TheChek News Flow

Pietro Beccari spoke to BoF editor-in-chief Imran Amed about why Vuitton decided to give the men’s creative directorship to a celebrity musician and not a traditional fashion designer; what Pharrell Williams actually does in the role; and how the CEO measured the success of Williams’ debut show.

PARIS — After the November 2021 death of Virgil Abloh, Louis Vuitton’s former menswear designer, potential successors included Grace Wales Bonner, Martine Rose and Kidsuper’s Colm Dillane. Dillane even did what amounted to an audition show in January 2023, with the blessing of then Louis Vuitton chief executive officer Michael Burke.

But by then, the decision had already been made. In December 2022, before he officially became the new CEO of Louis Vuitton, Pietro Beccari called Bernard Arnault, chairman of Vuitton’s parent company LVMH, and recommended Pharrell for the job.

Why give the role to Pharrell Williams, a celebrity musician and not a traditional fashion designer? What is Williams actually doing in the role? And was his debut show a success? These were some of the questions on the minds of industry insiders as they took in Vuitton’s menswear extravaganza on Pont Neuf on Tuesday evening.

BoF spoke to Pietro Beccari to get his take on these questions — and get a peek into the future of where Vuitton by Pharrell goes from here.

Why did Vuitton give the men’s creative director role to Pharrell Williams and not a traditional designer?

During his tenure, Abloh created a real sense of global community around the Louis Vuitton brand, one that brought new openness to a luxury model rooted in exclusivity, which Vuitton had helped to pioneer. In doing so, Abloh became more than a creative director, he became a sort of messiah who opened Vuitton up to people who had never engaged with the brand before, thereby broadening its reach.

“Of course, I thought about appointing an incredible designer to succeed Virgil — but I needed someone who could really step into Virgil’s shoes,” explained Beccari. “So, I thought of doing something unexpected, something never done before in the fashion industry. Pharrell is similar to Virgil. He is in touch with so many worlds.”

“Louis Vuitton is a multifaceted company. We are part of the life of the people in 70 countries. We have long moved beyond fabricating and selling products. We produce books, we sponsor sports,” Beccari added. “Virgil understood this, and who better than Pharrell than to take his place?”

It must not have been lost on Beccari that Black American hip-hop culture is a major cultural export from the United States to the world — and has shaped the global fashion market in countless ways.

Still, Beccari acknowledged the risk in hiring Pharrell. “It was a big risk to take on board a megastar. Will he dedicate enough time to produce something, from his creativity, to drive the evolution of the brand?”

Beccari was convinced, in part, by Pharrell’s humility and work ethic — and that he agreed to spend one-third of his time on Vuitton.

“Pharrell defines himself as a pupil. I got to see this in 2008 when he worked with Louis Vuitton on a jewellery line,” he said. “I saw how dedicated he was to learning the savoir-faire, his immense curiosity, his grasp of the mechanism of a company. I saw a guy who was willing to go the extra mile. This is why I went to Mr Arnault and asked Alexandre [Arnault] to give Pharrell a call to see if he was willing to listen.”

What does Pharrell actually do as Louis Vuitton’s creative director of menswear?

With more than €20 billion in annual revenue, Vuitton is not just the world’s largest luxury fashion brand, but also its largest luxury menswear business. “There is a real job to be a designer,” Beccari said. “They have to be the leader of this huge studio team and interact with marketing and merchandising teams.”

But Vuitton was also looking for an ambassador to engage customers, fans, celebrities and influencers.

“This is the first time we’ve put a super well-known person as a creative director — a real megastar,” said Beccari. “We needed an ambassador for the brand at large.”

Here, the job is more about storytelling across a wide range of formats, from events to films to social media (according to Bernstein analysis, Vuitton publishes more than 100 social media posts per month), in an effort to plant the brand more deeply within contemporary culture.

It’s no accident that LVMH now refers to Vuitton as a “cultural brand” with a footprint that touches art, music, sport and more, as well as fashion. Along with his star power, this sense of breadth was one of Abloh’s greatest talents — and where Pharrell also excels.

What does Pharrell’s first collection tell us about the direction of Vuitton menswear?

“Pharrell put together a presentation for me before he signed the contract,” Beccari explained. “It was spot on, had a very clear direction, coming to it from a client’s point of view. He has a personal style, and we all know it.”

Indeed, Pharrell’s personal style — influenced by his close relationship with Karl Lagerfeld at Chanel and his link to hip-hop music and culture — was clearly visible, but there was also a move to a more dressed-up Vuitton than under Virgil Abloh.

“This is a moment for a more dressed up man; for tailoring; for clothes closer to the body, as we saw in the collection,” added Beccari.

But the biggest signal about the future of Louis Vuitton menswear from Pharrell’s debut collection was the elevation of Louis Vuitton’s signature damier pattern from the sideshow to the main act. The checkerboard pattern is actually older than the now ubiquitous Vuitton monogram, but offers the brand a fresher canvas.

On Tuesday evening, Williams shifted the damier from a house code available in its subtle Azur, Ebène and Graphite variations on classic handbag silhouettes to vibrant, pixelated patterns in saturated colours on everything, everywhere in the show. We can expect the damier to continue to be introduced in different shades and colourways each season.

Some observers, including BoF’s Angelo Flaccavento, found the execution too on the nose, saying the constant repetition of the damier weighed down the collection. There is truth to this, but the execution can be improved going forward. Others noted more than a slight resemblance between Pharrell’s pixelated damier and a similar pattern in Jonathan Anderson’s Spring/Summer 2023 Loewe collection

In the end, any Louis Vuitton fashion show is about the bags, which drive the lion’s share of total revenue — analysts say between 85-90 percent — for the brand. Leather goods remain the primary entry point for new customers to the luxury sector. And the umpteen bags in the show were highly-identifiable, an important consideration for new and aspirational luxury customers.

So, did Pharrell’s debut accomplish the mission set by Beccari?

The mood of the crowd after the show was noticeably buoyant, even among the most hardened fashion insiders. Some people used the words “epic,” “unlike anything I’ve ever seen”, and “I’ll never forget that I was here” as they were shuffling towards the exits after Jay Z’s (surprise) performance.

But there were detractors too — especially online, where commenters questioned the values and optics of the world’s largest luxury brand privatising public space for a gilded fashion show amid rising inequality and a cost of living crisis in Paris and beyond.

More than one person cited the recent column by Janan Ganesh in the Financial Times entitled “Luxury goods: Europe’s joke on the world,” which wondered out loud who buys this stuff and why?

Still, one thing everyone agreed on was that Tuesday’s Louis Vuitton spectacular was unprecedented. This was the moment when fashion and entertainment collided to create a moment that will not be soon forgotten by those both attending and following the action online.

The show’s sheer scale and the investment level required to deliver it certainly had rivals at Kering, Chanel and Prada watching with interest.

According to analyst estimates, Louis Vuitton now spends €1 billion a year on marketing, or about 5 percent of its total annual revenue, more than any other luxury brand. And ultimately, marketing was the point of Tuesday’s outing.

The power of Pharrell’s personal relationships and the brand’s undeniable pull drew a group of the most influential group of global celebrities seen outside the Met Gala and made this the show with the highest potential reach in fashion history.

How does Beccari measure the performance of a spectacle like this? “Through the sensation and gut feeling after leading three companies as CEO, I felt the energy in the air around the bridge and received an overwhelming number of messages. When the analytics come I know they will already tell me what the gut feel tells me.”

More than anything, Pharrell’s Louis Vuitton show is the latest signal of how fashion is changing and morphing to become a pillar of popular culture. Whether industry insiders are ready for this change remains to be seen. Luxury customers, it seems, are already there.

According to Louis Vuitton’s internal data, the show has already clocked more than 500 million online views in the three days since the show.

In their latest study, Bain & Co. and Altagamma expect the sector to reach sales of between 360 billion and 380 billion euros in 2023, up 5 to 12 percent on a record 2022.

MILAN — The global appetite for luxury goods is still healthy.

Bain & Company’s Luxury Goods Worldwide Market Study — Spring 2023, presented on Friday with Altagamma in Milan, shows the personal luxury goods market is projected to grow between 5 and 12 percent in 2023, or between 360 billion and 380 billion euros, following a record year in 2022, despite geopolitical tensions and macroeconomic uncertainty.

Last year, the sector reached a market value of 345 million euros, and by 2030 it is likely to reach between 530 billion and 570 billion euros. This is around 2.5 times its size in 2020. The first quarter of 2023 continued to show good momentum, resulting in growth of between 9 and 11 percent compared with 2022.

The Bain-Altagamma analysis sets out two scenarios: A positive one driven by China’s recovery and sustained growth from Europe and the Americas, with growth projected to be between 9 and 12 percent on 2022. A realistic scenario shows overall growth more severely impacted by a slowdown in mature markets, and a slower recovery in China, leading to growth of between 5 and 8 percent on 2022.

In November, presenting the previous luxury goods study, the growth was pegged at between 3 and 5 percent for 2023, given the uncertainties connected to the reopening of China.

“The luxury industry is experiencing a new phase after its post-pandemic growth, with renewed drivers of resilience establishing winners and losers,” said Claudia D’Arpizio, partner at Bain & Company, leader of Bain’s Global Luxury Goods and Fashion practice, and lead author of the study. “Brands who want to succeed need to focus holistically on consumers; balance their exposure across geographies; offer a high value proposition with elevated entry clienteling and experientiality at scale, and push on icons, timeless and statement pieces.”

The ongoing growth in the first three months of the year was attributed to the gradual decrease of hyperinflation, recovering confidence of local consumers in Europe, the lifting of China’s COVID-19 restrictions before Chinese New Year and the positive momentum in Japan and Southeast Asia, bolstered by intraregional tourism.

Federca Levato, partner at Bain & Company and leader of the firm’s EMEA Luxury Goods and Fashion practice, coauthor of the report, said in an interview that luxury consumers are now valuing uniqueness over status, beyond aspirational items, in “an elevation of the market toward uber luxury, less purchases but better.” Stores are becoming “entertainment platforms, less transactional, offering good times,” and brands are increasingly moving into hospitality, opening VIP lounges and clubs.

However, the picture is nuanced across countries, said Levato, as Europe is on the rise thanks to strong tourist flows, while the U.S. is slowing down due to consumer caution in light of a potential recession and the end of COVID-19 relief funding.

Top U.S. luxury consumers are holding up, focusing their purchases on statement pieces across categories as well as new formal and occasion wear, yet partially shifting their spending abroad as price differentials widen and aspirational customers are spending less. The study also sees a rebalancing of the luxury map, with New York and California coming back while holiday destinations, such as Hawaii and Las Vegas, are recovering yet still behind their 2019 peaks.

Levato said a question mark remains about the evolution of the U.S. market during the rest of the year, as “a huge improvement is not expected ahead,” while department stores are “changing skin, struggling as the customer base is changing and they are targeting the new generations.”

Europe may have to face a slowdown in the arrival of U.S. and Middle Eastern tourists in the second half. In the last months, the first Chinese tourists traveled to Europe, and a solid return is expected later in the year.

Mainland China saw growth in the first quarter and is expected to rise again this year, with some brands back to 2021 levels, continued Levato. In the meantime, the Asian market is experiencing a reshuffling: Hong Kong and Macau posted a sharp acceleration as primary destinations for Chinese tourism since the country reopened, with additional tailwinds from government policies, and the study pointed to a market value there in 2022 of about 5 billion euros.

Southeast Asia continued to grow strongly, supported by Russian tourists’ spending, the first arrivals of Chinese consumers, and a strong appetite for jewelry and watches, the region totaling a market value of around 12 billion euros.

South Korea, on the other hand, is slowing down with a rebalancing of locals spending on purchases abroad and travel retail accelerating, due to inflows from Southeast Asia and despite the limited Chinese arrivals so far. The area had a market value of around 21 billion euros in 2022.

Japan, with a market value of around 24 billion euros last year, is the rising star as local customers are keeping up their spending and growth is coming from inbound tourists, including the first Chinese arrivals, that are hungry for bestselling accessories.

Top-performing categories include watches and jewelry, with uber-luxe pieces driving growth, and bags increasingly perceived as valuable assets. Shoes are booming in Asia, while slowing down in the Western world, transcending beyond sneakers. In beauty, the study shows growth in fragrances, fueled by niche offerings and the recovery of duty-free, while makeup and skin care maintain positive trajectories.

Travel retail is finally recovering thanks to dynamism in Southeast Asia and Japan. The monobrand category continued its solid growth from 2022.

Key challenges for the industry in the midterm are linked to ESG regulatory pressures as well as the impact of generative AI and new technologies on all steps of the value chain.

According to Altagamma’s Consensus, earnings before interest, taxes, depreciation and amortization of luxury goods companies are expected to increase 10 percent in 2023.

Stefania Lazzaroni, general director of Altagamma, said the “solid growth of the segment is due partly to a consumer that has the right tools to tackle the difficulties of the moment,” and also thanks the international tourists flows to Europe, especially to Milan and Paris — a region that is expected to grow 10 percent compared with the previous estimate of 5 percent — and the reopening of China. The latter and Asia “continue to shine,” seen growing 14 percent, and Japan is forecast to report a 10 percent sales growth.

The Consensus also highlighted the strength of Japan and the United Arab Emirates and the slowdown in the U.S., seen growing 3 percent, dented by inflation.

Retail and careful pricing strategies as well as experiential relations with customers will contribute to the growth of luxury brands, Lazzaroni concluded.

The growth performance of brick-and-mortar stores is pegged at 11 percent, digital retail is seen up 10 percent, while the wholesale channel is forecast to grow 4 percent (physical) and 5 percent (digital).

By category, leather goods are seen growing 11 percent, shoes are forecast to be up 9 percent and apparel and cosmetics are expected to gain 8 percent each. Watches are seen growing 8 percent and jewelry is expected to grow 10 percent.

After a slow week last week, there was a slight pickup in top-dollar rounds, with three hitting nine figures. Health care — or health care-adjacent — companies saw big money, taking three of the four top spots this week, with the second place round minting a new mining unicorn. That’s out of the ordinary, but the venture market has a way of being unpredictable.

1. Aledade, $260M, health care: Health care companies hit it big this week and none bigger than Aledade. The Bethesda, Maryland-based company raised a $260 million Series F led by new investor Lightspeed Venture Partners. The round comes just about a year after it locked up a $123 million Series E. The startup provides doctors’ offices with data analytics software so they can better manage their patients and identify those most at risk. The company plans to use the new cash to beef up its services and technology, possibly with acquisitions. The new funding deal values the company at $3.5 billion, Bloomberg reported. Founded in 2014, the company has raised nearly $678 million, per Crunchbase.

2. KoBold Metals, $195M, mining: What happens when you combine Ai with the material needed for lithium-ion batteries and AI? You get big money. Berkeley, California-based KoBold Metals raised a $195 million round this week led by T. Rowe Price, and that included a number of big-name investors such as Andreessen Horowitz and Bill Gates and Jeff Bezos-backed Breakthrough Energy Ventures. The new cash values the climate-tech startup at $1.15 billion. KoBold Metals uses artificial intelligence to mine for valuable metals such as cobalt, copper, nickel and lithium used in the production of batteries for a variety of sectors, including electric vehicles. The startup has built a database about the Earth’s layers and uses algorithms to make predictions about where mineral deposits are around the world. KoBold Metals isn’t new to big rounds. In February 2022, the startup closed a $192.5 million Series B, which included investment from Apollo Projects, Bond Capital, BHP Group and the Canada Pension Plan Investment Board. Founded in 2018, the company has now raised more than $400 million, per Crunchbase.

3. HighFive Healthcare, $100M, dental: Dental health startups don’t usually make this list, but then again they don’t usually raise $100 million. However, HighFive did just that, closing a $100 million growth investment led by Norwest. The Birmingham, Alabama-based company enables a network of dental offices to centralize their operations — saving money and letting doctors focus on patients and not office operations. The company saw tremendous growth last year, doubling its practice size through acquisitions and organic growth. Founded in 2018, the company has now raised more than $102 million, per Crunchbase.

4. DexCare, $75M, health care: Yes, another health care startup high on the list. Seattle-based DexCare closed a $75 million Series C led by ICONIQ Growth. The company’s software helps health systems manage their capacity and appointment booking while getting patients to the care they need. Its platform allows health providers to serve patients faster and to manage the supply and demand of digital-care access. Founded in 2021, DexCare has raised $146 million, per the company.

5. Attovia Therapeutics, $60M, biotech: Only one biotech in the top five this week — which has become rare, as the space has witnessed some large raises as of late. Fremont, California-based Attovia Therapeutics, which is developing biotherapeutics for immune-mediated disease and cancer, raised a $60 million Series A led by Frazier Life Sciences. The company plans to use the new cash to further advance its drug and platform development focusing on immunology and oncology. This is the company’s first outside raise, per Crunchbase.

6. Limble CMMS, $58M, information technology: Lehi, Utah-based Limble, which develops computerized maintenance management software, raised $58 million Series B led by the growth equity business within Goldman Sachs. Founded in 2015, the company has now raised nearly $77 million, per Crunchbase data.

7. AltPep, $53M, biotech: Seattle-based AltPep, which is developing early disease-modifying treatments and detection tools for amyloid diseases, closed a $52.9 million Series B led by Senator Investment Group. Founded in 2018, the company has raised $76 million, per Crunchbase data.

8. (tied) Empress Therapeutics, $50M, biotech: Cambridge, Massachusetts-based oral medicine developer Empress Therapeutics closed a $50 million round from Flagship Pioneering. This is the company’s first outside funding, per Crunchbase.

8. (tied) PM Pediatric Care, $50M, health care: Long Island, New York-based PM Pediatric Care, a pediatric urgent care network, locked up a $50 million Series E led by Scopia Capital. Founded in 2005, the company has raised $64 million, per Crunchbase.

8. (tied) Render, $50M, cloud infrastructure: San Francisco-based Render, a cloud provider for application developers, closed a $50 million Series B led by Bessemer Venture Partners. Founded in 2018, the company has now raised nearly $77 million, per Crunchbase.

Despite the big rounds in the U.S. this week, Asia and Europe both had bigger.

The industry faces tougher economic conditions as well as challenges from the rising use of AI

Please use the sharing tools found via the share button at the top or side of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email licensing@ft.com to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found at https://www.ft.com/tour.

https://www.ft.com/content/c54b9f39-c9bf-4f0e-a905-a51fa27b90e3

For an industry that makes money telling clients how to tap into future trends, the world’s top advertising executives that gathered in Cannes for the annual Lions festival this year were unusually conflicted over what was coming down the track for themselves.

Advertising agencies are facing immediate pressures as clients look more carefully about how they spend marketing budgets — with a need for greater effectiveness as a result — given tougher economic conditions in key markets. 

Much of the debate in the hotels, cafés and beachside tents of Cannes, which hosts the Lions International Festival of Creativity, was also centred on the longer term and potentially existential set of opportunities and challenges from the rising use of AI to create and target advertising.

“This is the first year in my career where I’m like: ‘I don’t know how this year ends’,” said the boss of a major US advertising agency.

Like many rivals, he still expected the industry to grow this year but at a slower rate, and with a greater sense of uncertainty given the changing economic backdrop. 

“Some projects are getting cut, some getting delayed, some waved through,” he said. “It's not going to be easy unless you’re counting on a big rebound in China. Which I don’t see.”

According to GroupM, a WPP-owned media agency, global advertising revenues are expected to rise 5.9 per cent to $874.5bn, excluding US political advertising, slower than 6.4 per cent last year and 24.8 per cent in 2021.

Growth will be supported by the use of connected TVs, retailer-owned advertising models and other digital channels, it said. In Cannes, many of the biggest tents and parties were hosted by tech groups such as Microsoft, Amazon, Netflix, Yahoo and Spotify, underlining how digital advertising has taken over the industry over the past decade.

Kate Scott-Dawkins, global president of business intelligence at GroupM, said the industry had been a beneficiary of venture capital-fuelled tech spending running up to the pandemic, with a second burst of spending since after the lockdowns ended. But now, she said, “we’re coming down off of that . . . the cycle is at a point where we’re moderating and back to some sort of normalcy.”

Another UK advertising chief agreed this year was “not getting easier but is much more of a sort of year of normalisation”, but added that brands wanted more “bang for their buck”.

“You need to show the effectiveness of the work, to verify at every point and quantify, with budgets under so much scrutiny,” agreed one British executive.

Dan Clays, chief executive at Omnicom Media Group UK, saw the rest of the year improving, however, saying that “in an inflationary economic environment, marketing budgets have proven to be broadly resilient as brands continue to pursue growth”. 

The first half of the year saw caution from clients in some sectors, he agreed, but the second half of the year was looking positive. “The overall impact is heightened focus on effectiveness, particularly capitalising on analytics capabilities to understand short and long term impact on marketing spends.”

There was also a backlash from some marketers against more socially driven advertising campaigns that dominated the previous year’s awards. 

Earlier this year, sales of Bud Light fell sharply after an advertising campaign that featured a transgender influencer caused a conservative consumer boycott. One advertising boss admitted: “It’s easy to forget that we are basically here to sell beer.”

Another said that company executives were now more aware of the risks, particularly of touchpaper political issues in the US in the run-up to the election, while a third said that since the Bud Light campaign marketers have been “freaked personally . . . your life will be ruined if you get something wrong”.

Other executives said that brands were still conscious of the need to support issues of wider societal importance, from the environment to gender issues — but added these needed to be in line with the brand “identity” as customers were more savvy now in spotting when companies attempted to awkwardly ride a popular cause.

Sitting above these immediate concerns was the debate about the effects of AI — almost literally at Cannes given the extent of the billboards over the main Croissette boulevard proclaiming various technological advances from the different global advertising groups.

AI is likely to be involved with at least half of all advertising revenue by the end of 2023, said GroupM. But while it has long been used extensively across media buying, the impact of generative AI technology in creating advertising has only started in practice.

Google plans to introduce generative AI into its advertising business over the coming months to help generate creative campaigns, while Meta is exploring similar tools.

“Computers can create things that look like they come from humans, it’s a pretty fundamental shift,” said one advertising boss, who predicted that this could hit jobs that were in effect the “plumbing” of the industry doing basic creative work. But he added: “The computer is not going to come up with that killer idea — they are going to tell you what’s been used before.”

Multiple executives raised concerns about how AI would change how ad agencies charge for their work, with the concept of being able to bill according to the hours of work incurred likely to be under threat as campaigns may now take hours to produce rather than weeks. This could put more value on truly original creative work, said one ad boss.

Yannick Bolloré, chair of Vivendi’s supervisory board and boss of French agency Havas, compared the impact of AI on the industry to the invention of photography on painters. 

“This did not kill the painters, but it killed the average painters. AI will never kill the great creative directors. But it could kill the average creative director.”

Another UK agency said that AI-generated advertising was already impressive but added: “It’s all fishing from the same pond of past advertising. And it always looks a little bit dead behind the eyes. There’s no humanity to it. There’s no feelings.”

ATP Tour chair Andrea Gaudenzi held ‘positive’ talks with PIF to back sports projects and ventures

The top men’s tennis tour is holding talks with Saudi Arabia’s sovereign wealth fund about possible co-investments, as the kingdom’s oil-funded capital continues to reshape the business of sport.

ATP Tour chair Andrea Gaudenzi said he had held “positive” discussions with the Public Investment Fund and other potential investors to back various sports projects and ventures, including infrastructure, technology investment and events in new markets.

Speaking just weeks after the US PGA Tour ended its resistance and reached a deal to work with the PIF which took the golf world by surprise, Gaudenzi however warned that outside investors must “stick to respecting the history of the sport and the product, working with the current stakeholder rather than against”.

“You have to preserve something which is almost sacred, the rules of the game,” Gaudenzi told the Financial Times in an interview to mark his re-election as chair of the ATP Tour for another three years. “This is not a video game, this is not a movie.”

The Italian’s comments show the delicate balance sports groups must strike as they seek outside investors to help them grow and develop their media and entertainment revenues.

The PGA Tour and PIF tie-up ended a costly battle, where the sovereign wealth fund had set up a rival breakaway tour, LIV Golf.

The ATP chair said the tie-up showed that PIF and the PGA Tour had agreed that they would be better off together. “If you’re a golf fan you want to see the top players playing against each other,” Gaudenzi said. “You want one ranking and you want one simple story.”

Private equity groups and sovereign wealth funds have been pouring money into sport as investors increasingly recognise the sector as an asset class in its own right.

CVC Capital Partners last year partnered with the Women’s Tennis Association, investing $150mn for a 20 per cent stake in a new commercial venture between the two groups.

However, the ATP Tour’s own talks with CVC have not been converted into a deal. The ATP “don’t need cash and need to be careful with dilution”, Gaudenzi said. However, he said there were opportunities to collaborate with outside investors, in a range of areas, such as media production, data collection and technology.

“There’s many ways to become an investor of the ecosystem. It’s not only about creating a new tour or buying a tournament,” he said.

US-headquartered ATP Tour Inc’s revenues have recovered since falling to a low of $93mn in 2020, a season disrupted by the coronavirus pandemic. The governing body’s gross revenues totalled $250mn in 2022, up from $176mn the previous year. In 2019, its gross revenues totalled $159mn.

The Tour increased player prize money and bonus pools to $218mn in 2023, up from $180mn last year, its largest-ever annual increase.

Gaudenzi said outside investment firms can help sports to speed up innovation and with investing in new technologies, but warned against a “complete break it apart, disrupt it” approach.

Professional tennis bears similarities to golf because players are typically self-employed members of the tours.

The four majors, known as Grand Slams, are run separately from the ATP, WTA and the International Tennis Federation, which acts as the world governing body of tennis and runs flagship events including the Davis Cup and Billie Jean King Cup.

Gaudenzi is an advocate of reducing fragmentation in tennis, a sport with complex and disparate governance and business models.

He has also sought to emulate Drive to Survive, the Netflix series that helped to catapult Formula One car racing into the mainstream. ATP, WTA and the four Grand Slams paired up with the streaming company to create Break Point, which reached Netflix’s top 10 in 28 countries.

“You need one story,” he said, adding: “Ultimately, you want to see the top players playing in the best events in the world. The more you fragment and divide, the more you create confusion.”

PIF did not immediately respond to a request for comment.

NRG Energy NRG –0.66% announced a raft of changes at its investor day Thursday, but activist investor Elliott Management probably won’t be placated.

The Houston-based utility increased its buyback program to $2.7 billion from $1 billion, planning to return 80% of excess cash to investors. NRG (ticker: NRG) also identified $150 million in cost reductions, and said it was working with a search firm to bolster the board of directors.

Those moves sent NRG stock up 3% in Thursday’s trading. BofA Securities analysts said the company’s updates to shareholders were “exceeding the goal post,” and reiterated a Buy rating on shares.

Similarly, John Buethe, a portfolio manager for Maven Investment Partners, called NRG, “one of the most exciting growth areas in cleantech,” in light of its updates and acquisition of Vivint Smart Home in March. It’s strategy, he added, is “potentially transformative.”

But not all on Wall Street are so impressed with NRG’s update—a lack of consensus that likely means Elliott won’t back down. Elliott didn’t comment on NRG.

Notably, NRG’s projected cost cuts of $150 million fall short of Elliott’s target of $500 million. Also, analysts at Wolfe Research say NRG’s presentation lacked details, which “makes it harder to buy into a five-year outlook, especially after hiccups in recent years.”

The Wall Street Journal reported in the past week that the hedge fund is looking to oust NRG CEO Mauricio Gutierrez and other members of management. Barron’s confirmed the report with sources familiar with the situation.

Tesla started tweeting from an official Twitter account devoted to artificial intelligence on Wednesday, one designed to highlight how the EV maker’s AI efforts can help the company in the future. It’s also a reason to sell the stock.

Tesla’s shares have soared this year, but they’re also exceptionally volatile. The stock has ranged from about $102 to $315 over the past year. The $213 gap is more than 100% of the average closing price over that span. The same calculation for Apple (AAPL) yields about 40% of the average price.

With Tesla, it’s often easy, or easier, to see why the stock is moving up or down. It’s not always simple, though, to understand why it moves so much for the given reason. Consider the recent run. Coming into Thursday trading, Tesla shares are up about 42% since May 25. Two things happened that day. First, Nvidia (NVDA) stock soared 24% after reporting its AI-related business was doing much better than anyone expected. Then, Tesla and Ford Motor (F) announced a deal allowing Ford drivers to use Tesla’s charging stations.

A Double Downgrade and a Golden Cross

Both events, like the new @Tesla_AI Twitter account, crystallized the idea that Tesla is more than just a car company, something key for Tesla valuation. Tesla, after all, is worth about three Toyota Motors (TM), despite selling a fraction of the vehicles. In addition to EVs, Elon Musk’s car company owns its own dealership, has a chain of charging stations, offers AI-developed software to help cars drive themselves, and sells solar roofs, utility-scale battery storage products, and even car insurance.

Given Nvidia’s 40% rise since its blowout quarterly report, excitement over AI is likely responsible for much of Tesla’s gains. That makes sense, but there are limits. Tesla shares now trade for about 77 times 2023 estimated earnings, up from 25 times when Barron’s wrote positively about the stock early this year. Simply put, the AI frenzy has made the shares a little pricey for our tastes.

Wall Street is starting to see things our way. Tesla’s recent run has driven two downgrades from analysts over the past two days. Both Morgan Stanley and Barclays took their ratings to Equal Weight from Overweight. Both brokers cited the AI-related hype that had inflated the stock’s valuation.

There are still car-related factors to worry about too, specifically Tesla’s second-quarter sales, which are due to be reported in early July. Wall Street expects roughly 445,000 units shipped during the three months ended on June 30, a record and up from about 423,000 vehicles sold in the first quarter. If Tesla can top those forecasts, the stock could rise further. Miss, and watch out.

That makes this is as good a time as any to sell a little bit of Tesla. Barron’s recommended buying the stock on Jan. 6, just after it closed at $113.06. Wednesday, shares closed at $259.46, up almost 130% from the pick level. We aren’t giving up on shares. Just using volatility, hopefully, to our advantage. Nor are we worried about foregoing a little profit. When a stock doubles, after all, an investor can sell half their stake and be left with the value of the original position, with some profits banked if things go sideways.

With a stock like Tesla, we consider that a win-win.

A worker on a production line in Bad Laer, Germany. The country has low unemployment and recession.

Ben Kilb/Bloomberg

Germany is a long way from the U.S., with a different geopolitics and economy. But Germany’s recent economic plight might offer some clues to what may lie ahead for the U.S.

Germany, Europe’s economic powerhouse, went into recession after its gross domestic product fell over the past two quarters. Much of the blame for the recession has been laid on weakness in Germany’s key manufacturing sector, which has been crippled by energy costs from the Ukraine war and the withdrawal of government spending after the Covid pandemic. Germany’s downturn has dragged down the entire 20-nation euro area, pulling it into recession as well.

It’s an atypical recession. The reason: German unemployment has remained near historically low levels. In April, Germany’s jobless rate was running just below 3%, even lower than the U.S. level of 3.4%.

The anomaly of a recession with low unemployment has implications for everyone from investors to workers to central bankers. On the one hand, it may mean that interest rates have to go higher than previously thought to bring down inflation. On the other hand, the downturn caused by higher rates could turn out to be less painful than past experience would imply—that is, the rebound can start off on a strong foot.

European Central Bank President Christine Lagarde described the labor market as an “enigma” on June 15, as she raised interest rates again and promised more hikes to come. She noted that labor and wage growth are “major drivers” of inflation, implying that rates may have to stay higher for longer to control cost pressures.

Like Germany, the U.S. labor market has remained strong despite the Federal Reserve’s interest-rate increases. The U.S. economy cooled in June, according to the S&P Global purchasing managers index released on Friday, with both services and manufacturing falling. Still, services continue to expand while manufacturing is shrinking, the report showed.

Even if the U.S. follows Germany into recession, unemployment might remain relatively low, making the downturn shallower than it might otherwise have been—but also requiring higher rates to corral inflation.

A stubbornly low jobless rate is a problem for central bankers on both sides of the Atlantic. They aren’t eager to admit it, but one of the main ways higher interest rates quell inflation is by prodding companies to cut costs. As companies downsize and let staff go, it’s harder for workers to bid up pay. Muted wage growth, in turn, makes it harder for companies to raise prices, slowing inflation.

On the flip side, if unemployment doesn’t rise, workers have more leverage to seek higher pay, particularly if inflation has been strong. That reinforces inflationary tendencies.

Unemployment is also a lagging indicator. Joblessness usually rises after economic growth cools, and increases the longer recessions go on.

What’s behind this low unemployment? “The labor market is still in good shape. It’s not a typical recession,” says Stefan Schneider, Deutsche Bank ’s chief Germany economist in Frankfurt. It’s possible that companies are “worried that if they let people go, they won’t be able to hire them again later.”

Schneider believes the lack of layoffs has a lot to do with skills shortages and demographics of an aging workforce. Companies are reluctant to cut staff, especially when vacancy rates remain high. With baby boomers hitting retirement age, workers that companies let go may choose to retire rather than remain in the workforce.

It’s another indication of how aging populations are becoming an inflationary force, adding to powerful pressures pushing up consumer prices that have surprised policy makers over the past few years. Forecasts from both the Fed and the European Central Bank have underestimated inflation, even before the surge in energy costs following Russia’s invasion of Ukraine in February 2022.

Deepening the problem is that Germany is still seeing its services sector bounce back after Covid shut things down. That’s a problem, since services create jobs in parts of the economy that haven’t been hit as badly as manufacturing in the economic downturn.

Indeed, inflation in services is one of the main reasons the ECB will probably continue raising interest rates even though economic growth has ground to a halt. Core inflation, which excludes volatile components such as food and energy, has also remained surprisingly strong.

Again, the similarity with the U.S. situation is stark. The Fed, which began its tightening campaign last year, has raised rates further and faster than the ECB. The Fed is undoubtedly hoping it can thread the needle by cutting the number of jobs available—listed as vacancies in unemployment statistics—to keep a lid on wages without actually driving up the jobless rate enough to trigger a recession.

So far, the U.S. labor market remains resilient. The latest U.S. Job Openings and Labor Turnover Survey showed 1.8 job openings for every unemployed person. Traditionally, economists reckon that ratio needs to be lower, say 1 to 1.2, to be consistent with a labor market that isn’t adding to inflation pressures.

“It’s very possible for the Fed to slow the economy and bring down the vacancy rate materially without necessarily inducing a hard landing,” says Nomura economist Andrzej Szczepaniak. “The unemployment rate could stay much more subdued and not rise as you would expect under normal tightening cycles.”

Meanwhile, Germany’s outlook still doesn’t look great. Deutsche Bank predicts modest expansion in the second, third, and fourth quarters. But if the contraction is as bad as it gets, Germany, and by extension the euro area, can count itself lucky. “We’re looking at quite a bleak, muted outlook for growth,” says Szczepaniak. “But the worst is behind us in some sense.”

The company previously stored assets and provided banklike services to crypto firms Binance.US, FTX and Celsius

Another crypto quasi-bank appears to be on the brink.

Prime Trust, a state-chartered trust company that serves as a custodian for crypto firms, is feared by digital-asset investors to be on the verge of failing after being rebuked by its state regulator and abandoned by a potential acquirer.

Las Vegas-based Prime Trust has a shortfall of customer funds and was unable to honor customer withdrawals this week, according to the Nevada Department of Business and Industry.

The Department’s Financial Institutions Division on Wednesday ordered Prime Trust to cease and desist all activities that violate Nevada regulations, alleging that the company is in an unsafe condition to transact business and might be insolvent. Prime Trust declined to comment on the order.

Prime Trust previously ran a number of businesses, but one of its main functions was to hold dollars on behalf of crypto firms, parking the funds in its own bank accounts. Custodians such as Prime Trust are meant to be among the safer parts of the financial system, not engaging in risky activities. It is unclear what caused the reported shortfall of customer funds.

Prime Trust confirmed that it stopped all cash and crypto deposits and withdrawals, leaving crypto companies that keep customer assets with the custodian with an uncertain future.

The company once played a major role in the infrastructure of crypto markets by holding funds on behalf of companies like FTX, Binance.US and Celsius Network. While Prime Trust has retreated in importance over the past year, its abrupt shutdown sent ripples through the firms that rely on its services.

Securitize, a blockchain firm that keeps investors’ cash deposits for its trading platform at Prime Trust, said several of its functions have been paused. The firm said in a tweet that it was accelerating its transition to a new custodian and would ensure customers are made whole. Estonia-based crypto exchange Coinmetro, another customer of Prime Trust, said in a tweet that it was unable to process new U.S.-dollar transactions.

For weeks, the financial condition of Prime Trust has been the subject of speculation in crypto circles. The company has sought to raise tens of millions of dollars in emergency funding, sparking acute anxiety among crypto companies that store digital assets with the company. Some clients abandoned Prime Trust, such as bitcoin-investing platform Swan Bitcoin.

Earlier this month, rival custodian BitGo said it reached a preliminary agreement to buy Prime Trust, appeasing concerns of an immediate collapse. However, days after news of the deal, signs of trouble emerged. Last week, the Texas State Securities Board accused crypto lender Abra of securities fraud, alleging it has been insolvent or nearly insolvent for months. Prime Trust serves as the custodian for Abra’s trading and yield-generating accounts.

On Thursday, BitGo walked away from its deal to acquire Prime Trust. BitGo Chief Executive Mike Belshe said BitGo chose not to go ahead with the nonbinding offer after deciding that Prime Trust couldn’t manage its financial difficulties.

“They are burning a lot of money,” Belshe said in an interview.

For a crypto-focused company, Prime Trust has largely flown under the radar.

But its role as an intermediary, helping digital-asset companies park cash at network banks, made it a key partner for digital-asset firms that have struggled to access the banking system directly.

After the collapse of Signature Bank earlier this year, crypto exchange Binance.US used Prime Trust to store customers’ cash with the custodian’s network of banking partners, The Wall Street Journal previously reported. The SEC sued Binance.US and Binance earlier this month.

Founded in 2016, Prime Trust didn’t start out as a crypto company. It initially focused on acting as an escrow agent that held funds for crowdfunding efforts by early-stage businesses. The company began its pivot to crypto in 2018, agreeing to hold cash for TrustToken, the issuer of the TrueUSD stablecoin, now known as Archblock.

After Prime Trust halted deposits and withdrawals, TrueUSD told customers with accounts linked to Prime Trust in an email that they won’t be able to create or redeem the stablecoin while Prime Trust’s operations are suspended. TrueUSD has grown rapidly since Binance started to heavily promote the stablecoin on its platform.

Prime Trust’s founder and first CEO was Scott Purcell, a serial entrepreneur whose previous ventures included Kasidie, an online community for swingers. Purcell left in early 2021.

In an interview, Purcell told the Journal that Prime Trust had been mismanaged after his departure and had little to show for the more than $170 million it had raised from investors. “How do you burn through that?” said Purcell. “I don’t know. It’s astounding to me.”

Prime Trust’s crypto business boomed as bitcoin rallied in 2021. The company gained hundreds of new accounts that year, and its assets under custody nearly quadrupled, it said in a year-end press release in December 2021, though it didn’t detail the size of the firm’s assets.

Prime Trust raised $107 million last June in a Series B funding round that included FIS, Fin Capital, Mercato Partners and Kraken Ventures.

Among the clients that Prime Trust attracted were crypto lender Celsius Network and FTX, both of which filed for bankruptcy in 2022 as the crypto rally faded. FTX’s U.S. arm held cash at times at Prime Trust, and FTX founder Sam Bankman-Fried used Prime Trust to route donations to a political-action committee he bankrolled, according to Federal Election Commission filings.

Airbus CEO sees demand continuing to outstrip supply as European plane maker accelerates output and pulls further ahead of Boeing

LE BOURGET, France—Economies are wobbling around the world, but that isn’t deterring travelers clamoring for airplane tickets.

The voracious postpandemic demand for flying doesn’t show signs of cooling soon, according to aviation executives who gathered at this week’s Paris Air Show. They point to recent large aircraft orders such as Indian budget carrier IndiGo’s record 500-jet deal earlier this week.

“There is economic slowdown, but airlines do not see a slowdown of bookings,” said Guillaume Faury, chief executive of Airbus EADSY -1.63%decrease; red down pointing triangle, the world’s biggest commercial jet maker. “And they continue to see a very strong demand with high prices.”

That demand has collided with the industry’s limited ability to quickly increase production of planes. Airbus and rival Boeing BA -0.10%decrease; red down pointing triangle have faced constraints on the supply of things like engines, chips and workers. Both have long order backlogs.

Airlines have recognized these constraints and are scrambling to reserve planes, even though they won’t be delivered for years to come.

“We cannot make planes fast enough to satisfy the demand,” Faury said, in an interview at the company’s temporary air-show office near the runway of a small airfield here northeast of Paris. An airplane order these days is “a reservation of slots in the backlog, indeed for a resource that is scarce,” he said.

IndiGo’s jets, for instance, aren’t scheduled for delivery until 2030 at the earliest.

Boeing CEO David Calhoun, at a press conference before the air show, said he doesn’t see his company’s supply chain stabilizing until the end of next year.

“Why are people ordering airplanes out into the ’30s now? Because they see the same thing,” Calhoun said.

The aviation industry is notorious for its booms and busts, but the cycle these past few years has been extraordinary. Flying all but stopped during parts of the pandemic.

When travel restrictions started falling away last year, airlines were taken by surprise by the pent-up demand. Airports were overwhelmed last summer. Airlines struggled to hire back staff and bring planes back into service.

In recent months, many carriers have pivoted from recovery mode to growth mode. IndiGo placed its record order for 500 Airbus narrow-body A320-family jets to build out its domestic network and expand its international flying. Air India briefly held the record order title with a February deal for 470 planes split between Airbus and Boeing.

Earlier this year, two Saudi Arabian airlines said they would buy almost 80 Boeing 787 Dreamliners, the company’s biggest plane, as part of a broader plan to boost travel to the oil-rich kingdom.

Late last year, United Airlines ordered 100 Boeing wide-bodies. Last month, Europe’s biggest carrier, no-frills Ryanair, ordered up to 300 Boeing 737 MAXs.

“We’ve had some really, really big orders,” Boeing commercial chief Stan Deal said at a press conference in Paris before the show. “You’re seeing the wide-body market pick up and very strong demand there.”

So far this year, airlines and airplane lessors have ordered 1,429 Airbus and Boeing jets, including firm deals announced this week. That is already more than the combined full-year order haul of 1,377 in 2019. Confirmed orders at this year’s air show were the highest they have been since 2011, according to aerospace research firm Agency Partners.

The 737 MAX competes with the A320 in the hottest segment of the commercial aviation market. These narrow-bodies typically fly shorter flights with fewer people. That market has rebounded ahead of longer-haul travel.

Just before the pandemic hit, Boeing suffered two fatal MAX crashes, triggering a long grounding and regulatory review that hobbled it in the competition with its European rival.

Airbus, meanwhile, pushed aggressively during the pandemic to deliver its planes to customers—many of whom didn’t want them anymore. The European plane maker also worked closely with suppliers to keep assembly lines running, betting demand would bounce back quickly.

That bet paid off, allowing Airbus to tilt what is one of the world’s best-known business duopolies heavily in its favor. It surpassed Boeing as the biggest airplane manufacturer by both annual deliveries and total backlog in 2019.

For years, Boeing and Airbus had a roughly 50-50 split of global orders for single-aisle planes, both plane makers’ most profitable jets. Today, Airbus has about 62% of that market, according to a Wall Street Journal analysis of both companies’ orders and backlogs, including announcements made at the show this week.

Faury, in the interview, said Airbus’s dominance in the narrow-body market is “likely to last for long.”

He said he expects the single-aisle market to be dominated by Airbus and Boeing for the foreseeable future, but said he was taking China’s new homemade jetliner, the C919, seriously.

“By the end of the decade it’s not unlikely that they will have a significant share in China,” Faury said. “How they will perform compared to the international market I think it’s very difficult to say now. But we are humble, we don’t want to [have] too much complacency on what the Chinese can do.”

Boeing’s Calhoun, who didn’t attend this year’s air show, has said it isn’t as important for Boeing to regain its 50% share of the narrow-body market as it is for it to recover from its production issues.

“Most of the share losses that have occurred over the last four years, which are the ones that are really measurable, are because we couldn’t deliver airplanes,” he said at a preshow press conference in South Carolina, where Boeing produces its wide-body 787 Dreamliner. “And we still have a hangover from not being able to deliver airplanes.”

Even before IndiGo’s order, Airbus had been mostly sold out of its A320 narrow-body until the beginning of the next decade. Airbus is targeting a production rate of 75 A320-family models a month by 2026, after cutting production to around 40 a month during the pandemic. It has pushed its output goals back several times as it battles to overcome supply-chain issues.

Boeing, meanwhile, has set its sights on reaching a monthly production rate of 38 for its rival 737 MAX jets, up from 31. It should hit that target “pretty soon,” said Deal, Boeing’s commercial chief. The company plans to increase rates further but hasn’t yet set a specific target beyond that.

Boeing is still ahead in the market for bigger jets.

“The wide-body business is a different situation. It’s a fierce competition,” Faury said. “The backlogs are much shorter, there is capacity available much earlier, and for those years there is a tough competition and both sides trying to win the campaigns and dominate.”