TheChek News Flow

Changes to Stability and Growth Pact will increase pressure on governments to spend less

The EU has agreed a much-delayed reform of its fiscal rules, in a move that economists say will usher in an era of tighter budgets, even as European growth prospects are set to weaken.

After weeks of haggling, EU negotiators on behalf of governments and the European parliament on Saturday agreed to set annual targets for cutting public debt and limits for public spending — a key German demand.

The compromise gives treasuries more room for public investments by allowing countries to bring down excess debt at a slower pace over four to seven years. Also, in a nod to France and Italy, a number of exemptions allow for a more gradual tightening of the public purse.

The deal comes after the so-called Stability and Growth Pact that limits public deficits to 3 per cent of gross domestic product and national debt at 60 per cent of GDP was suspended over the past four years to allow countries to rebound from the pandemic and cushion the impact of Russia’s invasion of Ukraine — with debt and deficits ballooning across the bloc.

Economists concur that the reformed fiscal rules will lead governments to progressively rein in spending, affecting the region’s struggling economy. 

After expanding at a tepid rate of 0.5 per cent in 2023, the eurozone is set to grow 0.8 per cent this year, according to the European Central Bank. The European Commission is likely to revise its own growth estimates for 2024 downward next week.

Dani Stoilova, an economist at French bank BNP Paribas, estimated that the new fiscal requirements would knock about 0.1 to 0.2 percentage points off GDP over the next two years.

Spain, the eurozone’s fourth-largest economy, would have to do the most extra fiscal tightening among the bloc’s biggest members under the new rules, reducing its structural primary deficit by an extra 1 percentage point of GDP more than planned in 2025, according to an estimate by BNP Paribas.

The rules will have little impact on Germany, the biggest economy in Europe, where a recent constitutional court ruling on national budgetary rules forced the government to reduce its planned spending even further.

France has not managed to achieve a surplus in its primary budget that excludes interest costs since 2008 and rating agency S&P Global this week forecast that on this measure its deficit would remain one of the biggest in the eurozone over the next three years. Morgan Stanley estimated recently that France was the least likely of the four biggest eurozone economies to meet the targets set under the new rules.

Italy, which has the highest debt burden among major eurozone economies, will also struggle to reduce it, according to Morgan Stanley economists.

“Italy has historically posted primary surpluses but its ability to achieve the required adjustment is not a given, in a context where it has to pay high interest expenses,” they wrote recently in a note to clients.

Overall, the consensus view is that the rules are more demanding than the status quo, but more lax than the former framework that was suspended in 2020, and which was not consistently enforced.

“The risk with the new rules is that they will fall flat at the first hurdle, compelling a level of fiscal adjustment that is counter-productive given the growth and strategic challenges the EU is facing,” said Mujtaba Rahman, managing director for Europe at Eurasia Group.

A lot will hinge on the degree of flexibility with which the commission will apply the new rules, which will apply from 2025.

“This final agreement is not the pact of my dreams, it is different from the commission proposals, especially because it is a lot more complicated,” said EU economy commissioner Paolo Gentiloni, whose original proposal was the basis for the final framework.

“But when we take this decision, we should be very serious about the fact that we have to implement it and enforce it.”

Uranium dipped in price this past week after hitting its highest level in 16 years. Is it about to get lithium-ed?

Lithium, the lightest metal, multiplied more than five times in price in less than a year after CME Group launched a futures contract in 2021. Then it collapsed, and now it’s lower than it started.

Uranium, one of the heaviest metals, doubled in price since summer to a recent $106 per pound before dipping to just below $100. Two niche exchange-traded funds, Global X Uranium and Sprott Uranium Miners, together took in more than $1 billion in fresh investor cash over the past year, as assets under management swelled to a combined $5 billion.

Along the way, meme traders on Reddit took an interest. One typical post from last fall featured a photo of three posh young women in a convertible with the caption, “Get in losers, we’re cornering a market.” That one requires a working knowledge of the 2004 film Mean Girls, but the post’s title was less subtle: “Uranium to Uranus,” with a rocket ship emoji.

In fact, uranium was discovered in 1789, eight years after the planet for which it’s named. That’s right: If you enjoy tangential fun facts, strap in.

Bulls say the uranium market will be undersupplied for decades to come. Bears, well, there aren’t many of them. Cameco, a big, publicly traded uranium producer in Canada, is covered by 13 analysts, according to FactSet. Eleven say to buy, and the remaining two say to hold. The Kazakhstan-based industry giant, National Atomic Company Kazatomprom, has five buys and one hold, which, percentage wise, makes it slightly more popular than Alphabet Uranium’s superpower is that it can produce lots of energy for its size—20,000 times as much as coal. It’s also 500 times as plentiful as gold. More than 99% of naturally occurring uranium is U-238, which doesn’t have much oomph. It’s what’s known as fissionable, not fissile—you can split atoms to release energy, but you won’t typically get a chain reaction. For that you need U-235, which is three neutrons short of U-238. But it makes up just 0.72% of natural uranium.

No problem: Just turn the metal into a gas, spin it, and harvest higher concentrations of the lighter isotope. Less than 5% U-235 “enrichment,” as it’s called, will do for electricity generation. Higher levels are for nuclear submarines, or nuclear weapons, or nuclear submarines with nuclear weapons. Also, I should point out that Canada with its Candu reactors can create chain reactions with regular U-238, holding down fuel costs, but those use something called heavy water as a moderator, which is pricier than the regular water used by typical reactors.

Two key events have whipsawed uranium prices. In March 2011, a tsunami struck a nuclear plant in Fukushima, Japan, disabling the fuel cooling system. The resulting radiation release is estimated at a tenth that of 1986’s Chernobyl disaster, with no deaths and minimal health effects. But the public soured on nuclear power and called for early plant retirements. Uranium fell from over $60 a pound to under $20 from 2011 to 2016.

“Almost no mine in the world could operate profitably,” says John Ciampaglia, CEO of Sprott Asset Management. “Mines were put on care and maintenance. When that happens, you basically live off of inventories.” As recently as 2021, before the U.S. reported unusual Russian troop movements near Ukraine, uranium sold for $30 a pound. Then, Russia invaded and turned its role as energy supplier into a weapon. “We all learned in 2022 what happens when your natural gas gets cut off,” says Ciampaglia. “You either have no gas or you pay 10 times for it.”

The result: a nuclear power revival. “We are seeing life extensions, reactor refurbishments, and the call for new builds,” Cameco CEO Timothy Gitzel told investors during a Thursday earnings call. “And we have a technological evolution on the horizon as well, with SMRs.” That stands for small modular reactors. There are 434 operating nuclear power reactors worldwide, with 59 being built, including 23 in China. These will be traditional large-scale facilities. In markets like the U.S., where the bill is footed by private payers and new construction has stalled, companies are experimenting with small reactors using factory components.

There is more than just a warming up to nuclear power at work here. Kazakhstan is running desperately low on the sulfuric acid used to leach uranium from underground deposits. Kazatomprom says it will increase production only modestly this year, despite high selling prices. On the other hand, Cameco, which this past week reported a doubling of earnings, says it will produce 36 million pounds of uranium at two key facilities this year, up from 28.6 million last year. Its shares gave up 7% on earnings day. Last year, Cameco and Brookfiel d Asset Management bought Westinghouse Electric, which makes components for nuclear plants.

Then there are the investment buyers. In 2018, Yellow Cake, whose main business is holding uranium, went public. In 2021, Sprott bought an investment vehicle called Uranium Participation Corp. Today, it goes by Sprott Physical Uranium Trust and is the largest holding in the company’s miners ETF. Last fall, TD Securities estimated that the two companies had together acquired 63 million pounds of uranium since Yellow Cake’s initial public offering, significantly tightening the market.

Uranium’s demand outlook might warrant the rocket emojis and Mean Girls memes, but before jumping in, consider again lithium’s example. Its superpower is its light weight—it would float, if not for the fact that it reacts violently with water. That gives it the lowest charge-to-weight ratio of any battery metal and a secure spot in the long-term shift from gasoline to battery-powered vehicles, and maybe to utility-scale battery storage of solar power. But the Sprott Lithium Miners ETF, which launched a year ago at $20, is now a little over $9. This past week, J.P. Morgan wrote that the lithium market looks likely to remain oversupplied through 2028.

It’s a whole new ballgame.

Walt Disney, Fox, and Warner Bros. Discovery this past week announced a new sports-only streaming joint venture that will offer viewers content from all the major college and pro sports, bundling together ESPN, ABC, Fox, TNT, TBS, and an assortment of other sports-focused networks.

So far, the new venture has no name, and the companies haven’t unveiled a leadership team or provided details on pricing. But this new service—if launched as planned this fall—could shake the already rickety foundation of the U.S. television market to its core. With this deal, TV shifts from evolution to revolution.

Effectively, the three companies are building a sports-based version of services like YouTube TV and Sling TV that offer digital alternatives to old-school cable. They’re removing news and entertainment programming from the cable bundle, leaving only sports behind.

Michael Nathanson, an analyst with MoffettNathanson, described the plan as “the skinny sports bundle that we’ve been waiting for,” a service that “strips out the bloat.”

This is a problem if you run linear news or entertainment channels, i.e., “the bloat.” And that is hardly the only complication.

“Whether you are Paramount, Comcast, NFL Network, AMC Networks, A&E Networks, or station groups with large numbers of NBC or CBS stations, the successful launch of [the sports] bundle is your worst nightmare,” wrote Lightshed Partners analyst Rich Greenfield. Here’s why.

Cord-cutting will accelerate: Since 2018, a quarter of all U.S. households have dropped their pay-TV services, as viewers cut the cord and refocused on streaming services. One of the main reasons for keeping that cord has been sports, but the new bundle could offer a non-cable, cheaper alternative to sports fans.

Analysts have already speculated that the new service would be priced around $40 a month. The bundle won’t quite be enough for NFL fans, since it lacks Comcast’s NBC and Paramount’s CBS; but you can solve that with subscriptions to Peacock and Paramount+ at $6 a month each. That gets you to $52. Compare that with $73 a month for YouTube TV—and more if you subscribe to conventional cable.

Disney and Fox have said the offering is focused on “cord-nevers” rather than cord-cutters, but that feels like wishful thinking. There has been little reason to hang on to conventional pay-TV services other than sports and news content. And now a big part of that reason is going away.

The new package highlights a double standard in the world of television bundling. Disney is now offering a direct package of ESPN and other sports content directly to consumers, while still forcing cable providers like Comcast to pay for its other channels—including Freeform and Disney Jr.—if it wants ESPN.

“Every distributor we have ever talked to has wanted more flexibility in how they package and price bundles of linear TV channels,” Greenfield wrote about the deal.

It’s a disaster for nonsports content: Shares of E.W. Scripps fell 24% in the wake of the sports bundle announcement. The company owns a collection of nonsports cable networks like Court TV, ION, Bounce, Grit, Laff, and Defy TV that suddenly look more vulnerable if viewers cut ties with their cable or satellite service. Shares of AMC Networks sold off, too.

And it isn’t great for Paramount. The company still owns CBS and other linear channels. Its sports content was left out of the new streaming partnership.

Even Warner Bros. Discovery and Fox, which are part of the sports bundle, risk losing more business than they gain. WBD owns nonsports channels like the Food Network, CNN, and the Travel Channel, while Fox has Fox News. Both stocks moved lower after the sports bundle was unveiled. (Fox and News Corp, the parent company of Barron’s publisher Dow Jones, share common ownership.)

It’s trouble for local TV affiliates: This deal is prickly for local TV stations that have been relying on cable and satellite providers for distribution. Shares of TV Gray Television and Nexstar Media Group, which own multiple local-market TV outlets, sold off on the news.

Gray tried to keep things positive: “Gray welcomes any venture that expands the reach of local broadcasting stations, which in turn supports the ability of local stations to maintain trusted local news operations that benefit everyone,” the company said. Investors are less convinced—the stock sold off 15% after the sports bundle was announced.

It’s an issue for Fubo: FuboTV is a sports-focused virtual cable service that includes most of the channels in the new bundle—it lacks TNT and TBS. The company’s entry level “Pro” account runs $79.99 a month for a collection of 190 channels that also includes some of the above-mentioned “bloat” such as Bravo, E!, and USA. Fubo’s shares lost about a fifth of their value this past week, and the company isn’t happy.

“Every consumer in America should be concerned about the intent behind this joint venture and its impact on fair market competition,” Fubo said in a statement.

Paging Lina Khan: This isn’t a merger, but the new bundle feels a lot like the dominant players in sports TV teaming up in a way that could hurt smaller players. Will the FTC look at this? Or the FCC? Or Justice? Will they get sued by Fubo, sports leagues, or local TV networks? To lever the now antiquated metaphor: Stay tuned.

German football needs to open up to outside investors says Leverkusen boss

Fernando Carro, CEO of the Bayer-owned side, believes scrapping the rule tying control of teams to club members will revive the Bundesliga

German football should ditch its ownership rules and allow investors to buy majority stakes in clubs to make the game more exciting and build an international following, says the chief executive of current league leaders Bayer Leverkusen.  

The so-called 50+1 rule limits the involvement of outside investors in German football by ensuring that club members retain control of their teams. Leverkusen, which is owned by chemicals company Bayer, is one of a handful of exceptions.

Speaking ahead of a crucial clash on Saturday against second-placed Bayern Munich, Fernando Carro said that German teams should be allowed to bring in new shareholders to make the league less predictable and more entertaining for viewers. 

Other countries, such as England, France and Italy, have welcomed international capital into domestic football — from US billionaires and private equity firms to Gulf sovereign wealth funds.

“The 50+1 rule nowadays does not make sense. We’re competing internationally — we’re not in an isolated world. Imposing something like this via regulation is no longer valid,” said Carro. “If 50+1 wasn’t there, owners could put money into other clubs.” 

German football supporters, in particular the clubs’ core fan base known as the fanatic ultras, vehemently oppose opening the league to outside investors keen to acquire majority stakes in clubs.

Carro dismisses their argument that it would be the end of traditional football. “I like tradition,” he said, stressing it was possible to protect Germany’s football heritage while modernising the game.

Leverkusen have been on a remarkable run this season under their young coach Xabi Alonso, and remain unbeaten in 30 matches. On Tuesday, the team reached the semi-finals of the German cup, and topped their group in the first round of the Europa League, leaving them on track for a possible treble this season.

Bayern Munich head into Saturday’s match two points behind Leverkusen. The Bavarian club are the reigning German champions — last season’s victory extended their run to 11 consecutive titles.

Based in a city on the outskirts of Cologne, Leverkusen is small compared with the top German teams, with a home stadium which holds just over 30,000 fans, less than half that of Bayern Munich and Borussia Dortmund. Deloitte ranks Bayern Munich as the club with the sixth highest revenue in football, while Leverkusen does not feature in the top 30.

The lack of jeopardy has hampered the international appeal of German football, affecting the league’s revenues.

The Bundesliga currently earns around €200mn annually from its overseas rights, compared with €2bn for the Premier League and €900mn for Spain’s La Liga. Domestic rights for the Bundesliga are currently out to tender, although recent deals elsewhere in Europe point to a softening market for live football. 

“For German football, it is very important to have other winners of the league because definitely there’s a big impact on how attractive it is to watch,” said Carro, Leverkusen chief executive since 2018.  

The DFL, which operates the Bundesliga, is in the midst of talks with private equity firms CVC Capital Partners and Blackstone over a potential €1bn investment in the league’s commercial operations. However, Carro believes changes to ownership rules would be far more effective in improving the prospects of German football. 

“If you want to have more clubs trying to be at the level of Bayern Munich, getting rid of 50+1 would have much more impact,” said Carro.

Owing to the team’s recent success, Carro said that the club has been forced to introduce a season ticket waiting list for the first time, and has been overwhelmed with demand for sponsorship and corporate hospitality. 

Data consultancy Twenty First Group estimates that Leverkusen currently have a 42 per cent chance of winning the league this year, although that would jump to 64 per cent with victory over Bayern on Saturday. Last season, Bayern snatched the league title from rival Borussia Dortmund when it won its last game by scoring a decisive goal in the 89th minute.

The last time Leverkusen came close to winning three trophies was in 2002, when it notoriously squandered the opportunity to win the Bundesliga, the Champions League and the German cup final, ending up second in all three competitions.

Alonso has been linked with a move to Premier League leaders Liverpool, where he was previously a player. The team’s current head coach, German Jurgen Klopp, recently announced his intention to step down at the end of the season following nine years in charge. 

Carro said that he was “not at all worried” about Alonso’s future plans. “He is extremely happy here. We have a long-term contract, and we assume he’ll stay for a long time.”

In what is apparently the conclusion of a deal that Variety tipped a year ago, Sony Music Group has completed a transaction to acquire half of Michael Jackson’s publishing and recorded masters in a transaction that values the total catalog at around $1.2 billion, and possibly more, sources confirm to Variety. Billboard reports that Sony will pay at least $600 million for the stake.

If accurate, the deal is the biggest for a single music artist’s assets to date.

Sources confirm to Variety that the complex deal also includes assets from Jackson’s legendary Mijac publishing catalog, which includes multiple titles by Sly & the Family Stone as well as hits written or performed by Jerry Lee Lewis, Jackie Wilson, Curtis Mayfield, Ray Charles, Percy Sledge, Dion and others. However, it does not include royalties from the “MJ” Broadway musical and other theatrical productions featuring the musician’s music.

Primary Wave Music continues to hold a 10% stake in Jackson’s publishing assets, sources confirm to Variety.

Reps for Sony, the Jackson estate and Primary Wave either declined or did not respond to Variety’s requests for comment. Sony similarly did not comment on its widely reported deal to acquire Bruce Springsteen’s publishing and recorded-music catalog several years ago for around $600 million.

When Variety first reported on the negotiations last February, the estate was said to be seeking $800-$900 million, although it is possible that a different set of assets was included in the final deal, as the value of Jackson’s catalog has only risen in the past year.

The co-executors of Jackson estate’s — the singer’s longtime lawyer John Branca and executive John McClain — are expected to remain in their roles.

Sony and its predecessor CBS were the sole home for Jackson’s recorded-music catalog for his entire solo career and the latter years of his career with the Jackson 5. The singer died in 2009 at the age of 50; the formidable entertainment interests of his estate have been handled with a firm hand by Branca, his longtime attorney, and co-executor John McClain.

Jackson’s recorded-music catalog is one of most lucrative in history — his 1982 “Thriller” album alone is one of the two biggest sellers of all time and was the first album to be certified 30-times platinum, although such figures have become muddled in the streaming age.

In 2016 Sony Corp. reached a $750 million agreement with the estate to acquire the Jackson estate’s 50% stake in their joint venture, Sony/ATV Music Publishing, which they had formed in 1995. In 2018 Sony revealed in an earnings report that as part of its $2.3 billion acquisition of EMI Music Publishing, it had acquired the Jackson estate’s 25.1% stake in that company for $287.5 million.

At the end of that years-long process, which had begun six years earlier but was not cleared by the European Union until 2018, EMI and Sony/ATV were fully owned by Sony, making it sole owner of the world’s largest music publishing company.