentimes exceeds what individual owner
operators can do themselves. There's also a fair degree of complexity,
particularly as you move across states. What they are doing
is taking a fragmented ecosystem and striving to drive efficiency
(16:11):
and scale in ways that more independent owner operators are
oftentimes unable to do themselves.
Speaker 2 (16:19):
But that's not to say that private equity plays as
large role in all parts of the early childcare business.
At least thus far, investors have been careful to pick
their spots.
Speaker 7 (16:30):
The part that the private equity world tends to play
in are those two middle segments, the national chains and
the independent centers.
Speaker 2 (16:38):
Newman estimates that the two segments targeted by private equity,
national chains and independent centers account for about thirty nine
percent of the children in care today, and he expects
that portion of the business to grow to about forty
five percent of the total market over the next five years.
But all that private equity participation is not without its detracts.
Speaker 1 (17:00):
There's a for profit chain called Guidepost Monatssory, and it
was it's a venture capital backed chain, and what happened
is they ended up growing so fast, they got way
over leveraged, they stopped being able to pay their rent,
and they actually ended up having to close over forty
to fifty of their sites in a matter of months,
and then the parent company just a few weeks ago
(17:23):
actually filed for bankruptcy. Other countries have seen childcare chain collapses.
The largest for profit chain in the Netherlands in the
twenty tens, which was private equity owned, collapse the government
had to step in. In Australia in two thousand and eight,
the largest for profit childcare company in the world, called
ABC Learning, collapsed because it was again over leveraged.
Speaker 2 (17:46):
On the other hand, those who deal regularly with private
equity investments in early childhood care say that in some
ways it's the safest form of investment, as investors will
make sure things go right for their own self interest.
Speaker 7 (18:01):
If you think about it, the headline risk for a
bad investment in early childhood business is pretty significant. If
you think about the LPs that sit behind a lot
of these private equity firms, the last thing they want
to read about or see is an investment made by
one of their private equity firms that has had a
(18:22):
pretty nasty headline because of quality or other concerns. So
in many ways, a private equity owner theoretically should be
bringing a greater degree of rigor and attention to some
of those issues. Now, the reality is, as some of
these chains get increasingly large, you're still dealing with hundreds
of sites and there is a degree to which you
(18:45):
lose control over what might happen at the edges of
that network, but that can happen in any environment.
Speaker 2 (18:51):
Two investors rolling up childcare centers requires careful calculation to
stay profitable, But to parents, the math isn't as important
as the care.
Speaker 9 (19:01):
Kids are not widgets, kids are not products, and you
really don't see the outcome for years to come.
Speaker 2 (19:08):
Becca Balance is now a Democratic congresswoman representing her home
state of Vermont. She earlier served for eight years in
the Vermont Senate, including as Majority Leader and as President
pro Tempore, where she worked to get legislation passed addressing
the lack of adequate childcare in her state.
Speaker 9 (19:27):
It's been a challenging landscape for many years now. We
have a confluence of forces that has made it very
challenging for us here in this very rural state. So
we have a demographic crisis. We have a lot of
elderly folks here in Vermont, not as many young families.
You have had a situation from out where there hasn't
(19:50):
been enough childcare slots in childcare centers for the number
of people that want to go back into the workforce.
Speaker 2 (19:58):
In twenty twenty three, Vermont passed a childcare bill that
provides one hundred and twenty five million dollars of public funding,
giving more than seven thousand families access to childcare assistance.
Speaker 9 (20:10):
Over the early years of this, you know, ten year push,
we set benchmarks for ourselves, and some of them were
very ambitious trying to get to a solution. By twenty
twenty five, you had champions within the legislature, you had
a governor who also understood that it was holding us back,
and you had a democratic legislature a Republican governor.
Speaker 10 (20:34):
It was clearly a bipartisan issue.
Speaker 9 (20:36):
And then we worked really hard to bring in business
partners from across the state in all different industries for
them to make the case that this was not just
good for the individual kids and their families, it was
good for businesses, it was good for the economy.
Speaker 10 (20:50):
And it's not easy to raise a payroll tax.
Speaker 9 (20:52):
You know, you can imagine all of the forces at
work there that didn't necessarily want to go down that road.
But we had so many large scale meetings with so
many stakeholders from across the states saying, well, what are
all the different possibilities that we could look at and
in the end, that was the one that we felt
(21:13):
like in Vermont was the case that we could make
because we had.
Speaker 10 (21:17):
So many businesses already on board.
Speaker 9 (21:19):
That might not be the case in another state or municipality.
Speaker 2 (21:24):
A Vermont nonprofit organization estimates that the law will serve
as a three hundred and seventy five million dollars boost
to the economy when parents are able to enter or
re enter the workforce. Vermont's efforts may be a step
in the right direction, but nationally, early childhood education is
still a pressing problem for many American parents. Whatever the
(21:47):
risks and opportunities in private equity's growing role in early
childcare for both investors and for children and their parents,
everyone agrees that it's not the ultimate answer for the
lack of affordable care, and it doesn't address large segments
of the population where the needs don't match investors' goals.
Speaker 7 (22:09):
The portion of the population right now that is probably
underserved are not the affluent, but it is probably the
bottom two quartiles who are desperately looking for options that
are reasonably high quality, but where there's just a fixed
number of seats available at the local public pre K
program or the local head start program. So I think
(22:30):
private equity, you know, increases capacity a bit, but doesn't
I don't think fundamentally change solving for the demand that
exists out there.
Speaker 9 (22:39):
That kind of investment is really looking at short term
gains and looking at solutions that are very much oriented
towards the.
Speaker 10 (22:53):
Economy of the thing.
Speaker 9 (22:55):
And I think when you're dealing with children, those be
the drivers. You have kids who are coming from all
different backgrounds right now, and it's critically important that the
childcare facility, that early education site is meeting the needs
of those kids and their experiences as they come through
(23:16):
the door. And the experiences of families here in Brattleborough
are not going to be the same as families up
in Little Fairfax, Vermont, or in Burlington, Vermont. And so
that is my hesitation with believing that the solution is.
Speaker 10 (23:30):
Private equity investing in these chains.
Speaker 9 (23:33):
And I also think it's not a great solution for
rural America because families want to know the people and
the entities that are watching their children. It's the most
precious thing that you.
Speaker 2 (23:48):
Have coming up. Speaking of children, what does that one big,
beautiful bill mean for the children of America? And the sick.
Our special contributor Larry Summers, that's why he doesn't like
what he sees. This is a story about borrowing from
(24:15):
Peter to pay Paul. President Trump's One Big Beautiful Bill
found a way to pay a lot of Paul's through
reduced taxes, but taking funds away from Peters who have
been dependent on things like Medicaid. Our special contributor Larry
Summers of Harvard has been outspoken about what he says
it will cost us over the long run.
Speaker 8 (24:37):
David, this is the biggest cutback in the US social
safety net in history. Measured relative to GDP. It's substantially
larger than anything that happened in Ronald Reagan's revolutionary nineteen
eighty one tax cut legislation. It's substantially larger relative to
the economy than the welfare reform that took place during
(25:00):
Bill Clinton's time. So this is a big deal. It's
going to mean that some number it's hard to evaluate exactly,
might be ten million, might be twelve million. People are
going to lose their Medicaid benefits. It's going to mean
that ancillary services that are hugely important for people getting
(25:21):
a ride to the hospital, so they can get their dialysis,
being able to go to a rehab facility when they
can't take care of themselves, but they no longer need
to be in a hospital. That kind of thing is
going to be cut back. It's going to mean no
economic lifeline for desperately important rural hospitals, some of which
(25:43):
are going to close. But here's a crucial point that
I don't think has gotten enough attention in the debate.
People focus on the moral aspect, and that's important what's
going to happen to some of the most vulnerable among us,
But this has consequences for everybody. When people come to
(26:04):
the hospital later and secker with more that needs to
be done and there's no government support for their care,
the bills of all the rest of us are going
to go up. When hospitals are filled with people who
don't need to be in a hospital, but are there
(26:24):
only because there's no other place for them to go,
there's less access to care for others when they have
an emergency. When rural hospitals close, that means less access,
not just for the poorest people. When these costs mountain
(26:49):
ultimately have to be born, that's ultimately going to translate
into higher taxes and greater premiums when the people have
eventually get second enough that they qualify for the supported
medical care.
Speaker 10 (27:09):
So this is both.
Speaker 8 (27:11):
Immral and wrong, and it is imprudent and is going
to burden the American middle class.
Speaker 2 (27:22):
It's part of a larger pattern I think many people
have detected in the bill overall, which is a shift
in wealth from some of the poorest among us to
some of the wealthiest among us. We can talk about
whether that's a moral thing to do or an immoral
thing to do, but what does it mean in macroeconomic terms,
in terms of growth over the long term.
Speaker 8 (27:44):
David, My values point me towards wanting us to be
a more equal society. I don't think that those making
a state wills to their children of thirty million dollar
should be the beneficiary of new large esh at a
(28:05):
time when we've got a massive budget deficit. But I'm
going to be honest with you. I don't think honest
economists should make all arguments in favor of the policies
they prefer. And the reason to oppose this bill is
that it's unfair, that it's inefficient, that the deficits are
(28:31):
going to do a great deal of damage. But I'm
not going to tell you that because of the inequality,
we're going to get major reductions in economic growth. Yes,
we're gonna get major reductions in economic growth because we're
on a trajectory to cutting back R and D in
very dangerous ways. Yes, we're going to get reductions in
(28:56):
economic growth because we're going to cut back support or
other kinds of public investment in education and in infrastructure.
But the main reason to be against inequality is because
it's wrong, and because some of the investments you make
(29:17):
to reduce inequality have very high payoffs.
Speaker 10 (29:22):
But while it.
Speaker 8 (29:23):
Would support the policies I generally favor, I am not,
as an economist going to say that we have convincing
evidence that as a systematic matter, reducing inequality raises economic growth.
Speaker 2 (29:39):
Even as Trump's big bill will shrink the country's social
safety net, overall, one increase in federal spending will go
towards supporting families, including through a single payment of one
thousand dollars for a savings account for newborns. But Summer
says he's worried it isn't enough.
Speaker 8 (29:56):
My suspicion is that it is so sub scale that
most of the costs will go into administering the thing
relative to benefits that will change people's lives. So I
don't think we know yet. And maybe this will be
an acorn that plants a very valuable trade that will
(30:17):
grow over time. But I haven't yet seen the blueprint
that convinces me of feasibility. At the current scale.
Speaker 1 (30:29):
We put in some of the lowest percentage of our
GDP into early care and education in the United States
of any developed country, and it's because we haven't yet
made that leap from the idea that actually the care
and learning of young children is very much a public concern.
Speaker 2 (30:44):
Elliott Haspell at the think tank Campita says market forces
alone aren't enough to solve the childcare crisis in the
United States, and the government needs to be doing more.
Speaker 1 (30:55):
Child care is not a market good. This fair former
Terachery Secretary Janet and Is called it a textbook example
of the failed market doesn't work, so you're going to
need some sort of government intervention. We can also look
across the world and see other countries inclaning just above
us in Canada that have made major reforms in the
past few decades, all of which are underpinned by significant
(31:17):
permanent increases in public support of a public private system
to make sure that families have access to good childcare options,
that educators are paid well, programs are high quality, and
again there are guardrails in place to make sure that
public money is serving the public good.
Speaker 2 (31:36):
Haspell's view that government should play a bigger role in
helping new parents is shared by Congresswoman Becca Ballant, who
was a former teacher herself.
Speaker 9 (31:46):
The struggles that working families have right now, they are
not the same struggles as people had twenty years ago.
You know, you've got young people carrying.
Speaker 10 (31:54):
A lot more debt.
Speaker 9 (31:56):
They have costs that did not keep paid with inflation.
They exceeded them, whether they were housing costs or healthcare costs.
So I always say to people, I'm in my fifties,
I always say to voters who are grousing about younger families,
I say, what they're doing actually is something very different.
Speaker 10 (32:14):
Than I did.
Speaker 9 (32:15):
And what folks in you know, my parents' generation did
that the economic strain on them is more acute. And
so there is this understanding that we need to gain
that you've got families who are absolutely stretched, and it
is within our best interest as legislators, as people looking
(32:39):
for solutions to see this as part of the ecosystem
of the economy and not an add on. This is
how you make economies thrive, and certainly other countries have
figured this out before we did.
Speaker 2 (32:52):
Even as state and federal lawmakers take steps to invest
more in American families and childcare, Summers says, we shouldn't
be looking to Trump's big bill to save our kids.
The costs might well outweigh the benefits, especially for future generations.
Speaker 8 (33:09):
I think the borrowing that we're engaging in and the
risks that that posures to the economy may well do
more harm to my children and my one year old
granddaughter than the putative new programs that are contained.
Speaker 2 (33:32):
Up Next, the World Cup is coming to North America
in a year's time. Cities across the US, Mexico, and
Canada are stepping up big time to make it possible.
But is the investment likely to pay off? That's next
on Wall Street Week. If this is a story about
(34:01):
the beautiful game. From Maradona to Messi, Pelly to Pushkash,
the biggest stars in the world have left their mark
on the FIFA World Cup, and whether you call it
football or soccer. The world will be watching as new
stars are born when the US, Canada and Mexico play
host the next year. While many of us will be
focused on who wins on the pitch, the sixteen host
(34:23):
cities face a challenge to make sure they win off
of it. The FIFA World Cup is one of the
biggest spectacles in sport. Forty eight teams, one hundred and
four matches, one winner or maybe two. Sure one team
will lift the iconic trophy, but with an estimated eleven
(34:45):
billion dollars in revenue coming in, FIFA might be the
real winner before a single ball is kicked.
Speaker 11 (34:52):
It's the biggest event ever. It's more than four billion
viewers all around the world, and we will make it
the biggest not only sports event, but the biggest social
event that we can think of.
Speaker 12 (35:06):
Johnny, We're going to have to extend my second term
because twenty twenty six, I'm going to have to extend
it for a couple of years. I don't think any
of you would have a problem with that, but I
hope you're going to remember me in twenty four for sure.
Speaker 2 (35:20):
Since the World Cup was awarded to the US Canada,
and Mexico. During President Trump's first term, sixteen host cities
have been ramping up infrastructure spending to prepare for the tournament.
Speaker 13 (35:31):
I think as a host city, you know, we know
this is a big investment.
Speaker 2 (35:35):
Sharon Bollenbach is the executive director of the FIFA World
Cup twenty twenty six Toronto Secretariat.
Speaker 13 (35:42):
Our budget here in Toronto is three hundred and eighty
million and that has been approved by council. It is
in terms of funding partners, we have significant funding partners
from our federal government as well as our provincial government
and then of course the City of Toronto, so it's
really all three levels government are contributing and the City
(36:02):
of Toronto's portion is around one hundred and eighty million,
and much of that comes from so that we can
reduce the burden on sort of the tax space. Much
of that portion that the city is contributing to the
event is coming from some reserve funds. We're putting in
place a municipal accommodation tax as a source of revenue
(36:22):
for a temporary period over the course leading into the
tournament and for the couple of months after as well.
We have a big commercial revenue strategy around bringing in
host city supporters and other hospitality, sales and opportunities for
corporate and other businesses and so on in the city.
Speaker 2 (36:44):
Toronto's upgrades include better public transit and the development of
training centers, but a sizable portion of the budget is
going towards upgrading Bimo Field, where Nick Eves is the
Chief Operating Officer.
Speaker 14 (36:56):
FIFA minimum requirement is to get the stadium up to
a forty five thousan five hundred capacity. Today the stadium
holds about thirty thousand, so we'll be building a temporary
ten thousand on the north end, another seven thousand on
the south end. The north end structure in addition to
that temporary seating, will also have a permanent two levels
of hospitality suites, which of course will be usable for
(37:19):
the World Cup matches. All of that work must be
complete by March in order for us to then go
and host some test matches here to really sort of
dry run and experience some of this new infrastructure that's
been put into place.
Speaker 11 (37:32):
So on the first phase of.
Speaker 14 (37:33):
Construction we're on schedule. We will be on schedule for
the second phase because ultimately we have to hit that
March date. To host the test matches and then we
need to hand the stadium over to FIFA thirty days
from the opening match.
Speaker 2 (37:45):
As it turns out, FIFA requires a lot from hosts
beyond just stadium capacity. In a published list of government guarantees,
FIFA lists the quote significant mid and long term socioeconomic
benefits for host countries that to justify a list of
requirements that include tax exemptions for the tournament and support
in security, public transport and infrastructure. And it also takes
(38:09):
over external advertising spaces. So Toronto's Beimo Field becomes Toronto
Stadium and MetLife Stadium becomes New York New Jersey Stadium.
Speaker 13 (38:20):
It's the biggest, broadest, most diverse, kind of far reaching
World Cup there has ever been, and so with that
has come a lot of learnings, and I think FIFA
have learned a lot quite frankly as well about working
with three countries, working with sixteen host cities. So there's
been some things and elements of the agreement and of
(38:41):
the requirements that have been laid out from day one,
there's been some elements that have shifted, and that's been
open dialogue and open communication and an understanding of what
are some of the realities that are happening in Toronto
that might be different than the realities happening in Vancouver
or happening in Los angele are happening in New York
(39:01):
or Dallas. So there's been some shifts and some ability
for us to work together with FIFA to determine what
some of those things are. But FIFA, definitely, you know,
this is their tournament. This is their tournament. They own
the property as it were, and so they will come
in I think it's May early May and sort of
take over the stadium. They will manage their portions of
(39:24):
this tournament and work with us. They understand our budget,
they know what our budget is. We've had to push
back on some things. You know, there's been some good
dialogue on some of the items where we just don't
have the budget to maybe meet some of some of
the requirements that have been in place, and so that's
been a bit of give and take. You know, what
(39:45):
are the primary things that we want to make sure
in place and what are those things that maybe we
can we can adjust and change a little bit. So
that's again been an open dialogue FIFA. So I have
to say I have been great partners. We've had the
ability to really discuss openly some of the elements, understanding
it's their tournament and they've run it for many, many
(40:08):
years as we all know.
Speaker 2 (40:10):
And FIFA certainly knows how to make money off of it.
The eleven billion dollars in revenue it expects to receive
will come largely from broadcast deals, ticket packages and sponsorships.
Andrew Zimboleist is a professor of economics at Smith College
and author of Circus Maximus, The economic gamble behind hosting
the World Cup and Olympics. There's a good deal of
(40:32):
revenue that doesn't come back to the cities who are
sponsoring these things, particularly, it goes to FIFA. What happens
to the money to FIFA? Where does that money go?
Speaker 15 (40:41):
Well, it goes to making sure that Jiohnny Infantino has
a very comfortable and luxurious life for one and his
various deputies. But more importantly, the vast majority of the
money goes to soccer federations around the world. So each
of the participants in FIFA, the Internet Soccer Association, each
(41:02):
of the country participants has a national soccer association and
they're in charge of developing soccer in their country. They
spend money for youth youth soccer programs, They spend money
for facilities, they spend money to train referees and officials
and so on. So most of the money, the overwhelming majority,
probably ninety percent of the money that is generated for
(41:23):
FEVER gets reinvested back into reinvested back into the soccer
development worldwide.
Speaker 2 (41:31):
So where do the host cities see a return. They
get none of FIFA's windfall, but expect to make money
through revenue streams like increased tourism, job creation, and global exposure.
For Toronto, that's expected to result in six hundred and
eighty six million dollars of positive economic output for the
greater area, according to a report from Deloitte and FIFA.
(41:53):
Adam vancouverden Is Canada's Secretary of State for Sport and
a former Olympic champion in kayaking.
Speaker 16 (42:00):
It is a big upfront investment, but we know that
it's going to pay off. For example, the federal government
is investing two hundred and twenty million dollars between Toronto
and Vancouver to ensure that these thirteen games are world class,
safe and really really exciting for Canadians. The provincial governments
are also coming forward with hundreds of millions of dollars,
and the cities are also investing, as our private companies
(42:22):
and FIFA especially, So it's an exercise and collaboration, like
I said, but the result is a massive positive economic
output that Canadians, Canada, Canadian businesses, everybody will see the
benefit from that. Likely we're going to see about two
billion dollars increase to our GDP, as well as about
three point eight billion dollars efforts of four billion dollars
in positive economic output. We're talking about almost twenty five
(42:44):
thousand jobs to be attributed to the FIFA World Cup
in twenty twenty six, So the economics are very very sound.
It looks like it's going to be a huge boon
for Canada's economy, but I'm sure the same is true
in the United States and New Mexico as well.
Speaker 2 (42:58):
Yet not everyone is convinced.
Speaker 15 (43:01):
So you put the costs and the revenues together, you
can get a variety of different outcomes, but more likely
than not, there's not a financial benefit for the host city,
although virtually every one of the sixteen cities in North
America will have an increased flow of tourism into the city.
Virtually everyone I suspect very often the soccer tourists, the
(43:23):
soccer fans, replace the normal fans. So somebody who might
otherwise be thinking about a trip to Vancouver, Canada to
watch some of the World Cup games might decide Ge
is as nice as Vancouver is, and it is a
great city. As nice as it is, I'm not going
to go there when the World Cup is happening because
I'm not going to be able to get a ticket
to the game, or I don't want to spend five
hundred dollars to get a ticket to the game, and
(43:45):
so why would I want to put up with the
congestion and the higher hotel prices. And so what happens
is the soccer tourists substitute for the normal tourists. The
normal tourists are the ones that spread the word best
about the city, and tourism in cities is best at
advertised by the actual visitors who come and they go
home and they talk to their friends, neighbors and relatives
(44:05):
about what a nice city it is and the different
pleasures that they had when they were in the city.
If the World Cup tourists are replacing the normal tourists.
That's not good for long run tourism as a general principle.
The other thing that's true is that FIFA requires the
host city to basically cancel all sales taxes and related
taxes on things that are related to the games. If
(44:25):
the tourists come to the city and they go to
what's called the fan fest for the World Cup in
the city, the city is required to put on a
fan fest and they buy things at the fan fest,
say they buy food, that's money being spent on hamburgers
and hot dogs. That's not being spent at a normal
tourist restaurant in the city. A normal tourist restaurant in
the city will produce sales taxes and revenue for the
(44:47):
host city, but if it's being spent at FanFest, there's
no taxes allowed. Same thing with ticket prices. They're not
allowed to charge a sales tax on ticket prices. So
the city can actually be losing money because if they
were playing a normal sport in the summertime and people
were buying tickets to be a sales tax on that,
that would be revenue to the city. But when they're
hosting the World Cup, they're not allowed to have that.
Speaker 2 (45:09):
There's a lot of talk about long term benefits from
hosting World Cup Games. How sure can we ever be
that in fact it's worth it.
Speaker 15 (45:19):
There's always the hope when you host a sport mega
event and you're put in quotes onto the world stage
to a degree that you hadn't been before. There's always
the hope that there'll be more people around the world
who now want to visit your city, and there'll be
more companies around the world who now want to trade
with them for your products, and there'll be more investors
(45:41):
around the world who now want to invest in your city.
We don't have any evidence that that happens. Those claims
have been made frequently, they're made, certainly abundantly in the
case of London in twenty twelve when they hosted the
Summer Games, but there really isn't any evidence. Good companies
don't trade with a city or the country because they
hosted a sport mega event, and they don't invest in
(46:03):
a city for that reason. They invest in cities because
they have good resources, because they have a good labor force,
because they have good fiscal legislation, because they have good transportation,
and good location visa via their markets. And I think
that if everything aligns properly, if the city already has
the ready made soccer stadium or stadiums, and they already
have the transportation infrastructure and security infrastructure, and FIFA is
(46:27):
giving them some of the more interesting games during the
course of the World Cup, then the revenue side could
go up a little bit and the cost side could
be moderated, and at the end of the day, maybe
they generate a small surplus.
Speaker 2 (46:41):
Ultimately surplus or not. The World Cup's reach goes far
beyond the spreadsheet, and perhaps few know that better than
Canada's Olympic champion turned politician.
Speaker 16 (46:52):
I know the power of sport. It has the power
to change lives for the better. When we invest in
physical activity programs and recreation opportunities young people, for families,
and for older folks alike, we get positive social outcomes.
But we also see the economic benefits. We see reductions
in healthcare costs, we see less of a strain on
our judicial system. We see kids happier, healthier and more connected,
(47:13):
and our community is really coming to life. And that's
what I expect to see with FIFA when it comes
to town We're going to celebrate the beautiful game. We're
going to celebrate the opportunity to play host for six
incredible games here in Toronto and seven across the country
in Vancouver. But I know that in every city across Canada,
you're going to be celebrating the great game of soccer.
Speaker 2 (47:35):
Much has been made in recent years about the booming
business of sports, and next year's World Cup looks set
to be no different. But perhaps the lasting legacy of
a successful tournament won't lie on the bottom line, but
what happens inside the white lines that does it for us.
Here at Wall Street Week, I'm David Weston. See you
next week for more stories of capitalism.
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