IFJ Fall 2015 by The IFJ

FALL 2015 www.theifj.com

“In our romanticization of Johnny Appleseed, we forget that he was a savvy opportunist with a unique business plan.”

“If ad blockers continue rising at such a rapid rate, there’s the possibility of a dystopian internet where increasingly powerful ad blockers battle against increasingly powerful anti-ad blockers.”

“While collecting art was once intimately associated with culture, elitism, and personal pleasure, many of the newer buyers in the art market are concerned chiefly with profit.”

GOLD AND DELICIOUS

THE COST OF CONTENT

STATE OF THE ARTS

THE IFJ TEAM MATTHEW OSTROW PRESIDENT SARAH PARK EDITOR-IN-CHIEF CHRISTIAN ACKMANN MANAGING EDITOR MATTHEW JANIGIAN MANAGING EDITOR AMANDA BEAUDOIN GENERAL MANAGER CLAIRE SU GENERAL MANAGER DAVID COHEN HEAD OF WEB

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YUTA INUMARU BLOG GENERAL MANAGER GRAHAM ROTENBERG HEAD OF BLOG LORI EBENSTEIN HEAD OF SOCIAL MEDIA MADELEINE JOHNSON HEAD OF DESIGN & LAYOUT SAMANEE MAHBUB HEAD OF DESIGN & LAYOUT KERRY YAN HEAD OF INTERCOLLEGIATE EXPANSION JACK KARAFOTAS HEAD OF MARKETING JENNY YE HEAD OF EXTERNAL AFFAIRS ROBERT JU HEAD OF EXTERNAL AFFAIRS DESIGN & LAYOUT MADELEINE JOHNSON HEAD OF DESIGN & LAYOUT SAMANEE MAHBUB HEAD OF DESIGN & LAYOUT ANNABEL RYU, BROGHAN ZWACK, CADENCE LEE, KANA HAMAMOTO, LINDA NAVON CHETRIT, TRANG DUONG BLOG GRAHAM ROTENBERG HEAD OF BLOG YUTA INUMARU BLOG GENERAL MANAGER JEFFREY CHEN HEAD OF WEB DEVELOPMENT ERIC HAN EDITOR EDWARD LI EDITOR MICHAEL FIRN EDITOR JOSH HESS EDITOR-IN-CHIEF (UNC-CH) VISHESH VARMA EDITOR (UNC-CH) JEFFREY CHEN EDITOR (UNC-CH) EMAL WAFAJOW EDITOR (UNC-CH) ALEX LAM, DEAN MURPHY, KEVIN HAN UNC-CH BLOGGERS LOCKIE NIDDS EDITOR (COLUMBIA) DUSTIN CAI EDITOR (VANDERBILT) NIKHIL GUPTA EDITOR (UCLA) JEREMY SIA COPY EDITOR MARIA JOSE HERRERA COPY EDITOR RICHARD HAN COPY EDITOR LINDE CHEN HEAD OF BLOG MARKETING CARTER JOHNSON, CYRUS MADEN, EDWARD TIE, JONAH GOLDBERG, KERRY YAN, SCOTT THEER, SOPHIE LEE, STEPHEN KEARNS, STEPHEN KIM, STEPHEN STAHR, ZACK ZAPOLSKY UNC-CH MULTIMEDIA BILL WANG EXECUTIVE PRODUCER/WRITER PERRY CARTER SOUND EDITOR/WRITER SHOURI GOTTIPARTHI CONTENT RESEARCHER BYRON FRAZELLE WRITER DAMIEN GU PHOTOGRAPHER SOCIAL MEDIA

LORI EBENSTEIN HEAD OF SOCIAL MEDIA

ARTON DOKIC, JULIA WATSON MARKETING & EXTERNAL AFFAIRS JACK KARAFOTAS HEAD OF MARKETING JENNY YE HEAD OF EXTERNAL AFFAIRS ROBERT JU HEAD OF EXTERNAL AFFAIRS ALEX HERNANDEZ, CASEY WU, ELIZABETH PAN, JOE DIEHL, MINGYI WU, PENELOPE SHAO, SIYU CHEN OPERATIONS TIFFANY CHEN HEAD OF OPERATIONS CATHY BAI, MICHAEL BALL, MINGYI WU, TRANG DUONG

BRIAN LEE HEAD OF ADVERTISING JOSH TARTELL HEAD OF ADVERTISING EDITORIAL BOARD SARAH PARK EDITOR-IN-CHIEF CHRISTIAN ACKMANN MANAGING EDITOR MATTHEW JANIGIAN MANAGING EDITOR MICHAEL GOLZ MARKETS EDITOR CARTER JOHNSON POLITICAL ECONOMY EDITOR RACHEL BINDER PERSONAL FINANCE EDITOR LIZ STUDLICK STARTUPS & TECHNOLOGY EDITOR CHRISTIAN ACKMANN INTERIM CAREERS EDITOR LILY ZHAO HEAD OF STYLE SENIOR STAFF WRITERS ADRIJA DARSHA, AMBER TENG, ARTHUR TRAN, BRIAN TUNG, CARIN PAPENDORP, DANIELA PATERNINA, EILEEN MAYSEK, GIANNA JASINSKI, GILLIAN LEE, HARIS MEMON, KATHARINE JESSIMAN-KETCHAM, KATHRYN SCOTT, MICHAEL JANIGIAN, NIKHIL KUMAR, ROBERT JU, STEPHEN KEARNS, TIFFANY CHEN, VARUN NARAYAN, YASHIL SUKURDEEP COPY EDITORS & FACT CHECKERS LILY ZHAO HEAD OF STYLE ARIELLE SCHACTER, CATHY BAI, CHRISTOPHER CHEN, JOSHUA GELBERGER, SAFIYA WALKER WEB DAVID COHEN HEAD OF WEB BIANCA BARCELO HEAD OF WEB PUBLISHING NATALIA SABATER-ANAYA HEAD OF WEB PUBLISHING JERON IMPRESO WEB PUBLISHER INTERCOLLEGIATE EXPANSION KERRY YAN HEAD OF INTERCOLLEGIATE EXPANSION JOSH GELBERGER COMMUNICATIONS MANAGER NITISHA BARONIA UC BERKELEY CAMPUS MANAGER ANKIT BILGI UNC CHAPEL HILL CAMPUS MANAGER BILL WANG UNC CHAPEL HILL CAMPUS MANAGER FRANK CHIANG UNIVERSITY OF CHICAGO CAMPUS MANAGER JOSH GOLDMAN COLUMBIA UNIVERSITY CAMPUS MANAGER SHUN HAGIWARA UCLA CAMPUS MANAGER MIRZA UDDIN HARVARD CAMPUS MANAGER MICAELA QUE UNIVERSITY OF THE PHILIPPINES DILIMAN CAMPUS MANAGER ROWLAND MAYOR UNIVERSITY OF RICHMOND CAMPUS MANAGER DUSTIN CAI VANDERBILT CAMPUS MANAGER ALAN YU, ARI SHUSTERMAN, EILEEN MAYSEK ADVERTISING BRIAN LEE HEAD OF ADVERTISING JOSH TARTELL HEAD OF ADVERTISING

Intercollegiate Finance Journal

TABLE OF CONTENTS

Markets 4 Gold and Delicious Johnny Appleseed and the Gift of American Cider Matthew Janigian

6 China’s Wild Ride How the Summer’s Rout May Be a Blessing in Disguise Carter Johnson

7 Chair Yellen, Are We There Yet? Cryptic Fed Policy after the Fallout of the Financial Crisis, Eileen Maysek

9 Fantasy Football’s Fortune How Quarterbacks Can Get You More than Just Your Quarter Back Michael Janigian

10 One Minute You’re in, the next You’re Out The Pressures of Going Public in the Fashion Space Daniela Paternina

11 Marco, Polo How the Reinvigorating of a Classic Designer Rests on the Search for New Management Gianna Jasinki

12 Prescription for Profits The “Confusopoly” of Pharmaceutical Pricing Arthur Tran

Political Economy 14 Tehran’s Talisman As the Terms of the Iranian Nuclear Deal Play out, we must Consider the Possibilities Ahead Varun Narayan

15 Easing Pressure on Mass Retail Benefitting from the Devaluation of the Yuan Gillian Lee

16 Treacherous Treaty How a Tax Treaty is Threatening to Derail an Island’s Economy Yashil Sukurdeep

18 Home is Where the Money Is The EU Refugee Crisis Sarah Park

19 Pope-nomics Francis’s Take on the Economy Gianna Jasinki

Personal Finance 22 Let them Eat Vegetables A Salad Chain’s Quest to Revolutionize the Nation Waylon Jin

25 Do This, Not That The Art of Making Better Financial Decisions Tiffany Chen

26 Thank God It’s Thursday Moving Towards a Four-Day Work Week (Finally)

The IFJ Online www.theifj.com The Blog A New Approach to Student Debt Zack Zapolsky Tesla: Too Opaque to Handle? Carter Johnson Private Equity Double Downs on Oil and Gas Scott Theer Pinning it Down: Social Technology Companies are Changing the IPO Market Cyrus Maden Follow Us Facebook: facebook.com/theifj1 Twitter: @the_ifj

Carin Papendorp

28 Hey, Now You’re an All Star Playing the Game of Peer-to-Peer Lending Stephen Kearns

Startups & Technology 30 The Rise of Online Education Is the Internet Replacing College? Angela Teng

32 Getting to the Game How Brown Students Tilted Their Way to Cambridge Katharine Jessiman-Ketcham

33 The Cost of Content How Ad Blockers are Ruining the Internet Liz Studlick

34 The Age of Social Media Marketing From Television Sets to Smartphones Haris Memon

Careers 36 State of the Arts The Art Market’s Hidden Players Kathryn Scott

38 Social Work How the Future Workplace Rewards Soft Skills Christian Ackmann

40 CEO2 The Transformation of Jack Dorsey Fran Whitehead

42 Recruiting from Abroad How to Find an Internship from Thousands of Miles Away Christian Ackmann

G pg OL 4 DA

Photo by Cadence Lee

MARKETS

Gold and Delicious 4

CHINA’S WILD RIDE How the Summer’s Rout May Be a Blessing in Disguise, Carter Johnson 6

CHAIR YELLEN, ARE WE THERE YET? Cryptic Fed Policy after the Fallout of the Financial Crisis, Eileen Maysek 7

FANTASY FOOTBALL’S FORTUNE How Quarterbacks Can Get You More than Just Your Quarter Back, Michael Janigian 9

ONE MINUTE YOU’RE IN, THE NEXT YOU’RE OUT The Pressures of Going Public in the Fashion Space, Daniela Paternina 10

MARCO, POLO How the Reinvigorating of a Classic Designer Rests on the Search for New Management, Gianna Jasinki 11

PRESCRIPTION FOR PROFITS The “Confusopoly” of Pharmaceutical Pricing, Arthur Tran 12

JOHNNY APPLESEED AND THE GIFT OF AMERICAN CIDER by Matthew Janigian

round this time of year, I recall vivid memories from autumn as a kindergarten student in Rhode Island. Apple picking was requisite, as was the storytelling that followed: the legend of Johnny Appleseed. As we enjoyed the fruits of our labor—in the form of a warm, freshly baked apple crisp—we were told of this strange barefooted man who wore a pan as a hat and planted apple trees all over. As I grew older, I started to think Johnny Appleseed was just a childhood myth. But, in my nostalgia as a 21 year old college student, I once again became interested in the legend—especially when I found out he was real, and his goal was to plant apple orchards for one noble purpose: the production of hard cider. PLANTING THE SEED John Chapman was born in Massachusetts in 1774. As an adult, he headed west toward the American frontier. Chapman got his nickname “Johnny Appleseed” from his proclivity for planting apple trees. But he didn’t plant indiscriminately. He had a fairly well organized plan for his business. Johnny Appleseed’s goal was ambitious: to bring the warming gift of alcohol to the frontier—an “American Dionysus,” as Michael Pollan, author of The Botany of Desire observes in his account of the apple. Such ambitious historical figures, however, can become the legend of folklore, and thus their stories become distorted. For Johnny Appleseed, this meant the misconception of a jolly fellow planting apple trees wherever he went. But this wouldn’t do his ambitions justice. BITTERSWEET TRUTH Apples are heterozygous: the seeds from an apple won’t produce trees that bear the same fruit as that apple. Thus, the only way to preserve a certain type of apple is through grafting, where one

INTERCOLLEGIATE FINANCE JOURNAL • FALL 2015

55 BC: The Romans found native Britons drinking hard cider upon invading the English Isles 2000 years ago. Julius Caesar is said to have enjoyed the drink.

Apple trees originated in Kazakhstan and spread to Europe and Asia before being imported to North America. During the American Revolution, one in ten farms featured a cider mill.

It takes 20 pounds of apples to make one gallon of hard cider.

100+ Types of apples grown specifically for cider

takes a part of the tree and implants it into a younger tree. The two will eventually fuse and produce the apple from the implanted branch. Johnny Appleseed was strictly against grafting. The apples his trees produced were so bitter as to be inedible. When using them for cider, though, these apples produced a sweet-tart elixir that was perfect for drinking. Indeed, on the frontier, cider was preferable to wine, beer, coffee, tea, and even water. While the apples may have been inedible, they had the potential to become a staple of every household. BUSINESS PLANT Chapman was as savvy as he was eccentric. In 1792, the Ohio Company of Associates made a deal with potential settlers: if anyone wanted to build a permanent homestead beyond Ohio’s first permanent settlement, they would be granted 100 acres of land. Part of the requirement was to plant 50 apple trees. Enter the businessman John Chapman. He figured that if he could stay ahead of the settlers and cultivate apple orchards, he could sell them for a profit to incoming settlers. Chapman went around with his big bag of seeds—that part of the kindergarten caricature is true—and planted trees, sold the orchards, and then moved on to new land. In our romanticization of Johnny Appleseed, we forget that he

was a savvy opportunist with a unique business plan. PROHIBITION’S MALICE Johnny Appleseed ended up planting thousands of acres of bitter apples. Considering the unsafe quality of water on the frontier, cider became the beverage of choice. Hard cider was ingrained in the lives of frontiersman. Prohibition, however, would erase much of Johnny Appleseed’s work. FBI agents chopped down trees that produced bitter apples since they were used for hard cider. The cider industry very nearly vanished, and with it, the apple industry. Luckily, a branding effort at least prolonged the life of sweet apples, like the Red Delicious. The refrain “an apple a day keeps the doctor away” started during Prohibition to keep apples relevant, even as the main use for the fruit was cut out of American society. NEW EFFERVESCENCE But all hope for the fizzy, sweet-tart beverage is not lost. Although it has taken nearly a century for the cider industry to get back on track, it is now one of the fastest growing alcoholic beverages in the country. While prohibition may have taken a bite out of Johnny Appleseed’s legacy, the seedlings for a new cider boom are being nursed into fruition.

71% Growth rates of US alcohol sales in 2014

Cider

2.4%

3.3%

Spirits

Wine

China’s Wild Ride

HOW THE SUMMER’S ROUT MAY BE A BLESSING IN DISGUISE by Carter Johnson

nother long, hot summer has passed, and with it the volatility in the Chinese equity markets. Apart from a serious sell off in the middle of September, the Shanghai Composite has traded relatively peacefully this fall, in contrast to the wild months of June, July, and August. The Shanghai Composite is down 40 percent from its peak on June 12th, 5 percent since the start of the year, but up around 30 percent since a year ago. Now, as the smoke clears and China celebrates its Mid-Autumn Festival, it is an appropriate time to look back on all that went wrong, and right, in Chinese securities this summer. THE ROUT China’s equity market rout began with a precipitous rally in the year prior, fueled by ample liquidity and credit. The outstanding balance of margin debt, essentially the amount of money traded on margin in the stock market, peaked at nearly 2 trillion RMB in late

MARKETS

June. Investors were scrambling into the markets, even at exorbitant prices; the ChiNext, for example, Shenzhen’s emerging, growth stock board similar to Nasdaq, traded at nearly 150 times P/E in mid-June, although valuations in Shanghai and Hong Kong were more dispersed and less lofty. Later that month, however, volatility and selling surged to begin months of wild price swings. On some days, intraday high-low spreads expanded to nearly 10 percent; volatility was similar to that seen during the 2008 Financial Crisis in the United States. In the three weeks following the June 12th peak, the entire Chinese stock market lost a third of its value. And on consecutive days, August 24th and 25th, A-shares lost eight percent and seven percent of their value, respectively, in what have since been acrimoniously dubbed “Black Monday” and “Black Tuesday.” A NECESSARY EVIL However, China’s stock market “crash” hasn’t and won’t derail the nation’s (albeit slowing) economy, but rather constitutes a necessary evil as the Chinese capital markets become more sophisticated and less volatile. The Chinese stock market is vastly larger and more developed than it was 10 or even five years ago. But China’s stock market capitalization as a percent of GDP pales in comparison to those of more developed countries. Simply put, the stock market still plays a smaller role in the processes of the greater economy than those of comparably wealthy nations. Only 4 percent of China’s urban population participated in the stock market. In comparison, a recent Gallup poll put

the share of Americans investing in the stock market at 55 percent. And what’s more, these participants showed no signs of a positive wealth effect during the rally leading up to the summer’s rout - consumer spending wasn’t boosted by gains in the equity market – resulting in little negative wealth effect on the way down. Speculative profits were lost, not savings. Last, the sudden decline in A-shares effectively “cleaned up” the market, wiping out margin debt and tamping down on rampant speculation. After all, the rallies in Shanghai and Shenzhen this past year were not driven by positive fundamentals in listed companies, but rather by vast liquidity and cycles of increasingly high valuations. EASING, CHINESE STYLE The stock market decline cannot be analyzed without delving into the responses of the Chinese state and related institutional players. State institutions were strongly proactive and interventionist. The People’s Bank of China, through the China Securities Finance Corporation, injected hundreds of billions of dollars into the equity market. In the process, the CSFC supported the stock fund quickly organized by 21 major Chinese brokerages in the midst of the rout, and also directly bought shares in the A-share market itself. Hundreds of companies filed to suspend trading of their shares, and in most instances short-selling was banned. The central bank slashed rates numerous times, and in August devalued the RMB, all easing measures designed to meet the perils of a turbulent stock market as well as slowing economic growth. The Chinese state’s intervention was not a positive sign

for the further development of capital markets in China but it was understandable. Capital markets manipulation is not new to this world, even in the United States – QE and interest rates at the zero bound, for example, do inherently have a manipulative effect on the market – but monitoring China’s securities regulatory apparatus to see how it evolves in the future will be necessary. REBALANCING, IN THE MARKETS AND ECONOMY It’s tough to say that the deep and rapid retreat in the Chinese equity markets was good for the college student trading out of his dorm, or the older couple that hoped to add to their retirement savings by investing in what seemed like an eternal rally. But the tempering of wild speculation and day trading will only be positive for a stock market that mostly still lacks serious, institutional investors. For a China that is undergoing fundamental change and rebalancing that can hurt in the short run, the crash is painful – hence the easing measures enacted by the government. However in the long run, the great 2015 market fall should be looked at as merely a blip.

Chair Yellen, Are We There Yet?

CRYPTIC FED POLICY AFTER THE FALLOUT OF THE FINANCIAL CRISIS by Eileen Maysek Cartoon by Linda Navon Chetrit

THE SHANGHAI COMPOSITE INDEX SINCE 2011 SOURCE - BLOOMBERG

years. That’s how long the Fed has held rates at 0-0.25 percent. That’s how long it’s been since a savings account has meant something. After the slew of defaults, major company failures, and an economic downturn in 2008, credit became unavailable to all including the most worthy borrowers. Through treasury purchases and the quantitative easing program, the Federal Reserve’s monetary policy has provided liquidity to the credit markets and restored lending at historically low rates.

5,000.00

4,000.00

3,000.00 2,000.00 0

2011

2012

2013

2014

2015

WHEN WILL WE KNOW IT’S OVER? The last quarter of negative GDP growth occurred in mid 2009. Regardless of how slow over the last

INTERCOLLEGIATE FINANCE JOURNAL • FALL 2015

Cartoon by Linda Navon Chetrit

several years, the consensus is that we have “bounced back.” However, US monetary policy has yet to reflect this belief: Fed policy is still in recession mode, designed to prop up lending and liquidity in what is perceived to be a weak economy. Economists and financial analysts study consumer spending, and unemployment numbers to gauge confidence in the economy. Unemployment numbers were largely disappointing at the most recent Fed meeting, which is widely and appropriately believed to be the cause of the Fed maintaining its position on interest rates. Despite the tangibility of these metrics, market confidence, and stability rest more upon the feelings and opinions of consumers than upon the number of people looking for work or how much people spent on summer travel in 2015. While the Fed holds interest rates low through the residual policies left from quantitative easing, the public has no reason to assert their confidence in the economy. The Fed’s monetary policy reflects that of a struggling, precarious economy; the public has no reason to believe otherwise. Rather than expressing market confidence based on the broader

picture including job numbers, consumer spending, and market performance, the focus rests solely upon a few metrics. The question remains: are we still struggling economically or are we bouncing back? While many financial analysts have arrived at the belief that we are no longer struggling but are once again growing, the Fed has taken no action and appears to be waiting around for the numbers to be perfect. We have waited every quarter for the past year to hear what the Fed has to say. Will they raise rates? Will the last lingering influence of the greatest financial crisis since the Great Depression recede as we pronounce that the recovery is here? Not yet, the Fed announced on September 17th. It will continue targeting rates between 0 and 0.25 percent. AN UNFORGIVING JOB In 2013, former chairman Ben Bernanke discussed in his press conference that with unemployment at 6.5 percent and an inflation target of 2 percent, the fed would begin raising rates. People haven’t forgotten that the rates are going up. The fear one can only suppose is that with higher rates, lending will once again stagnate and business growth will

once again slow. Even if nobody else in America realizes that the economy is only as strong as we believe and make it to be, the Fed should: they analyze all of these numbers. The Fed, considering its position, holds a pivotal role in the confidence of the American economy. Their hesitancy is only causing further uncertainty among the public. The Fed’s messages have become cryptic and unclear. It seems that a decision has been made to not give answers or predictions in fear of being wrong. The Fed’s messages no longer reference 6.5 percent unemployment, but “maximum” employment and 2 percent inflation, taking into account a “wide range of information.” I respect the value placed on this “wide range of information” but it does not seem to include the public sentiment towards the economy. Everybody knows that this is difficult, complex, and weighty stuff to be deciding upon. Furthermore, people all but demand that it is right. The Fed was created as the non-governmental economic top gun. It is designed to do what’s right for the country independent of political and corporate influence. Because it is independent, the Fed’s goal should be to be above tip-toe-

MARKETS

ing around the bureaucracy and the loss of message. If they said, “next quarter,” and the market wasn’t ready, the market would have to adjust. However, at least in this case, there would be certainty. With the current vague language used by the Fed, investors’ expectations may be misaligned with the Fed’s plans. That said, it will be up to Chairwoman Yellen to be as transparent as possible so that the markets can gradually adjust to any changes in monetary policy.

Fantasy Football’s Fortune

HOW QUARTERBACKS CAN GET YOU MORE THAN JUST YOUR QUARTER BACK by Michael Janigian

unday: It’s a day of relaxation and leisure. It’s also a day that financial markets are closed. There is one market, however, that stays active and running on Sundays. And unlike the stock markets, no tangible assets are traded here. Welcome to the world of fantasy football, where just a couple of points can be worth hundreds, thousands, or even millions of (real) dollars.

ANOTHER DAY, ANOTHER DOLLAR Perhaps the single greatest factor responsible for the growth is the recent birth of less-binding, more

YOU PLAY TO WIN THE GAME Just like in any game, when money is involved things start to get serious; Fantasy Football is no different. The average Fantasy player is not only playing to have fun, but also to get a return on their investment. According to the Fantasy Sports Trade Association (FSTA), an official organization that holds records of the market, about 60 percent of players participate in leagues that play for money. That’s 25 million people out of the total participating 42 million who are playing for money. Here’s the crazy part: of those 25 million, the average player will spend $257 on Daily fantasy leagues, $162 on traditional fantasy leagues, and $46 on various materials like subscriptions to fantasy football services - an average expenditure of $465 per player.

“

It is not ludicrous to believe that the fantasy football market’s revenues will surpass the NFL’s revenues within the next couple of years.

”

BIGGER THAN REALITY Combining the number of paying consumers and their average spending, the fantasy football market generates a total of $11 billion dollars in revenue, not including advertising revenues. That’s about equivalent to the revenue that the National Football League makes each year, which grew its revenue 14.3 percent to about twelve billion dollars last year. In comparison, the fantasy football market is still young, and its revenue grew about 88 percent last year. With numbers like those, it is not ludicrous to believe that the fantasy football market’s revenues will surpass the NFL’s revenues within the next couple of years. AT YOUR SERVICE This giant market also contributes to a variety of secondary markets in which

Fantasy Football Growth in Players Fantasy Foot-

57MILLION

GROWING PAINS GAINS Over the past twenty years, the fantasy football market has grown to new heights. Thousands of new users and millions of new dollars join every year. The number of people playing fantasy football has skyrocketed since the turn of the century, from about 10 million players in 2000 to an estimated 57 million this year. With that kind of growth, opportunity certainly came knocking for the suppliers. ESPN, CBSSports, and Yahoo!, the three major “traditional” fantasy football websites, each put millions of dollars each year into attracting new users to their websites through advertising and providing “insider” fantasy sports knowledge.

appealing daily fantasy football leagues. Of those who participate in daily leagues, from 2012 to 2015 the average player has increased spending from $5 to $257, or by about 5,100 percent. People prefer to decide how much money they bet and who is on their team each week so they can avoid making one horrible decision in the beginning of the season and have to pay for it for the rest of the year, a fatal error that just about every fantasy footballer has made at least once. By controlling your spending each week, you are tempted to spend as much, if not more, than the previous week while you try and learn from your mistakes and identify trends throughout the season.

ball Market Revenue 2014

88%

Spending in the Fantasy Football Market

11BILLION $

$ 9

INTERCOLLEGIATE FINANCE JOURNAL • FALL 2015

consumers seek professional services. There are now certain small-scale insurance firms that offer customers insurance based on the chance that a star player on their fantasy football team gets injured. For example, let’s say I entered a league in which all players paid $100 and my star player is Tom Brady. I could pay this insurance firm $10 so that if Tom Brady tore his ACL and was out for the season, the insurance firm would pay my league fees of $100. In addition to insurance, there are also consultants and even lawyers who offer their services to fantasy footballers. Consultants are typically individuals who study every aspect of every game each week and help you decide who to play and who not to play throughout the season. They typically look at statistics like weather, opposing teams, coaches, and locations, among other things. Lawyers can also be used to handle disputes and any cases of cheating. For an average price of $15 per dispute, a third party lawyer will determine if there is collusion, unfair trading, or any general misconduct. MARRIAGE: THE GOOD, THE BAD, AND THE UGLY The future looks bright for this young, growing market, with no signs of slowing down. With the increase in the number of NFL fans, specifically females, the potential for more fantasy football players similarly grows. Undoubtedly, the NFL also benefits from greater viewership from fans who desire to watch and keep track of every game. These highlight the beautiful union between the NFL and the fantasy football market. Who knows, sooner or later referees could start to see bribe offers come in for the sake of fantasy football. In that regard, let’s just hope it doesn’t turn into a certain other type of football. DRAFT DAY Fantasy football players gather to decide on the team that’ll lead them to victory.

One Minute You’re in, the next You’re out THE PRESSURES OF GOING PUBLIC IN THE FASHION SPACE by Daniela Paternina

t was not too long ago when the renowned fashion designer rang the opening bell at the NYSE. On December 15, 2011 Michael Kors Inc. went public with an opening price of $25, 20% higher than its initial $20 offering price. With a closing price of $24.20, Mr. Kors yet again put on another great show. Only this time Bryant Park was not celebrating his triumph. The Wolf of Bryant Park had taken over Wall Street. The IPO raised $944 million. However, as Heidi Klum would say, “one minute you’re in, the next you’re out.” DOWN FOR THE COUNT Wall Street’s once golden child Michael Kors is facing the same fate as last season’s Chanel. Since the beginning of 2015, shares (NYSE:KORS) have gone down by 38%. The stock has lost half its value after peaking around $101 per share last year. The luxury retailer reported fourth-quarter results with a 5.8 percent decline in sales from existing stores, 11 percent drop in operating margin to 23 percent of revenue, and guidance for first-quarter revenue of $930 million to $950 million. For short and sweet, KORS is not doing so hot this year. Some believe that Kors’ value went down with the company’s efforts to make its business mainstream. Now under pressure to beef up earnings post-IPO, the fashion house not only lowered the price of its entry handbag, but it also launched “Michael,” its low cost clothing line that now comprises a significant part of its revenue. Kors also launched an online sales platform that is responsible for a year-over-year sales growth of 63%. Contrary to other luxury brands like Burberry and Chanel– that fear online sales might lead to a loss of “exclusivity”– Kors is set on strengthening its mainstream appeal. In an industry where luxury is often a selling point, appealing to budget shoppers at the expense of exclusivity might be the kiss of death for an upscale designer. A NEW RUNWAY Michael Kors is not fashion’s only big

name in the stock exchange. In the past years several other maisons de couture have gone public. Salvatore Ferragamo, Prada, Coach, Hermés, Dior, and Kate Spade are amongst those who offer stocks to the public. Some consider going public to be key for luxury brands to grow on a global scale and increase their reach in emerging markets. According to Milton Pedraza, CEO of the Luxury Institute, New York, along with the increase in capital, going public also gives luxury brands more structure and more discipline to help them grow and expand in new markets. TO GO PUBLIC OR NOT TO GO PUBLIC In spite of the benefits of going public, there are still many titans in the fashion industry that refuse to do so. Why is that? After Donna Karan’s disastrous performance in the stock exchange in the 1990’s, big names such as Chanel decided to maintain private ownership. Kenneth Cole took his company private in 2002 after poor performance, arguing that market pressures had forced his company to focus on “short-term earnings at the expense of fashion innovation.” Consumer tastes play a crucial role in the industry, and by proxy, in the stock prices of publicly traded fashion companies. Traditionally, this volatility made companies with mixed records more appealing than those under the umbrella of only one designer. However, according to John Berg, chief executive of the investment bank Financo, what analysts and investors “crave today is a high-growth story, and if it has ‘star power,’ even better.” Word has it that Tory Burch, Marc Jacobs, and J.Crew headline the list of 2015’s most anticipated IPOs. Even though no IPO has been announced for any of the three companies, it seems likely that these three fashion tycoons will soon be battling each other in the arena of Wall Street. However, these are just assumptions. For her part, Burch told the Wall Street Journal that there were no immediate plans for an IPO. “We want to grow on our own terms, in our own way, and don’t want to have to answer to the public at this point,” Burch said. Many upscale designers fear going public might go hand in hand with sacrificing creative freedom. Historically, the fashion industry has been one of few success and many failures. Breakouts are the result of risk and innovation. At the end of the day, fashion is a business. Whether or not fashion companies should go public depends on how far designers are willing to tailor their work to a new line: the bottom line.

MARKETS

people are looking to wear clothes that have a signature emblem like the Ralph Lauren horse. Because Ralph Lauren’s clothing lines tend to have a consistent look, millennials are less likely to be attracted to them. RALPH LAUREN’S ATTEMPTS TO RESURFACE ITSELF Times change and businesses evolve. In order to stay relevant, companies often need to restructure. In August, Ralph Lauren announced a new organizational structure which would allow them to make their brands even stronger. Between June and August, the company established six global brand groups and appointed a global brand president to each one. Although the firm has implemented these changes, it clearly has not been enough. It is time for Ralph Lauren, the quintessential American designer, to step down and turn the company over to new management with a focus on financials. Its latest quarterly earnings of $1.09 per share topped analyst estimates, but revenue dipped 5.3 percent on a year-over-year basis. The company’s share price has slumped by almost 50 percent this year.

Marco, Polo HOW THE REINVIGORATION OF A CLASSIC DESIGNER RESTS ON THE SEARCH FOR NEW MANAGEMENT by Gianna Jasinki Cartoon by Linda Navon Chetrit

alph Lauren is one of the worst performing stocks so far in 2015. Does Wall Street know something we don’t? America’s iconic polo emblem can be found in a large number of wardrobes and the designer’s high-end gowns still appear on the red carpet. Even so, the Ralph Lauren (RL) stock is down almost 30 percent this year which makes it the third worst performing stock in the entire S&P 500 – the index of America’s biggest publicly traded companies. With the hiring of a new CEO to replace the original Ralph Lauren, will the brand make a comeback or continue its decline? RALPH LAUREN’S DECLINE Ralph Lauren’s stock has been on the decline for the entirety of 2015. In February, the stock had plummeted to the lowest closing level since July 2012. There are several reasons for this decline. First off, there are many other brands that compete in the athletic gear market. For example, Under Armour is a stiff competitor in golf shirt sales, with many Amazon.com reviews revealing that Under Armour golf shirts often receive higher ratings than Ralph Lauren’s analogs. Furthermore, young people are not as fond of stodgy logo clothes. Millennials are now more interested in unique brands that few people know about. Recent surveys have found that members of the US millennial generation pride themselves on their individuality, and shop accordingly. Young adults often select their clothing to make a look that is uniquely theirs. Fewer young

RALPH LAUREN WITHOUT RALPH LAUREN Ralph Lauren stocks recently had their biggest gain since 2008 rising 13 percent to $118. Shares remain 37 percent below their 52-week high of $187.49, yielding 1.7 percent. Hiring a new CEO seems to be the reason for this recent increase. Earlier in October, Ralph Lauren announced that Stefan Larrson would succeed the company’s founder as CEO. Larsson has run Gap’s Old Navy brand since 2012. Will this new CEO put Ralph Lauren back on track? UBS analyst Michael Binetti argues that “a new CEO would be the needed catalyst to put Ralph Lauren back on the path to margin expansion and accelerating EPS growth.” He also says that Larsson is “a proven agent of change.” Larsson, who has extensive international experience, is highly regarded for his product merchandising and marketing abilities. During his tenure, Old Navy added around $1 billion in sales and experienced three consecutive years of profitable growth, according to analysts at Nomura Holdings. MAKING A COMEBACK Ralph Lauren has brought new leadership in for the first time in its 48 year existence. It is up to Larsson to bring this fashion empire back. While Ralph Lauren has had a rough year, investors are confident that Larsson can give Ralph Lauren a “serious face-lift” by resurrecting operational capacity and discovering potential growth opportunities, including orchestrating a resurgence of Club Monaco, a subsidiary of the Ralph Lauren Corporation. Larsson faces a competitive fashion environment. There has been a revolution in fashion retailing in past years as young shoppers are looking to retailers such as H&M, Zara and Forever 21, over sedate brands like Gap and J.Crew. Barron’s has predicted that the infamous Polo shirt producer would experience a 20 percent increase in its stock price. Profit margins are also expected to recover from investments in technology and new products. This fiscal year, revenue is expected dip to $597 million. Next year, however, Wall Street projects revenues near $7.94 billion. For the most part, analysts are confident that Larsson will be successful in making changes to the company. They believe that although the company will not be quick to make big changes, more immediate issues, including inventory and cost management, could be addressed. WILL LARSSON HOLD IT TOGETHER? Larsson is credited with reviving Gap’s down-market brand, Old Navy; Old Navy has consistently been one of the few bright spots in Gap’s brand portfolio since Mr. Larsson took over in 2012. He clearly knows how to take a uniquely American brand through its next phase of growth. At Old Navy, he was able to help create attractive brands at affordable prices. For example, Larsson was aware

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of brands like Lululemon that sell a pair of leggings for $100. At Old Navy, a whole family could be outfitted in activewear for the same price. Furthermore, Larsson’s situation at Ralph Lauren is not hopeless: the company possesses a solid brand portfolio and has added more brands over the past couple of years including Polo for Women, Polo Sport, and Denim and Supply. Ralph Lauren has also enhanced its e-commerce network and constructed a new international brand management organizational framework. It appears that Larsson will continue these efforts and drive the company to success.

Prescription for Profits

THE “CONFUSOPOLY” OF PHARMACEUTICAL PRICING by Arthur Tran

artin Shkreli, chief executive of Turing Pharmaceuticals, sparked national outrage when he recently announced a 5,000 percent increase in the price of Daraprim, a drug used to treat malaria and a wide range of infections. For many, he has become a symbol of everything wrong with the American healthcare system: increasingly costly and profit-driven. Surely, an industry meant to alleviate suffering and pain must have more noble intentions than simply profit maximization… right? PRICE DIAGNOSIS From an economic standpoint, pharmaceuticals are an oddity. On one hand, they are public goods with moral implications because they prevent epidemics and improve society’s well-being. At the same time, pharmaceuticals are produced by private entities, which respond to shareholders and their own financial interests. Drugs require an enormous amount of investment in research and development as well as lengthy regulatory processes imposed by the U.S. Food and Drug Administration. To complicate matters even further, purchasing decisions lie in the hands of physicians and are further influenced by health insurance companies. In certain cases, specialty drugs without competitors can result in monopolies. For example, Gleevec was for several years the only medicine approved to treat a rare type of cancer. Initially priced at $30,000 for a year’s supply in 2001, Gleevec

now costs three times that amount. One recently approved cancer drug cocktail costs $295,000 per year, a price that some oncologists call unsustainable. Indeed, researchers from MIT and Harvard have coined the term “confusopoly” to describe pharmaceutical pricing due to its diversion from typical economic models. SIDE EFFECTS MAY INCLUDE UNUSUALLY HIGH PROFITS If you’re in search of a lucrative industry, look no further than the pharmaceutical business, which edged out banking as the world’s most profitable industrial sector. Profit margins at the world’s leading pharmaceutical companies range from AstraZeneca’s respectable 10 percent to Pfizer’s whopping 43 percent in 2013. By comparison, the average profit margin across all sectors was 7 percent. For an industry that claims to be in the business of improving health and saving lives, are these generous earnings warranted? As one former executive told the BBC, “I wouldn’t be able to justify [those kinds of margins].” However, with great reward also comes great risk. Although there is significant disagreement over the exact cost of bringing a drug to market, most independent estimates put the figure in the neighborhood of $1 billion. Drug development is also a time-consuming process, taking as long as 10 to 15 years. And then there is the looming possibility of failure, illustrated by Pfizer’s cholesterol drug torcetrapib, which cost $800 million to develop, only to be shelved in 2006 after clinical trials showed excessive mortality rates. The pharma industry is quick to defend the high cost of their products by pointing to the vast amount of investment and risk involved. Besides, they argue, the profits are necessary to fund future breakthroughs in lifesaving therapies. However, these claims are undermined by the fact that nine of the ten largest pharmaceutical firms spend more on marketing than on research and development, with some, such as Johnson & Johnson and GlaxoSmithKline, spending twice as much. A disconcerting trend are the pharmaceutical industry’s questionable business practices. Some companies censor the publication of unflattering clinical data, while others have been suspected of collusion with pharmacies to keep the price of their drugs artificially high. A pattern across the board, however, appears to be the use of misleading advertisements to boost sales. In the past few years, pharmaceutical firms have paid over $13 billion in fines to the United States Department of Justice for promoting improper or unapproved use of their drugs. Besides posing a public health risk, the cost of these fines is also passed onto consumers.

PRESCRIPTION FOR CHANGE It is easy to point fingers and fault the pharmaceutical industry, but the problem is much more complex. Drug prices in the United States are among the highest in the world. Canadians pay three-fourths as much as Americans for commonly prescribed drugs, while Australians only pay one-half, and New Zealanders one-third. Why do Americans pay more? In contrast to most of the world, the United States does not regulate or negotiate drug prices. The absence of a national healthcare system results in a fragmented network of payers and thus reduced ability to leverage purchasing power. Interestingly, Medicare, which provides prescription benefits for 40 million elderly Americans, is legally prohibited from negotiating drug prices with manufacturers. Are American consumers, then, taking on the financial burden of drug development while the rest of the world benefits? Some experts say yes, and they propose spreading the costs more equitably across the globe such that other high-income countries pay their fair share. But are the Japanese, Dutch, and French willing to pay more so that Americans can pay less? It seems unlikely. Meanwhile, health professionals are increasingly taking a stand against skyhigh drug prices. A watershed moment occurred in 2012, when oncologists at the renowned Memorial Sloan Kettering Cancer Center in New York refused to use Zaltrap, a newly approved cancer drug. They argued that despite a price tag that was twice as high, Zaltrap was no more effective than an existing medication. Ultimately, the drug’s manufacturer, Sanofi, offered physicians and hospitals a 50 percent discount but refused to change the official wholesale price of the drug. SWALLOWING THE COST The cost of pharmaceuticals is inextricably linked to national health expenditures, which in recent years have emerged as a subject of concern. In 2013, Americans spent $2.9 trillion on healthcare, of which prescription drugs comprised 9.3 percent, or $271.1 billion. The percentage of American adults using prescription drugs has been steadily increasing over the past two decades, and today about 90 percent of Americans aged 65 or older take at least one prescription drug each month. As Americans live longer and require medication for chronic conditions, the burden of pharmaceutical costs is projected to increase. Pharmaceuticals are undoubtedly one of science’s greatest wonders. We enjoy longer, healthier lives today than ever before, and part of that can be attributed to pharmaceuticals. Good health is invaluable, but like all goods on the market, medications come with a cost. How much are you willing to pay, and what if it’s not enough?

Photo by Cadence Lee

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POLITICAL ECONOMY

Turkey Syria Lebanon

Iraq

Iran

Jordan Israel U.A.E. Egypt

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Oman Yemen Enemies Allies Neutral

Tehran’s Talisman

AS THE TERMS OF THE IRANIAN NUCLEAR DEAL PLAY OUT, WE MUST CONSIDER THE POSSIBILITIES AHEAD by Varun Narayan

TREACHEROUS TREATY How a Tax Treaty is Threatening to Derail an Island’s Economy, Yashil Sukurdeep 16

ran: a power, an opportunity, and–to many–a threat. Since its 1979 revolution, Iran has faced a swarm of hostile actors: Israel, to the west; Saudi Arabia, across the gulf; and the United States, around the world. Iran’s ace in the hole? Oil. The Islamic Republic has relied on oil to bolster much of its economy, and has routinely threatened to close the nearby Strait of Hormuz, a major global point-of-transfer for oil. The U.S.-led effort to pressure Iran to halt certain nuclear activities relies, in turn, on oil sanctions that have curbed growth, crippled industry, and crushed the economic hopes of a generation. But perhaps not for much longer. Iran recently struck what has become known as “the Iran deal” with the P5+1; it limits, among other things, uranium enrichment at certain facilities, and it requires Iran to reduce its current stockpiles of Uranium and its current number of centrifuges, which are required for the enrichment of uranium. Iran will, in turn, be relieved of sanctions. Though the United Nations sanctions limit only military trade, banking, and the shipping industry, the European Union and the U.S. bring even greater barriers to bear: the European Union banned international trade at large and instituted an oil embargo, while the U.S. has gone so far as to ask other countries to restrict their trade with Iran– and many have obliged. Countries from India to Israel and South Korea to Switzerland have all placed sanctions on trade with Iran, and many took the strongest action of all: slashing or stopping their consumption of Iranian oil. MAKE IT RAIN (AND NOT WITH OIL) Ramin Rabli, the CEO of an Iranian

investment firm, described Iran to CNN as a combination of “the consumer potential of Turkey, the oil reserves of Saudi Arabia, the natural gas reserves of Russia, and the mineral reserves of Australia…all in one country.” But his statement, intended to convey optimism, also speaks to Iran’s reliance on its natural resources. According to the U.S. Institute for Peace, in past years, oil revenues have constituted up to 60 percent of the Iranian government’s revenues, and proponents of sanctions have long used Iran’s reliance therein to justify their policies. Iran, however, is evolving. Oil revenues now make up only 47 percent of the state budget, and–most strikingly–only 10 percent of Iran’s GDP. Iran no longer pays for its imports with revenue from oil exports; the Washington Institute notes that while Iran used non-oil revenue to pay for only 14 percent of imports in 1992, and 24 percent in 2002, non-oil revenue now foots 60 percent of the bill for imports. Iran has also expanded its industrial sectors–it makes more automobiles than any Middle-Eastern country save for Turkey, and CNN states that it ranks third in the world in cement production. The Washington Institute has gone so far as to say that as the Iranian economy diversifies, it will likely become immune to western sanctions. As Patrick Clawson, the institute’s Director of Research, put it, “getting Turkey, China, India, and others to give up Iranian oil was hard enough; persuading them not to buy Iranian fertilizer would be even tougher.” THE END OF AN ERA Major change is headed for Iran. In early 2016, parliamentary elections will occur

10% Removal of all Iranian banks from the SWIFT (Belgian organization that executes most international bank transfers)

-5%

2010

2012

POPE-NOMICS Francis’s Take on the Economy, Gianna Jasinki 19

and a new body will be formed–the body that will appoint the next Supreme Leader. Many credit current Iranian President Hassan Rouhani for efforts to diversify the Iranian economy, and the people’s hopes rest on the potential that a new Supreme Leader could bring to the country. As the World Bank notes, Iran’s core statistics represent major potential–Iran trails only Saudi Arabia in all of the Middle East and North Africa in GDP, and trails only Egypt in terms of population size. Iran’s economy has grown less volatile and more durable as a result of diversification–the removal of sanctions will unleash the country’s educated, eager workforce. Efforts to change Iran are succeeding. Iran is surging forward into the future, and should the terms of the “Iran deal” reach fruition, little will be able to hold it back.

Easing Pressure on Mass Retail

BENEFITING FROM THE DEVALUATION OF THE YUAN

by Gillian Lee

IRAN’S ANNUAL GDP GROWTH RATE

-10%

HOME IS WHERE THE MONEY IS The EU Refugee Crisis, Sarah Park 18

2014

n 2014, Chinese luxury spending accounted for about a third of such spending in Europe, a reflection of the fact that millions of Chinese tourists have traveled abroad in recent years to take advantage of cheap luxury goods. These international shoppers were aided by a rising Chinese yuan, or dollar, that continued to perform well vis a vis other currencies. However, travel plans for many eager Chinese were abruptly cut short this past August, when the People’s Bank of China widened the “band” in which the Chinese currency is bought and sold and devalued the yuan. The devaluation of the currency of the world’s second largest economy alarmed investors, economists, and policymakers alike. Uncertainty in the global markets, it was revealed in the Fed’s September minutes, had at least partially pushed the Federal Reserve to hold off on raising benchmark

INTERCOLLEGIATE FINANCE JOURNAL • FALL 2015

interest rates. And yet, while the falling yuan has made overseas retailers anxious in that Chinese purchasing power and demand might decrease for imported goods, mass retailers are one group that ultimately stand to benefit from the devaluation. THE DEVALUATION On August 11th, the People’s Bank of China shocked the world by devaluing its tightly controlled currency, the yuan, by setting the exchange rate around which it trades against the U.S. dollar 2 percent lower. Most likely, the PBoC acted to mitigate a weakening export sector and stimulate slowing economic growth in China. Following the devaluation of the yuan, Vietnam devalued its currency, the dong, by 1 percent and the Malaysian ringgit suffered its largest one-day loss in two decades. Although there are undoubtedly negative consequences to the devaluation, especially when considering Chinese demand for overseas goods, those same retailers may reap supply side benefits. AGE OF MASS RETAIL The devalued yuan allows U.S. retailers to purchase more with fewer dollars. This is particularly advantageous for companies that source a large percentage of production materials and other supplies from China. Mass retailers, such as Toys R Us, Home Depot, and H&M have wasted no time in pursuing the cost benefits of a cheaper yuan. In a time when budget retailers are pushing prices even lower in an already competitive industry, any potential increase in earnings

proves to be beneficial. For Toys R Us, the first quarter of 2015 presented itself with a decrease in both net sales and gross margin. The fall in China’s currency has the potential to boost Toys R Us’s gross margin as the costs of goods decreases. The effects are not immediate however, as many large firms may experience a lag in a shift in sourcing supplies. For a handful of companies embroiled in financial struggle and fierce competition, the devaluation of the yuan is particularly beneficial. A REVERSAL OF FORTUNES Take H&M for instance. Hennes & Mauritz, Sweden’s fashion giant, has been plagued with various financial woes over the years. Faced with an increasing yuan against the dollar, the cost of H&M’s goods increased faster compared to the rise in cost of those of rival Inditex, parent company of Zara. Stock in H&M has increased only 6 percent, while Inditex’s stock has gained about 26 percent year-to-date. H&M was a pioneer of sourcing its clothes for low costs in Asia, but H&M no longer stands at the head of the pack. Fellow clothing retailers, including Dublin-based Primark, Uniqlo, and Zara have inserted themselves into the mix of stores offering customers high fashion at low prices. The implications of this political move offers H&M the chance to reverse its years of declining sales compounded with falling gross margins. UBS estimates that H&M sources at least 40 percent of its products from China, while Inditex

sources only 20 percent. Since the cost of goods for H&M will decrease by a greater amount than it will for Inditex, H&M stands to benefit from a larger boost to its gross margin. In fact, Espirito Santo Investment Bank predicts that each 1 percent fall in the yuan could increase H&M’s gross margin by about 0.25 percent. For a company that has faced a steadily falling gross margin since 2010, the small increase is significant. Luxury European retailers, such as Louis Vuitton and Gucci, are bracing themselves for the decrease in spending by Chinese tourists. American and European online shopping sites, such as Amazon and Asos are doing the same, as goods from the sites are now more expensive for Chinese consumers. Furthermore, amidst soaring labor costs and declining foreign investment, certain companies are moving their mass production lines to other countries, such as Vietnam. An example is Compal Electronics Inc., which cites the economic difficulties in China as the factor motivating their move from China to Vietnam. Although the loss of mass production may decrease exports overall, the demand for supplies from mass retailers will outweigh the loss. Though the Chinese economy may falter here and there amidst this devaluation, perhaps this is exactly what traditional, mass retail stores need to alleviate years of troubled sales and profits. For H&M specifically, the devaluation may be a blessing in disguise to place it back at the forefront of fashion retail.

ALL EXPENSES PAID Luxury retailers look to profit from the Yuan devaluation as supply chains feel the easing.

POLITICAL ECONOMY

Treacherous Treaty HOW A TAX TREATY IS THREATENING TO DERAIL AN ISLAND’S ECONOMY by Yashil Sukurdeep

oreign Direct Investment (or FDI) is an investment made by a company or entity based in one country, into a company or entity based in another country. For many large developing countries like India, inflows of Foreign Direct Investment into the economy are crucial in bringing about economic growth and development. But here’s an interesting trivia question: Where have most of the FDI inflows into India come from? SURPRISE, SURPRISE… The improbable answer to that question is Mauritius. Yes, we are talking about a truly baffling situation here: A tiny island nation with an annual GDP of only $11 billion (that’s one sisteenth of Apple Inc.’s revenue in 2014) has been the main provider of FDI for one of the world’s largest economies. Indeed, Mauritius accounts for nearly 40 percent of all FDI inflows into India over the period lasting from 2001 to 2011. To highlight the absurdity of this situation, the share of FDI inflows into India originating from the US, the UK and Japan combined stood at around 20 percent over the same period. CAN SOMEONE PLEASE EXPLAIN? Why did Mauritius account for around twice the amount of FDI inflows into India compared to three of the world’s largest economies combined? Well, nine of the ten foreign business organizations that invested most heavily in India from April 2000 to January 2011 were based in Mauritius. Among these nine companies, there are some familiar names, such as Merill Lynch (Mauritius) Investments Limited, which is a Mauritius-based subsidiary company of Bank of America Merill Lynch (BoAML) Group, Inc. The main aim of these Mauritius-based business structures are to channel funds from foreign countries to India via Mauritius, and they take on a wide variety of forms. Indeed, some of these firms actually employ qualified professionals to carry out their day to day opera-

BOW DOWN TO TAXES Prime Minister Modi of India and Prime Minister Jugnauth of Mauritius head the two economically intertwined nations. tions, while others are corporations in name only. SWEET TREATY But why did BoAML even bother setting up a subsidiary company in Mauritius in order to direct its investments in India? Why didn’t they invest in India directly from the U.S.? Well, that’s because Mauritius and India have an incredible tax treaty in place, called the Double Taxation Avoidance Agreement (DTAA). This treaty stipulated that capital gains accrued on investments in India made by Mauritian companies could only be taxed in Mauritius, at an astonishing rate of 0 percent. This tax treaty turned Mauritius into the single-most attractive conduit for investments into India, and explains why BoAML took the trouble of setting up a subsidiary company in Mauritius. It was simply more “tax-efficient” for them to do so. TOO GOOD TO BE TRUE Good things don’t last forever, and rather unsurprisingly, the stunning tax treaty between India and Mauritius proved no exception. The treaty is currently being renegotiated amid concerns by Indian authorities that unscrupulous investors have been using Mauritius for “round tripping,” which, broadly speaking, refers to a technique used for tax evasion and money laundering. Moreover, after renegotiation, there is a real possibility that the new treaty stipulates that capital gains will have to be taxed in India, at a rate of 10.5 percent. TEARS AND FEARS Rather unsurprisingly, the looming renegotiation of the tax treaty has

sparked widespread concern from Mauritius-based foreign investors. Such investors have been adopting a “wait and watch approach” in routing their investments from Mauritius to India, causing a 30 percent drop in the share of FDI inflows into India from Mauritius since the renegotiations were announced. Moreover, the ongoing uncertainties over the tax treaty are having a negative impact on employment opportunities and existing jobs in Mauritius’s financial services industry. There are real fears that many of the business organizations that used Mauritius to redirect funds towards India, such as BoAML’s subsidiary company, will close down, which could spark an unprecedented increase in unemployment on the island. The companies will no doubt look to channel their investments into India through other routes, with Singapore being the most attractive one in terms of tax efficiency. As such, FDI inflows into India will not decrease significantly, leaving the country unaffected by the renegotiated treaty. LOOKING ELSEWHERE Foreign investors and Mauritian authorities are pessimistic about the possibility of a good outcome resulting from the renegotiation of the treaty. As a result, some investors have already started shifting their Mauritius-based investments from India to African countries such as Zambia, with which Mauritius has attractive tax treaties that are still in place. While it looks like Mauritius has lost its title as the single-most attractive route for investments into India, the island might well be turning into the best place to direct investments into the African continent.

INTERCOLLEGIATE FINANCE JOURNAL • FALL 2015

Home is Where the Money Is THE EUROPEAN UNION REFUGEE CRISIS by Sarah Park

n what the United Nations has deemed the worst refugee crisis since World War II, hundreds of thousands of men, women, and children have been pouring across Europe’s borders in an attempt to escape civil war, political repression, and unrest. As their homes have become increasingly insecure and refugee camps in Turkey, Jordan, and Lebanon have found themselves underfunded and overwhelmed, refugees have been immigrating to Europe in recent months, and are putting increasing pressure on its member countries’s borders to accommodate the influx of individuals. Because of the overall dismal state of Europe’s economy, many of its mem-

ber countries are reluctant to accept a large inflow of unemployed, foreign refugees, and in some countries, weak economies are preventing the crisis from being handled in the most efficient or effective manner. According to the United Nations, a refugee is defined as a “person who is outside his or her country of nationality or habitual residence; has a well-founded fear of being persecuted because of his or her race, religion, nationality, membership of a particular social group, or political opinion.” Due to increasingly dangerous living conditions in countries like Syria, Iraq, and Afghanistan, over 500,000 people have arrived in Europe since January of this year,

with many more expected to follow. Germany alone predicts 800,000 people—1 percent of its current population—to apply for asylum this year. Although refugees have been making a getaway for several years now, the outflow has recently reached a crisis point which Europe can no longer ignore. Further compounding the problem is the fact that international aid to the UNHCR— the United Nations Refugee Agency— has consistently fallen short of what is needed. Because of the 40 percent gap between what the agency requires and what has been donated, refugee camps in Turkey, Jordan, and Lebanon have been unable to provide adequate liv-

POLITICAL ECONOMY

THE TEARS OF MANY Refugees from Syria, Iraq and Afghanistan face an uncertain life in Europe. ing conditions, forcing an even greater number to seek asylum in Europe. CRISIS OF COORDINATION While European leaders have finally agreed that the refugee crisis is one that requires immediate attention and multilateral coordination, they have struggled to reach a consensus on the best way to approach it. Refugees have been putting increasing strain on local governments as they must be processed, fed, housed, and ultimately put to work; this has resulted in the leaders of many countries being hesitant to absorb large numbers of refugees across their borders. CHAOS AND CONFUSION Greece in particular has come under undue strain and highlights the challenges that countries across the continent currently face. As a first point of entry for many refugees due

to its geographic location, Greece has been overwhelmed by the daily arrival of thousands of refugees. However, because of its recent economic woes, Greece simply does not possess the resources necessary to register and process the myriad of individuals landing on its shores. This has resulted in the dismissal of many rules and regulations that were designed to help keep the borders secure, ensure that migrants actually qualify as refugees, and monitor the inflow of people. Instead of recording the fingerprints of incoming refugees and directing the process of submitting applications for asylum, Greek officials are simply trying to get refugees out of the country as quickly as they can. Greece’s system— or lack thereof— engenders significant security and humanitarian issues. Not only are there no records of who is actually entering and leaving the country, but there is also the risk that people who are not truly deserving of refugee status are being allowed into Europe’s borders, including economic migrants or even terrorists. This threatens the chances that those who are actually fleeing dangerous circumstances may be overlooked. With the chaos that has engulfed the country in recent months, Prime Minister Alexis Tsipras has stated that the “immigrant flow to Greece is beyond what our state infrastructure can handle.” However, even with its disregard for standard rules and procedures, the costs incurred by the Greek government have still been staggeringly high. For example, the Greek island of Lesvos alone spent $3.1 million from January through September of this year, a figure that doesn’t even include police and coast guard services. AN UNCERTAIN FUTURE Although the European governments finally agreed on a deal to distribute 120,000 refugees among their countries over two years, it is far from a solution to the crisis. However, while the refugee crisis is urgent, it is clearly reaching a crisis point at an extremely inopportune time for most of Europe. What remains to be seen is what kind of lives the refugees who are fleeing to Europe will even have. While Europe may be safer politically, its leaders’ recalcitrance to deploy the funds necessary to deal with the crisis and its countries’ less than robust economies may mean that in many other ways, the refugees might not be too much better off.

Pope-onomics FRANCIS’S TAKE ON THE ECONOMY by Gianna Jasinki Cartoon by Linda Navon Chetrit

n the verge of a government shutdown amidst a dispute over the moral boundaries of federal spending, one may ask, “Did Congress listen to Pope Francis’s message?” Pope Francis recently became the first pontiff in history to deliver an address to a joint meeting of Congress. He addressed extreme poverty, increasing debt, racial injustice, and many other issues. He challenged lawmakers to break out of Congress’s cycle of partisan gridlock and use its power to work together and solve the country’s inequities. United States lawmakers clearly did not listen to Pope Francis’s words of wisdom for that long considering their current state of intense disagreement over an issue that divides the parties. Although a majority of lawmakers seemed to be extremely receptive to Francis’s speech and found it admirable, it appears that heated debates are a natural activity for Republicans and Democrats. THE POPE’S CALL OF ACTION The Pope recognized several economic and social challenges the United States. currently faces. He told lawmakers that these challenges are a direct result of the policies that they have implemented. One of the Pope’s focuses is income inequality. He reminded legislators to keep in mind those who are trapped in an endless cycle of poverty and blamed this problem on redistribution of wealth. Pope Francis also touched on the poverty that pervades our world. He told lawmakers that their efforts must be aimed at promoting the wellbeing of individuals and servicing the poor. Pope Francis’s response to the United States’s social and political situation is one of hope and healing, of peace and justice. He proclaimed that the challenges facing the United States call for a spirit of cooperation and fraternity. He told lawmakers that they have a responsibility to those struggling to help them escape poverty, persecution, and war. In order to rescue society from these injustices and stand as the representative body of a country of opportunity, members of Congress must put aside their differences and collaborate. Francis

INTERCOLLEGIATE FINANCE JOURNAL • FALL 2015

Boehner could barely keep it together–he said, “the Holy Father’s visit is surely a blessing for all of us.”

COOPERATION OVER POLARIZATION Pope Francis is calling for a balance in fighting religious extremism to ensure that fundamental freedoms are not being undercut at the same time. This kind of democratic, cooperative economics that Pope Francis has called for landed with a thud in Congress. Although he pushed on some uncomfortable truths in his speech, Congress, from both sides of the aisle, lauded the Pope’s speech, praising his message of compassion for the world’s most vulnerable demographics. Sen. Jon Tester (D-Mont.) said, “He touched on everything that quite frankly we need to work on.” Other Democrats were amazed by the Pope’s deep insights into political divisiveness and touched by his overall message of standing up for human dignity, for the hopes and aspirations of the people, and for the common good. Although some conservatives criticized the Pope’s call to address climate change, with one congressman boycotting his speech over the issue, many others believed the Pope’s remarks on the climate struck a good balance. Speaker of the House John

HOW SHOULD CONGRESS IMPLEMENT THESE CHANGES? In Pope Francis’s speech, he urged lawmakers to take “courageous actions” on global warming, poverty, and immigration. “I am convinced that we can make a difference and I have no doubt that the United States - and this Congress - have an important role to play,” the Pope said. The suggestions from Pope Francis can be applied in many different ways. For U.S. immigration policy, Congress could end family detention, pass the DREAM act, and provide a pathway to citizenship for the parents of Dreamers. The Pope condemns market-based solutions to climate change and attacks cap and trade programs, which would allow the government to price carbon emissions and give firms the ability to buy and sell the right to emit carbon on a market poverty. Pope Francis’s plan to implement new environmental laws would, however, take an overall hit to America’s economy. According to the Congressional Budget Office, it would cost the typical American family an extra $700-$1,100 a year. Pope Francis’s advice for income inequality obviously is to focus on the needs of hungry children, the unemployed and the elderly. He spoke out against policies that allow the rich to get richer while billions of people become poorer. He told Congress that they play a vitally important role in protecting low-income and working people, the elderly, children, and the sick.

Cartoon by Linda Navon Chetrit

preached that moving forward together to restore hope and right wrongs will lead to a society of equality and justice.

Miracle on Wall St: Taking on economic inequality might take more than papal rhetoric. 20

DID CONGRESS REALLY LISTEN? Although there was much praise and respect expressed towards the Pope, Sen. John Cornyn (R-Texas) was skeptical about the Pope’s impact on Congress’s deep divisions. And in fact, Cornyn is right. It is ironic that so many congressmen seemed so dedicated to following the Pope’s message – to listen to their colleagues more closely, and to approach our country’s problems with a more bipartisan approach because only a day after the Pope’s speech, Congress was back at it – buried in deep disagreements over Planned Parenthood funding. Americans thought wrong in thinking that the Pope had given Congress a wakeup call to put the good of the people above policy differences. It appears that Congress just paused their bickering for the duration of the Pope’s speech.

WHY IS PARTISAN GRIDLOCK A REGULAR OCCURRENCE IN POLITICS? Pope Francis’s preach to the choir (in this case, Congress) showed that Congress cannot even cooperate when an esteemed figure uninvolved with politics makes an appearance. Although Pope Francis raised some excellent points about pressing issues in today’s society, it will be difficult for Congress to pass meaningful legislation related to these issues because both parties fail to compromise. Pope Francis made that clear - compromise is key. If the parties cannot work together and form bipartisan responses to our country’s problems, then our issues are never going to be solved. If the Pope can’t convince Congress to set aside partisan politics and focus on important issues at hand, then who will? IMPLICATIONS FOR THE 2016 PRESIDENTIAL RACE Among the 2016 presidential candidates, Sen. Bernie Sanders’s views seem to coincide most with those of the Pope. He spends a lot of time talking about the Pope. The Vermont independent includes Pope Francis’s teachings in conversation and speeches, posts his comments on social media, and highlights news stories about him on his website. Sanders says he is a “big fan of the Pope,” as he has made income inequality a large focus in his campaign. The Pope has definitely thrown another wild card into the unpredictable 2016 presidential race as he touched on controversies such as global warming, immigration, and income inequality. In the race for 2016, there are six Republican presidential candidates who identify as Catholics: Jeb Bush, Chris Christie, Bobby Jindal, George Pataki, Marco Rubio, and Rick Santorum. For the first time in decades, Catholic GOP politicians were faced with either siding with the leader of the Catholic Church or appealing to their far-right base. Most of them agreed that the Pope is a fine leader on spiritual issues, but they do not look to him for leadership in the political sphere. New Jersey Gov. Chris Christie told CNN shortly after the Pope’s speech, “I just think the Pope is wrong.” Former Sen. Rick Santorum of Pennsylvania also criticized the Pope for including his views on science claiming, “the Church has gotten it wrong a few times on science, and I think we probably are better off leaving science to the scientists and focus on what we’re really good at, which is theology and morality.” Pretty harsh, if you ask me.

Let Them Eat Vegetables

A SALAD CHAIN’S QUEST TO REVOLUTIONIZE THE NATION by Waylon Jin

PERSONAL FINANCE The fast-casual restaurant is taking the restaurant industry by storm. As a hybrid of fast food and sit-down restaurants, the fast-casual restaurant is upscale but also inviting to the community. Sweetgreen, an innovative salad-making chain following the fast-casual framework, is currently taking advantage of the modern consumer’s preference for fast-casual dining, serving healthy options for those living an on-the-go lifestyle. TURNING OVER A NEW LEAF The largest market targeted by Sweetgreen is millennials. With the rising threat of obesity in the US, healthy living has become mainstream, and as a result, millennials are increasingly concerned about health and nutrition. Counting calories is no longer the goal—what defines healthy for most millennials is freshness. Sweetgreen capitalizes on this preference perfectly by offering personalized salads using fresh ingredients. Millennials also tend to prefer fast-casual over fast-food. According to a study by Morgan Stanley, 69 percent of millennials have eaten at fast-casual restaurants at least once in the last three months. As millennials age, their spending power will grow. Over the next few years, millennials will be the main drivers of consumption, providing the perfect opportunity for a fast-casual restaurant like Sweetgreen to thrive. MAINSTREAMING HEALTH The idea behind Sweetgreen is not only to promote healthy eating, but also to promote a healthier lifestyle. Its current business model has been successful in providing customizable choices, similar to the customer-choice model available at Chipotle. Sweetgreen prides itself on its core values of thinking sustainably and “keeping it real.” It strives to create situations where the customer, community, and company all win. Thinking sustainably means maintaining conditions and “keeping it real” entails dependable relationships and authentic food. This type of lifestyle appeals particularly to millennials, who share Sweetgreen’s core values. While millennials tend to eat out more, they tend to avoid fast-food restaurants, given that they tend to use processed ingredients that lack proper nutrients. Fast-casual restaurants have recently grown at

a rate of 3.4 percent as compared to fast-food restaurants at 0.3 percent and the top 500 chain restaurants at 0.6 percent. Even though fast-casual food is priced higher than fast food, with meals coming out to anywhere from $7 to $15, the food is typically made-to-order and is higher quality. At Sweetgreen, higher prices imply higher-quality, fresher ingredients, which perfectly suits millennial preferences for on the go meals and health-conscious lifestyles. Sweetgreen has become more than just a salad food chain: it has taken advantage of trendy branding to enhance its expansion. By cross-promoting with local fitness clubs, Sweetgreen is able to market itself as a healthy lifestyle choice. In this way, Sweetgreen is positioning itself to take full advantage of the lifestyle habits of millennials. Additionally, Sweetgreen sponsors educational programs to teach children about the importance of healthy lifestyles. A social media presence has also brought the tenets of Sweetgreen to an overall way of living. The salad chain has an active social media presence and hosts festivals that GOING GREEN TO MAKE GREEN Sweetgreen caters to an emerging clientele that favors fresh, not processed, ingredients.

attract thousands. At the Sweetlife music festival, Sweetgreen saw a 98 percent increase in volume, with a peak in positive sentiment of 94 percent on the first day of the festival. Additionally, Sweetgreen is starting to follow the farm-to-table movement, which promotes organic farming. It embodies the movement through its collaboration with local farmers who believe in meeting organic standards. SUSTAINING SUSTAINABILITY Inspired by chef Dan Barber’s sustainability efforts, Sweetgreen has partnered with Barber to create a salad based on “ugly foods” in order to reduce food waste and bring attention to the problem of food waste. This partnership would have half of Sweetgreen’s net proceeds going to a New York-based food organization, City Harvest, which aims to end hunger in communities throughout the city. In order to preserve authenticity, the design of Sweetgreen restaurants reflects the local community. Each chain offers sleek wood panels and a natural aesthetic appeal, which reflects the importance of sustainability

DO THIS, NOT THAT The Art of Making Better Financial Decisions, Tiffany Chen 25

and natural foods. To keep pace with the sustainability movement, Sweetgreen reuses items like bowling alley tables to furnish its spaces as well as a green color scheme. The overall appeal is clean and the employees are excited to come to work every day. THE GRASS IS ALWAYS GREENER With over 95 million dollars raised, Sweetgreen already has 31 stores open and is opening more stores in California this year. According to Technomic, Sweetgreen is projected to increase profits by over 50 percent this year. With the money earned, Sweetgreen plans to increase productivity and brand awareness by investing in technology and developing apps for smartphones. It currently has an app that supports local charities with a similar health vision by donating a portion of the price paid by customers. Sweetgreen is also part of a group of similar micro brands, which center their brand ideologies on the importance of local ecosystems--a key practice for drawing in millennials. In addition to healthy options and sustainability, micro brands are trying to form a more unified sense of community. This connection to the local community and to other companies with the same vision is crucial in Sweetgreen’s move from a chain restaurant serving salad to a lifestyle choice for the next generation.

Do This, Not That

THE ART OF MAKING BETTER FINANCIAL DECISIONS by Tiffany Chen

ll of life’s a stage and a majority of its actors are merely poor decision-makers. Whether deciding on whether to roll out of bed or choosing between asset types to invest in, society’s efforts are expended on hundreds – if not millions – of micro-decisions every day. Recognizing the relative value of monetary decisions will not only result in a society of better decision-makers but will also vastly

THANK GOD IT’S THURSDAY Moving Towards a Four-Day Work Week (Finally), Carin Papendorp 26

HEY, NOW YOU’RE AN ALL STAR Playing the Game of Peer-toPeer Lending, Stephen Kearns 28

ONLY THE BEST CAN DO

GOOD ENOUGH WILL DO

CONSTANTLY WORRIED ABOUT SOMETHING ELSE CAN BE BETTER THAN CURRENT CHOICE

NOT WORRIED ABOUT THE POSSIBILITY THAT SOMETHING ELSE MIGHT BE BETTER

HAPPY ONLY WHEN THEY GET THE BEST MAXIMIZER increase the productivity of an individual’s spending habits. THERE ARE TWO TYPES OF PEOPLE IN THE WORLD Psychologists have distinguished individual decision-makers into two distinct categories: Satisficers and Maximizers. Satisficers make their decisions and take action when their standards are met. Although some may believe that this implies that Satisficers settle for less, this is not actually the case. Criteria and “the bare minimum” can be set extremely high, and once those standards are reached - however high or low the minimum happens to be - Satisficers will be satisfied. As a result, Satisficers end up saving time, money, and effort because they only accept what’s necessary. Maximizers, on the other end of the spectrum, exhaustively seek out the most optimal decision for their situation. Regardless of whether something meets their requirements, they insist on continuing to explore their options until they’ve seen every possible option and have thought through each potential outcome. In order to take action, they have to convince themselves that they are making the best possible decision. The implications for personal spending are widespread. How important is it that one job pays $50 more per hour than another one? So what if you haven’t found the best interest rate for your savings account? In the time that a Maximizer spends finding the rate that will give him the highest returns, a Satisficer will already be pocketing the rewards. THE LESS YOU KNOW, THE BETTER OFF YOU ARE To be happier with decisions and to

HAPPY ONLY WHEN SOMETHING MEETS CRITERIA SATISFICER devote less time agonizing over them, you’re better off as a Satisficer. In The Paradox of Choice, psychologist Barry Schwartz notes that Satisficers tend to be more content with their choices than Maximizers. Maximizers, who spend more time and energy in reaching a financial decision, are often left feeling anxious about whether they made the right decision. They’re typically dissatisfied with their decision regardless of the outcome. In order to be the most content and efficient with the choices you make, set your criteria in advance (i.e. “Once I know A, B, and C, I’ll make the stock purchase”). Once standards are met, make the choice and then move on. GOING WITH YOUR GUT Humans are designed to process small bits of information at a rapid pace. As a result, decisions that arise from intellectual thinking and are grounded in common sense may feel more instinctive than logical. The parent whose child is sick will intuitively choose the pediatrician who lists a higher rate but has a better reputation over the one who provides free consultations and receives negative reviews from his patients. In such a scenario, the doctor’s reputation is the key information of value. There is no reason to look at other variable pieces of data if one factor is already an obvious indicator of what the best decision is. Because individuals have the ability to make “gut-feeling” decisions with limited information, it can pay – literally – to use a “take the best” strategy, by which a decision-maker only reasons and calculates as much as is absolutely necessary. After all, if Mark Zuckerberg had chosen to sit in his room mulling over all of the various ways to build a

INTERCOLLEGIATE FINANCE JOURNAL • FALL 2015

social network, he most likely wouldn’t have Facebook - or a net worth of $35.7 billion. CHOOSE YOUR BATTLES While some decisions are quite obviously worthy of attention (Should I sell my company? Should I quit my job and move to Germany?), others are certainly not. In the end, does it really matter if you buy the 98 or 99 percent dark chocolate? In How We Decide, Jonah Lehrer notes that as participants in a market economy, consumers are constantly brainwashed into believing that inconsequential decisions are incredibly important. Case in point: according to Lehrer, the average drug store stocks approximately 55 floss alternatives and over 350 different kinds of toothpaste. When facing such a diversified set of options, the brain believes that choosing basic toiletries is a high-risk game. As a result, some of us end up spending over five minutes deliberating in the hygiene aisle when we could have easily moved on with our shopping after 30 seconds. To make better decisions, it makes more sense to qualify their relative importance. If a choice is trivial, stop waiting and start moving. The marginal cost and benefit are most likely negligible. THE GOLDEN GRAPH Ultimately, decisions can be categorized based on their relative importance and their difficulty level. Easy tasks with low importance require minimal maintenance. Many day-to-day financial decisions require little thought and can easily be checked off the daily to-do list. Individuals can also easily address issues of low difficulty and high importance; the benefit to such decisions is that they require minimal effort but yield high returns in terms of impact and results. Much time, unfortunately, is wasted on inconsequential, low-impact problems. Difficult and unimportant decisions are where energy and attention should NOT be allocated, as the process is ultimately inefficient and less productive. Instead, make a choice and then focus on other more pressing matters. Decision-making time and energy should be concentrated on monetary spending choices that are difficult to make and are highly important. Due to the impactful results, such choices require more careful attention and time. That being said, the aggregate amount of time spent making decisions decreases as less time is devoted to unimportant matters and as individuals become more conscious about how they make their spending choices. The result of such foresight and planning is a more efficient, specialized individual

in a more productive community. While life is indeed a stage and many of its actors merely poor decision-makers, not everyone has to be one of them.

Thank God It’s Thursday

MOVING TOWARDS A FOUR-DAY WORK WEEK (FINALLY) by Carin Papendorp

n 1956, President Nixon called a four day work week “inevitable with our time,” and predicted its arrival in the “not-too-distant future.” Almost 60 years later, not much has changed: most businesses still structure their weeks around a five day, eight hour daily (or “5/8”) schedule. Nevertheless, there are some companies that have decided to try something different. One of these companies is Reusser Design, a web development company based in Indiana. At Reusser, you will not find anyone in the office on Fridays. Between Monday and Thursday, the Reusser office runs from 6:30am to 5:30pm. And, with a team of just ten people, this schedule yields impressive results. With the potential to cut costs while also in-

creasing productivity, a four day, ten hour (or a “4/10”) workweek could serve as a financial boon to companies brave enough to try it out. And, the employees win too: every weekend becomes a long weekend. NO MORE CASUAL FRIDAYS Anyone who has worked in an office has probably noticed the burnout that many employees experience as the workweek comes to an end. In 2007, a study at the London School of Economics found that this is a common occurrence. Participants in the study considered their most productive days to be at the start of the week (Mondays and Tuesdays) and their least productive days to be at the end of the week (Thursdays and Fridays). Besides having distracting thoughts about weekend plans, why else would employees be less productive on Fridays? According to the concept of ‘Practice Efficiency,’ the more efficient one becomes at a task, the less time one has to spend on it. Consequently, early in the week, practice efficiency is low, since employees have to remind themselves of their tasks from before the weekend. Throughout the week, as employees become used to doing that task, their practice efficiency increases throughout the week. However, the accumulation of fatigue causes a counterbalancing

The “5/8” Work Week

The “4/10” Work Week

4 8 12 ur

4 8 12

PERSONAL FINANCE

reduction in productivity. Therefore, the ideal time to end the work week is before this buildup of fatigue overcomes the positive effects of practice efficiency. Proponents of the four day work week claim that a 4/10 system strikes this balance, preventing employees from extending the “Casual Friday” attitude to their workload as well as their dress code. GOING GREEN TO SAVE GREEN Cutting down the days of the work week also cuts costs. A four day work week saves companies 52 days worth of utilities costs each year, as there is no need for lighting, heating, or air conditioning in the offices on Fridays. In arid Utah, the state government implemented a 4/10 work week. The energy savings were too great to ignore: Utah CIO Steve Fletcher projected $3 million in annual energy savings

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the best of the labor market without spending more on salaries or benefits. To attract employees in the midst of labor shortages in Japan, Japanese retailer Uniqlo recently gave workers in its stores the option to work 4/10 weeks instead of 5/8. Although the same absolute number of hours are logged per week in a 4/10 or 5/8 schedule, the three day weekend implied by a four day week makes it easier for employees to complete projects or travel during the weekend. WORKING HARD, OR HARDLY WORKING? Since the Industrial Revolution, workers have been fighting for shorter, more flexible work weeks. In 1836, workers in Philadelphia campaigned for ten hour days: “From 6 to 6, ten hours work and two hours for meals.” The assumption at the

REBALANCING THE WORK-LIFE BALANCE Why has the U.S. has failed again and again to implement a more efficient work week? Other developed countries, such as France, Norway, and the Netherlands, have been able to achieve a similar GDP per capita with citizens logging fewer hours in the office. So, are Americans too driven and materialistic to enjoy their leisure time? Or, as Keynes put it, maybe we are just “trained too long to strive and not to enjoy.” A study commissioned by the U.S. Travel Association found that in 2014, four out of ten Americans failed to use all their paid vacation days. In total, about 169 million paid vacation days were forfeited. Whether motivated by job insecurity, eagerness to appear productive, or true dedication to their jobs, Americans cannot seem to take

Keynes predicted that in a hundred years, Americans would have to resort to “a fifteen-hour week” just to stave off boredom.

across the government’s many offices. Imagine what these savings could be in California, for example, a state with thirteen times the population of Utah! Despite a more modest actual savings of $502,000 yearly, the program (unsurprisingly) enjoyed overwhelming popularity with employees: an HR survey found that more than 82 percent of employees favored the 4/10 system. Although Fletcher had expected that online services would largely replace the demand for in-person government services, Utah returned to a conventional work week in 2011, in response to complaints from citizens and businesses who wanted access government offices on Fridays. (Apparently consumers demand their right to spend a Friday afternoon at the DMV!) The popularity of unconventional schedules amongst employees can also help businesses snag

time was that modern, technologically advanced economies would no longer require people to work so much. In 1930, John Maynard Keynes predicted that, as a result of technological innovation, Americans in one hundred years would have to resort to “threehour shifts or a fifteen-hour week” just to stave off boredom. A c tu ally, the wor k we e k has r e m a in e d c ons tant or, if anyth in g , inc r e as e d in le ngth s inc e K ey n es ’s time . In 2014, a Gallu p p o ll found that full-time e m p lo y e e s in the U .S. wor k an a v e r a g e of 46.7 hour s a we e k, with o n ly 42 pe r c e nt ac tually wo r k in g the s uppos e dly s tandar d 4 0 h o u r we e k. Still, an A BC ne ws p o ll fo u nd that only a quar te r o f A m e r ic ans fe e l the y wor k too m u ch . T he long-he ld the or y that a s tec h n ology and c iviliz ation a d v a n ce , A me r ic ans will s pe nd le s s tim e at the offic e and mor e tim e a t l e is ur e , has not he ld tr ue .

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the day off. Still, the appeal of three day weekends and the popularity of the Utah project imply that Nixon’s prediction might be more attractive to Americans than labor data would suggest. Expe r ime ntation is ne c essary: as the U tah e xpe r ime nt s how s, alte r native s c he dule s may not wor k for bus ine s s e s whos e custome r s de mand r e gular openi ng hour s . H owe ve r, in c as e s w here te c hnology (s uc h as an aut om ate d c us tome r s e r vic e ) c an reduce the ne e d for r ound-the -c lock e mploye e pr e s e nc e , the tim e i s r ipe for ne w mode ls . The shi f t t o alte r native wor k we e ks need not be lar ge s c ale , but the be n ef i t s to e mploye e fle xibility, productivity, and e ne r gy s avings shoul d not be ignor e d. In any c a se, i t may be time for bus ine s s e s t o s tar t making c ons c ious deci si ons about the ir wor k we e k s truct ure ins te ad of de faulting to the arbitr ar y s tandar d.

INTERCOLLEGIATE FINANCE JOURNAL • FALL 2015

Hey, Now You’re an All Star PLAYING THE GAME OF PEER-TO-PEER LENDING by Stephen Kearns

n the United States, anyone over the age of 18 has the legal freedom to invest. So, why do most of us tend to stick to our fantasy sports drafts, and throw in the actual money-making towel? Many use the excuse that they do not know enough about investing, or that they do not have enough money to actually participate. The reality is: starting to invest at a young age can be hugely profitable in the long term, remarkably simple, and lots of fun. STACK YOUR TEAM In Draft Kings, Fan Duel, and ESPN Fantasy Games, successful “coaches” pick their teams based on an array of stats and historical performance metrics. Similarly, lending platforms such as Lending Club and Prosper provide information on borrowers including gross income, job title, and the number of open credit lines. Using this information, lenders can incorporate their own strategies and ideas into the way they play - or in this case, invest. Lending platforms give each potential borrower a letter grade rating (A1 through G3) and scales their interest payments accordingly.

L e n d e r s the n fac e a dr aft p ic k : th e y ge t to c hoos e who to le n d to and in what amount, a n d th eir mone y will be paid b a ck v ia monthly payme nts fr om th e b o r r owe r. So if I c ontr ibute $ 1 0 0 to Bor r owe r A’s r e que s t for a $ 1 ,0 0 0 loan, I c an e xpe c t 10 p e r c e n t of his monthly inte r e s t p a y m en ts going for war d, minus a 1 p e r c e nt fe e fr om Le nding C lub. T h e r is k is that if the bor r owe r d e fa u lts , the inte r e s t payme nts s to p . B u t the c ompany c laims th a t th is unlike ly e ve nt te nds to o n ly a ffe c t 3 pe r c e nt of e ar nings , s o a well dive r s ifie d por tfolio will a lm os t always make a pr ofit. A c c o r d ing to its we bs ite , Le ndin g C lu b inve s tor s with at le as t $ 2 ,5 0 0 in 100 diffe r e nt loans h a v e m a de a pr ofit 99.9 pe r c e nt o f th e time . In order to minimize the risk of default, risk-averse investors may only invest in borrowers with high-paying jobs and credit scores over 700. This peace of mind does not come cheap, because the returns for less-risky loans will be lower. On the other hand, a more risk-prone individual may lend to some C and D rated borrowers, whose credit scores

are likely much lower, with the hope of realizing big returns. THE LOAN RANGER Peer-to-peer lending also provides the opportunity for entrepreneurs and small businesses with lower credit scores to borrow. Individuals with lower credit scores are typically barred access to loans from the bank because they have higher standards for credit histories. During times of macro financial hardship, such as the “Credit-Crunch” in 2007, it can be almost impossible for an individual without a strong credit history to apply for a loan at a commercial bank. Sourcing debt from investors can diminish such effects and create a more accessible lending institution. This means a business can spend less time focusing on its finances and more time contributing value to society. According to a study by Bank of America, 14 percent of millennial business owners receive loans from peer-to-peer lending agencies. Websites like Lending Club and Prosper allow individuals to invest money in notes to borrowers, who could be people

How Lending Club Works

Borrowers apply for loans. Investors open an account.

Borrowers get funded. Investors build a portfolio.

Borrowers repay automatically. Investors earn and reinvest.

PERSONAL FINANCE

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Using this information, lenders can incorporate their own strategies and ideas into the way they play - or in this case, invest.

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or businesses, requesting a loan without going through traditional financial intermediaries, such as commercial banks. Lending Club gives each of the borrowers a letter grade rating (A1 through G3) and scales the interest payments accordingly.

SURVIVING THE DRAFT PICK It is clear that consumers are attracted to choice and customization. If you can reshuffle your fantasy football team every week, or decide your ideal ratio of beans to rice in a burrito bowl, you should also be able to decide exactly which kinds of investments make up your portfolio. Lending Club gives you the power to construct your own custom “mutual fund” with just the right amount of risk you’re personally willing to take on. Investing does not need to be about extensive numbers and graphs that seem too complicated to even try to understand. Millennials need to do more with their money than simply watch it accrue 0.25 percent interest in a savings account, because after a year that likely will not cover a single trip to Chipotle. Peer-to-peer lending is an increasingly popular way to see returns on an investment without comprehensive knowledge of the stock market or other traditional money-growing methods. Given the apparent steady positive returns, institutional banking may need to start addressing the potential for an disruptive business model such as Lending Club. If credit can be obtained from random strangers easier and at lower rates than commercial banks, the very core of our banking system has the potential to drastically change over time.

Photo by Cadence Lee

STARTUPS & TECHNOLOGY

The Rise of Online Education

IS THE INTERNET REPLACING COLLEGE? by Angela Marie Teng Photo by Cadence Lee

GETTING TO THE GAME How Brown Students Tilted their way to Cambridge, Katharine Jessiman-Ketcham 32

THE COST OF CONTENT How Ad Blockers are Ruining the Internet, Liz Studlick 33

THE AGE OF SOCIAL MEDIA MARKETING From Television Sets to Smartphones, Haris Memon 34

he last decade has seen some of the world’s greatest advancements in technology. In the field of education, there have been numerous innovations that have helped the modern student learn more effectively. Online tutorials and websites like Khan Academy, Coursera, and YouTube give students all over the world the opportunity to have a personal tutor at their disposal. In 2012, an article from Forbes revealed that over the past two years, Khan Academy videos have been viewed more than 200 million times. The 6 million monthly unique students have collectively solved more than 750 million problems. The material, provided at no cost, is part of the curriculum in 20,000 classrooms around the world. These wild successes go beyond Khan Academy. In 2013, only two years after Coursera’s foundation, it had already attracted more than 4 million students. YouTube alone has over one billion users—almost one third of all the people on the internet. These staggering numbers alone imply the great demand for these online academic materials. Moreover, other resources made available by the Internet allow students access to a plethora of information. While more and more of these creative modernizations have certainly made the life of a student easier, the question remains: could an online education be a substitute for a college degree?

THE ONLINE TEACHER Students are increasingly turning to the web as an addition to--or replacement for—traditional college classes.

THE COST OF COLLEGE With the ever-increasing tuition fees and prevalence of student loans, both undergraduates and their parents are constantly seeking ways to fund college. Today, a year of university could cost as much as $62,000. While student loans and scholarships help reduce the monetary burden, the disconnect between the labor market and the labor force of recent graduates also creates a problem when evaluating the cost of a college education. Thus, both parents and students are left asking; is there an alternative? Anant Agarwal, the founder of EdX, believes there is. EdX is an online learning platform that partners with some of the best universities in the world, including Harvard, MIT, Caltech, The University of Chicago, Berkeley, Cornell, Columbia, Dartmouth, and The Hong

INTERCOLLEGIATE FINANCE JOURNAL • FALL 2015

Kong University of Science and Technology, to name a few. EdX “presents the best of higher education online, offering opportunity to anyone who wants to achieve, thrive, and grow.” Considered as the “largest non-for-profit MOOC,” EdX attracted over 155,000 students from 162 countries only in its third year. Anant Agarwal’s background with using online learning at MIT through OpenCourseWare helped shaped the fundamentals of EdX. As Peter High, a Forbes contributor, said, “experimentation is the path to innovation.” Through this free platform, anyone anywhere can have access to college level course taught by professors at excellent universities. DOES HOME WORK? Massive online open courses like the ones offered at EdX have transformed the quality and scale of education through technology. As of April 2015, EdX has over 4 million users. Agarwal cites a few reasons why this model works, especially with the millennial generation who are comfortable with technology. First of all, it promotes active learning by students. Not only are there course videos for each class, there are also activities after each topic to make sure that the student understands the lesson. Second, online videos allow students the luxury of self-pacing. Gone are the days when students need to scribble notes tirelessly, because now they can pause, replay, and fast forward the video lecture according to their own pace. Third, students get instant feedback on their performance via pop-up quizzes and interactive chat rooms for students and professors. These interactive chat rooms contribute to peer learning, further enhancing and enriching their experience. And lastly, there are online laboratories which allow students to perform various experiments, all in the comfort of their homes. However, there are some cons to online learning. First of all, students need to be highly self-motivated, mature, disciplined, and well-organized to utilized this type of education. Online learning cannot work if the student does not participate actively and complete the course requirements without being prodded. Second, while students can interact with their peers and professors through chatrooms and discussion groups, online ed-

ucation still provides more limited social interactions when compared to traditional universities. In college, students live with their classmates and interact with them in dorms, Greek houses, classrooms, and parties. While a blended online learning model could provide this, most learning is commonly done from the confines of one’s home. Third, if a student is not tech-savvy or does not have the required technology, it may be more difficult to maximize the benefits of online learning. Slow internet, especially in developing countries, could be a huge hindrance to learning from videos and activities online. PUSHING THE BOUNDARIES Although there are obvious benefits to online learning, many economists and educators still believe that this cannot be a substitute for college. Some cite signaling theory as the reason behind this, pointing out that part of the tuition fee a student pays is for the name of the school they attend. The bigger and more prestigious the name of the school, the higher the productivity and thus the higher the wage associated with that student. Other experts debate on what type of output society wants from education—are we looking just for academic excellence, or do we also want to consider the social aspect of attending college? Still others point to human capital as a cause of differences in educational attainment. Are students involved enough in online education that their tests serve as accurate assessments of what they’re learning, or are students simply Googling all the answers while taking an online test? While there is broad debate surrounding this topic, it cannot be argued that these innovations have changed the way we look at and implement education. Today, there are different approaches to incorporate advances in technology and education. These different “blends” of education come in many forms. Some schools advocate the use of online videos as a substitute to classroom chalkboard lectures, thus allowing the student to come to class to discuss homework or problem sets and analyze specific concerns. While online education may not be a substitute to a college education, it does have numerous benefits for increasing the accessibility and quality of education.

Getting to the Game HOW BROWN STUDENTS TILTED THEIR WAY TO CAMBRIDGE by Katharine Jessiman-Ketcham

aising capital is not something one would typically envision a college student to be able to do at the click of a button. Between loans, textbooks, and weekend fun, your average college student can’t take the risk of chartering a bus (or four) in his name and relying on a hundred students to give him an I.O.U. to cover the cost. But with Tilt, one of the newest crowdfunding apps hitting college campuses, one Brown student was able to raise $1,850 to pay for buses to take 111 Brunonians up to to Harvard (and back) for the first football game of the year for only $15 per person. In general, the great advantage to money-collecting apps like Tilt is the mitigation of risk the service provides for money-collecting: no one has to go out on a limb and cross their fingers you’ll pay them back. And with that simple innovation comes the realization that the world really is your oyster for some spare change and the desire to throw an epic tailgate. SUPPLY OF MONEY, DEMAND FOR FUN Organized by a few Brunonians as a Facebook event with the offer to “come out and get rowdy to defeat Harvard in both tailgating and football” and a link to their Tilt page, the hosts asked interested students to pay $15 to get a round-trip ticket on chartered buses. When the group hit $660, the Tilt “College Team” added $50 to the effort. As demand surged, more buses were added, more tickets were purchased, and the goal “tilted” five days before the big game. Ultimately 111 students contributed, raising a grand total of $1,865—$35 over the goal. Students left campus Saturday afternoon, enjoyed themselves at the tailgate, cheered loudly during the game, and made it back all before midnight. In a model of near-perfect market efficiency that your Principles professor thought he’d only ever see in his dreams, everyone appears to have gotten what they wanted.

STARTUPS & TECHNOLOGY

CLICK FOR CASH With a simple blue-and-white website, mobile app, and the message, “make something happen,” Tilt has all the trappings of a millennial-era tech startup. Along the bottom of the page, recent campaign achievements are displayed: Zak collected $1,916 for “an epic crawfish boil,” Snoopdog sold 792 shirts, the Jamaican Bobsled team raised $129,000 to go to the Olympics... There is even a page for the Tilt “College Ambassador” Team dedicated to the sole task of helping you throw parties. In terms of logistics, it seems pretty simple: you set a minimum goal (called the “tilt”), upload a picture, invite your friends and wait. Anyone can add their share at any time, but no one’s card is charged until that minimum target price has been reached. Your funds are sent to you within one business day. CROWDFUNDING: EVOLUTION OR DEVOLUTION? Tilt CEO James Beshara really seems to believe that his app will make the world a better place, telling TechCrunch that crowdfunding will be “a decade-defining phenomenon.” But what sets Tilt apart from other crowdfunding apps out there such as GoFundMe, Kickstarter, and Indiegogo? GoFundMe purports to be the fundraising tool for important personal causes—anything from medical bills to tuition costs to weddings. Kickstarter champions itself as a platform for creativity, helping artists of all kinds turn their ideas into reality. Indiegogo markets itself as a fundraising site for businesses and nonprofits. And now there’s Tilt; with no clear altruistic mission, it has positioned itself in a grey area somewhere between money-collecting and crowd-funding. At the moment, however, its only real success appears to be that it’s caught the attention of college students who want to throw down for a party—why someone would want to use Tilt over Venmo or PayPal remains unclear. Behind Tilt’s facade of an anything-is-possible service, there seems to be a deeper message to our generation: if you have the money, you can do anything you want. Of course, we’re familiar with that concept: consumerism lies at the very core of our culture. However, gazing into the future, as we move towards an increasingly one-toone, service-based economy, in which you pay for your every experience, the service Tilt provides should be called into question. What does a society based entirely on payment for services and fun designed for a consumer look like? Or are we already there?

The Cost of Content

THE WRATH OF AD BLOCKERS THE ECONOMIST

WITHOUT AD BLOCKER

HOW AD BLOCKERS ARE RUINING THE INTERNET by Liz Studlick

pple recently made news when it allowed iPhone users to install apps that take away a long-irritating facet of browsing: ads. A New York Times reviewer recently looked at improvements from different blocker apps, and found unsurprisingly that phones without ads did much better on key metrics like loading times, data usage, and battery life. But this review came with a brief caveat: most sites—including the New York Times itself—rely on ad revenue to survive. Without seeing ads, it cautioned, users would leave sites in the lurch. That’s the price you pay for an ad-free experience, right? STOP THAT AD Ad blockers have been around for almost a decade on personal computers as both desktop software and browser plugins. Adblock Plus, one of the most popular, was released in 2006; AdBlock, another popular and creatively named program, was released in 2009. Both pieces of software remove banner ads, sponsored videos, and other obnoxious content. Advocates cite quicker and cleaner browsing, as well as increased security, from living an ad-free life. These blockers have caught on in a big way. PageFair, which monitors ad reception, places active ad-blocking users at 198 million globally as of August 2015. These users collectively blocked an average of 15 percent of ads in the US, costing sites an estimated $22 billion in revenue this year. With blockers spreading to mobile, this number is projected to grow dramatically.

WITH AD BLOCKER

FORBES WITHOUT AD BLOCKER

WITH AD BLOCKER

THE REAL COST A large amount of online content is financially supported by ads, from the Huffington Post to independent bloggers to YouTube stars. Their payment is based both on clicks on the ad and overall impressions—meaning how many people see the ad. The New York Times charges $8 per thousand impressions, which means that every time you

INTERCOLLEGIATE FINANCE JOURNAL • FALL 2015

read an article, they make about fourfifths of a cent. With an ad blocker turned on, they get nothing. This may not sound like much, but consider an audience of a million people reading that article. That would mean $8,000 in profit. But wait, take off the 15 percent using ad blockers. Now we have $6,800. Multiply that across every site and you can see how it starts to add up. When you block ads, you get your content for free and force the site to bear the cost. DON’T BLOCK ME, BRO Companies are well aware of this problem. Some publications have recognized that ad-based models may no longer be sustainable, switching to subscription models or featuring advertiser-inspired articles (like BuzzFeed sponsored posts). Others have chosen to fight fire with fire, working with startups that detect, quantify and work around the problem. Some even choose not to display content for users with blockers on, instead showing a message that what they’re doing threatens their business model.

“

When you block ads, you get your content for free and force the site to bear the cost.

FROM TELEVISION SETS TO SMARTPHONES by Haris Memon

”

If ad blockers continue rising at such a rapid rate, there’s the possibility of a dystopian Internet where increasingly powerful ad blockers battle against increasingly powerful anti-ad blockers. Hundreds of thousands of dollars are wasted for the pleasance of a cleaner browsing experience while media companies languish without revenue. There is a way to use ad blockers more ethically: whitelisting websites. This allows users to block ads on the general web, but still display it on selected sites, balancing the benefits of an ad-free world with the knowledge that you’re not screwing your favorite sites over. That said, few people actually bother to go through and mark these. And doesn’t it say something that the solution to the ad blocking problem is just turning it off?

The Age of Social Media Marketing

ine, Instagram, Snapchat. Five years ago, no one had heard of any of these. Now, every millennial is on Vine, and everyone from 12 year old teenage girls to 28 year old working professionals are on Snapchat. Instagram recently reached over 400 million users. Brands have not ignored this. Think about the type of engagement social media celebrities on these platforms have. When you’re watching TV and a commercial comes on, you’re typically on your phone or going to the bathroom. You’re there for the TV, not the commercial. Now what if your favorite TV show had ads built in? Not overly promotional, just subtle, but perfected, product placement. Though TV shows have product placement, it is not accessible for every brand and the costs are far too high. Product placement is not nearly as effective as actively promoting a brand. But with social media, even small brands can tap into millions of users and have more unique, active promotions. That changes the game. Brands would throw billions at that. That’s exactly what’s beginning to happen on social media platforms. SHOW ME THE MONEY Fans are fully engaged in their favorite Viner’s post or their role model’s Instagram picture. They’re liking, commenting, revining, and tagging friends. Recently, Pew Research Center reported that a majority of current 13-17 year olds claim that they prefer online networking over in-person connections. As a result of these digital stars acquiring millions of these young fans and getting active engagement from all over the world, they have attained the attention of massive brands like Coca Cola, HP, and Bud Light. Kofi Frimpong, Founder & CEO of BrandSlip, a company that connects these brands with influencers, says, “I’ve seen influencers make six figures from one post before.” While there are many influencers who only make a few hundred dollars on each post, the ones who are raking in six figures are not just a few outliers. The potential earnings of these influencers are insane. When asked about corporate spending on tradition-

al advertising, like commercials versus influencer advertising, Kofi stated, “Both forms of marketing are necessary in some regards, but influencer marketing can no longer be ignored.” In 2013, advertisers in the US spent over $5 billion on social media marketing, a figure that is expected to increase to $14 billion by 2018. HOLLYWOOD 2.0 These social media celebrities are now more powerful than their counterparts in Hollywood. Research from influencer marketing companies indicates that millennials recognize social media celebrities more than Hollywood celebrities. Millennials are the future, so this indicates a rising trend that will only get stronger. Although brands are increasingly going through influencer marketing campaigns rather than traditional celebrities, the latter are getting paid far more for promotional posts. Due to the more legitimate brand that is built around a specific Hollywood celebrity, they can demand more money. A Hollywood celebrity may get several hundred thousand dollars for a single post, whereas an influencer with a similar platform or fan base would get a fraction of that. For example, Kylie Jenner and Justin Bieber could easily rake in millions with Instagram ads, whereas the top social media influencers would earn in the low six figures annually. McKinsey performed a study on “consumer to consumer” marketing by word of mouth (basically what social media influencers do) and found that there was a 37% higher retention rate from customers who were acquired through this type of marketing versus traditional paid advertising. Companies have paid attention: Salesforce reports that “70% of brands are increasing their social media spend this coming year.” Klarity, a Viner with 3.8 million followers, was homeless before his break out as a social media star. Now, he’s getting paid to leverage his reach for the likes of Coca Cola and many other brands. The Kylie Jenners and KingBachs (currently the largest social media influencer) of the world have caused brands to plunge billions in marketing dollars for their social media presences. It’s not that brands want to, it’s that they have to. Social media has changed the status quo, not the brands. #OOTD Don’t just take my word for it. Let’s take a look at a sample influencer marketing campaigns. Lord & Taylor performed a campaign with 50 Instagram influencers. They all posted a picture of themselves wearing the same dress on the same day. Instantly this became the “in” dress in mainstream culture, and the dress was sold out the next weekend.

STARTUPS & TECHNOLOGY

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Social media celebrities are now more powerful than their counterparts in Hollywood.

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Brands like Coca-Cola and Paramount Pictures have also taken advantage of the fact that these influencers have entertaining personalities, not just a platform with a million followers. Thus, they’ve paid these influencers to take over the company platforms for a day or two, either for a specific event or just to increase traffic. Coca-Cola recently had a celebrity Viner, Klarity, take over their Snapchat for a day. Paramount had many influencers take over their Snapchat and go to a haunted trail to promote an upcoming horror movie. WIN-WIN MARKETING? Everyone is taking advantage of influencer marketing—both brands and influencers. Influencers are raking in money from these posts, and brands are increasing their revenue by millions from such effective advertising. The $4 billion spend will continue to grow each year as social media takes over increasingly large parts of consumers’ lives. Not only are influencers making six figures off of one post, but many are also getting paid to appear in TV shows and movies. KingBach is about to star in his very own show hosted by Fox. Social media marketing can’t be perfect, however. Seeing ads all over your social networks could start to get annoying, and these influencers may be seen as “spammy.” A lot of times, followers will post angry comments on promotional posts. They start to bash the influencer, as if the influencer was a friend that is betraying them with these posts. They are browsing their page for entertaining posts, yet encounter ads and promotions instead. As influencer marketing becomes more ubiquitous, this phenomenon could get worse. Next time you watch a promotional Vine, Instagram post, or Snapchat, just think about how you are feeling. Do you feel like you are being sold something, or does it feel like the influencer is simply showing you a product they love to use everyday? Corporations are betting billions that it’s the latter, but time will tell. The level of engagement of social media can far surpass other platforms, and the sky’s the limit in terms of its potential.

Nike commissioned Casey Neistat to film a 4-minute ad; he Nike commissioned visited 13 countries in Casey Neistat to ten days. The commerfilm a 4-minute ad; he cial 1.5 million Nikehit commissioned visited 13 countries in views on Neistat Youtube into Casey ten days. The commerless than three days. film a 4-minute ad; he cial hit 1.5 million visited 13 countries in views on Youtube in ten days. The commerless than three days. cial hit 1.5 million Margaret Zhang views on Youtube in , aless lawthan student threefrom days. Sydney, works as a Margaret Zhang, creative consultant for a law student from Swarovski, Clinique, Sydney, works as a Yeezy, UNIQLO, Nike, , Margaret Zhang creative consultant for Louisfrom Vuitton. aVisa, lawand student Swarovski, Clinique, Sydney, works as a Yeezy, UNIQLO, Nike, creative consultant for Visa, and Louis Vuitton. Swarovski, Clinique, Yeezy, UNIQLO, Nike, Visa, andDiFeo Louis Vuitton. Brian founded Mobile Media Lab, which pairs instaBrian DiFeo grammers with brands founded Mobile Media looking for influencers. Lab, which pairs instaABrian user with 200,000 DiFeo grammers with brands followersMobile can make founded Media looking for influencers. $5-7000 month. Lab, whichper pairs instaA user with 200,000 grammers with brands followers can make looking for influencers. $5-7000 per month. A user with 200,000 followers can make $5-7000 per month. 35

CAREERS

State of the Art THE ART MARKET’S HIDDEN PLAYERS by Kathryn Scott

rts

SOCIAL WORK How the Future Workplace Rewards Soft Skills, Christian Ackmann 38

CEO2 The Transformation of Jack Dorsey, Fran Whitehead 40

RECRUITING FROM ABROAD How to Find an Internship from Millions of Miles Away, Christian Ackmann 42

rt advisors have played an indirect role in the art market for centuries, typically acting as consultants and guides to wealthy individuals who are deciding which works to purchase. Until recently, advisors were typically distinct from the actual transaction itself, and the barriers to entry to becoming an adviser were high: common prerequisites included training in art history, work experience for influential auction houses such as Christie’s or Sotheby’s, and insight into the inner workings of a historically impenetrable sector. But as the art market has expanded at a seemingly exponential pace, with individual pieces claiming exorbitant prices at auctions – Alberto Giacometti’s sculpture ‘Pointing Man’ sold in May 2015 for $141.3 million, setting a new record – art advisors have increasingly begun to resemble brokers, often playing a critical role in clients’ purchases. Additionally, the art advising field is seeing an influx of new players, some of which are former top professionals in the auction houses with which they now cut deals. These developments have raised concerns among some art industry veterans about the tenuous line between advisor and broker, particularly because art advisors do not need licenses or formal qualifications. Whether the profession will be secure or lucrative in the long-term remains to be seen, but for now, art advisors are capitalizing on an unmet demand in the art market for individuals with leverage and foresight, often in exchange for a hefty fee. BEAUTY IS IN THE EYE OF THE INVESTOR The art market has undergone many changes in recent years, most notably the expansion of its client base, particularly in Asia and Russia. International investors have become more active in the art market, often comprising a significant portion of buyers at esteemed auction houses. Auction houses and other suppliers have responded to this wider client base by making information more widely available and accessible: this past May’s auction of contemporary art at Christie’s International, for instance, featured an electronic screen that according to the Wall Street Journal, “flashed bids in seven currencies including rubles, Swiss francs, and Hong Kong dollars.” Many of these international buyers are newly wealthy individuals seeking to invest their cash in a secure commodity with guaranteed high returns. While collecting art was once intimately associated with culture, elitism, and personal pleasure, many of the newer buyers in the art

INTERCOLLEGIATE FINANCE JOURNAL • FALL 2015

market are concerned chiefly with profit. The surge of deep-pocketed international investors has disrupted the so-called ‘information monopoly’ on prices that regions such as the U.S. and Europe have enjoyed for several centuries. Competing in today’s art market requires new tactics, faster communication and, in some cases, brute force. DANGEROUS EXPANSION Who governs these new professional ‘art advisors,’ ensuring that they comply with existing laws and protecting clients by sanctioning them to practice? The current oversight is questionable at best. The New York Times reported in May that “no organization tracks the number of art advisers,” most of whom are unlicensed, although prospective art advisors may join the Association of Professional Art Advisors at their individual discretion. Art advisors have nonetheless been subjects of litigation, most often for allegations of money laundering and insider dealing. A recent example of the claims brought against art advisors is the ongoing, highly public legal dispute between Yves Bouvier, a Swiss art dealer, and Russian billionaire Dmitry Rybolovlev. In February 2015, Rybolovlev filed a complaint against Bouvier for fraud; he alleged that Bouvier misled him about artwork price information, secretly earning profits on the sales of these overvalued works. According to Bloomberg, this conflict is “one of the biggest cases of alleged art fraud to ever hit the art market,” largely due to the the sheer volume and scale of the transactions that Bouvier facilitated: Bloomberg reported in April 2015 that Rybolovlev has “spent more than $2 billion buying more than 40 works of art through Bouvier.” It goes without saying that entrusting someone with $2 billion necessitates oversight of the person’s credibility, background, and fiduciary interests. Yet due to the vacuum of officials responsible for overseeing art advisors, issues arising between art advisors and collectors are delegated to the judicial system.

Many veteran dealers worry about the countless individuals now calling themselves ‘art advisors,’ some of whom have little industry experience or knowledge and charge clients on commission for large purchases, often amassing personal fortunes in the process. Indeed, the salary of an art advisor, which although variable is often in the $10-20 million range for top dealers, far exceeds that of an employee for an auction house, which peaks at $1 million plus bonuses. Employees in top auction house positions typically work for the same auction house for years, sometimes decades; this longevity facilitates close, stable relationships with clients and clout within the industry, despite the relatively lower wages. The downside of working for an auction house, however, is overhead costs: a percentage of your salary goes directly to the auction house. Thus it follows that veteran employees of auction houses, having accumulated knowledge and formed connections with clients, view art advising as a more profitable and autonomous venture. SPECULATION FEEDING FRENZY The advent of new online platforms for art, such as Artnet and Instagram, has also heightened the competition to stay informed. Using these platforms, artists can acquire patrons more easily, and make their work more accessible to potential buyers. Art advisers also use these platforms to promote artists that they suspect will attract a wide following. Nevertheless, such intuitions can compel an art advisor to pressure a client to invest in certain artists or sell works at prices far above market value, artificially inflating the works’ prices and feeding a dangerous speculative bubble. The mutually reinforcing investor optimism, which has raised the price of art above its realistic value, can only continue to generate profits for as long as there are buyers willing to pay these exaggerated prices. Despite the art market’s continuing growth, no one can predict the longevity of this trend. Economic downturns and

While collecting art was once intimately associated with culture, elitism, and personal pleasure, many of the newer buyers in the art market are concerned chiefly with profit.

“ 38

changes in interest rates are among the host of potential factors that could cause this bubble to “burst”. Furthermore, the law of mean reversion as applied to markets holds that while markets experience periods of both price appreciation and depreciation, in the long term they will revert to the mean, suggesting that the speculative bubble cannot continue indefinitely. Art advisors may be meeting investor demand for information and clout in an increasingly competitive sector, but the resulting rapidity of price increases threatens the value of art as a stable, long-term investment commodity.

Social Work

HOW THE FUTURE WORKPLACE REWARDS SOFT SKILLS by Christian Ackmann

he idea that social skills are rewarded in the job market is not a new one. Best-selling self-help books like How to Win Friends and Influence People by Dale Carnegie have stressed the importance of interpersonal skills and leadership since 1936 and earlier. However, measuring the impact of social skills is not an easy task. And tracking these results over time isn’t any easier. Recently, new research has emerged that attempts to quantify the importance of social skills in determining wages. SOFT SKILLS, HARD EVIDENCE David Deming, an associate professor of economics at Harvard, has written a working paper that attempts to answer the question of how social skills are rewarded. To do this, he created a model where social skills are defined by how well a person can work on a team. People with high social skills are able to work more efficiently in teams by quickly and cheaply allocating tasks among the rest of the group. But social skills have different effects on different types of tasks. For example, a very routine task like working on an assembly line does not benefit much from high levels of social skills. On the other hand, tasks that require persuasion and an ability to work with others benefit significantly from social skills. Deming describes tasks that

CAREERS

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It may seem intuitive to fear that robots will someday take all of our jobs.

vary along two axes: cognitive skill intensity and routineness. Any job may require performing a unique combination of tasks along this spectrum. Deming finds that “employment and wage growth has been strongest in jobs that require high levels of both cognitive skill and social skill.” In other words, jobs requiring analytical skills and social skills have experienced the highest wage growth and employment growth in recent years. This is partly due to the fact that we can’t replicate this skill combination through technology. Since social interaction occurs mostly unconsciously in humans, it is difficult to program these skills into a computer.

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HUMANS: ROBOTS WITH SOCIAL SKILLS One common belief is that recent technological advancements are allowing many jobs to be automated. Therefore, it may seem intuitive to fear that robots will someday take all of our jobs. But technology and automation have very different implications for some types of tasks compared to others. As expected, low-skill routine work has been declining for many years due to the rise in automation. At the same time, the number of low-skill service jobs has been increasing (it has been easier to automate steps on an assembly line than it has been to automate the tasks done by a janitor). As Dem-

ing points out, growth has also been high for jobs requiring both analytical and social skills. The group in the middle, however, has been left out of this growing trend. Technical occupations that require analytical skills but very little social skills have been decreasing. According to MIT economist David Autor, middle-skill occupations which made up 60 percent of all jobs in 1979 only accounted for 46 percent of jobs in 2012. This effect is commonly described as the polarization of the job market – the growth of low-skill service jobs and high cognitive and social skill jobs has come at the expense of a sharp decline in the number of jobs that require only cognitive skills, such as electricians, actuaries, and engineering or chemical technicians. THE BENEFIT OF BEING A FEMALE DOCTOR So we know that the number of jobs and wages received by doctors, lawyers, management consultants, and other jobs that require both cognitive and social skills have been growing. Since the labor market now increasingly rewards social

SHIFTING POWER As the importance of social skills in the workplace rises, so do the wages for jobs that require them.

INTERCOLLEGIATE FINANCE JOURNAL • FALL 2015

skills, people who possess more social skills are more likely to be employed and earn higher wages. But this raises an important question: who has more social skills? Deming claims that “females consistently score higher on tests of emotional and social intelligence.” Studies have also shown that the female advantage in social skills is mostly biological, with differences in social perceptiveness often appearing in infancy. This is in sharp contrast to cognitive skills, which have no evidence of varying by gender. Given the combination of women possessing better social skills and the increasing importance of these skills in the labor market, these findings could explain part of the gradual narrowing of gender gaps in wages. What remains unclear is how much of this wage gap reduction is explained by the rising importance of social skills and whether the wage gap will continue to shrink.

CEO2

THE TRANSFORMATION OF JACK DORSEY by Fran Whitehead

hat does it take to be the CEO of two public companies? Forbes measures a CEO’s skill by using the three C’s – credibility, competence, and caring. But are these three qualities enough to make a qualified CEO? And if a CEO is qualified to run one company, what are the odds he can simultaneously run another? Jack Dorsey, founder and CEO of Twitter and Square (a mobile payments company), appears to have gone through a transformation in the last several years. After Dorsey left Twitter to found Square, he eventually came back to serve as Twitter’s interim CEO. As of October 2015, Dorsey became the permanent CEO of Twitter once again, while keeping his position as the CEO of Square. It was well known that Square was Dorsey’s passion project and many believed he wouldn’t be able to effectively lead Twitter while devoting so much of his energy to Square. Running just one of these companies would be a difficult and daunting task for most people; how will Dorsey manage both?

LEARNING TO FLY Dorsey began as a stereotypical programmer who dressed the part. He adopted the casual silicon valley vibe with his t-shirts, jeans, leather jacket, tattoos and nose rings. Like many other tech billionaires, Dorsey didn’t graduate from college; he briefly attended MIT and transferred to NYU. As the co-founder and CEO of Twitter, Dorsey was committed enough to the company to drop out of school. However, Dorsey’s interests and commitments extended well beyond Twitter, which many of his employees thought distracted him from his job as CEO. He would often run away at 6pm sharp to frequent punk rock concerts or to participate in fantasy football leagues, drawing classes, yoga, or dress-making classes. In 2008, Dorsey reportedly lost his position as CEO because of his demonstrated lack of commitment to Twitter and would not return until July 2015. Another complaint from Dorsey’s first time leading Twitter was that he was over-obsessive with the details and micromanaged his staff, much to their frustration. In addition to spreading himself too thin, Dorsey was also know for skyrocketing his superstars to the top and often overcommitting them. In 2012, two of his superstars lasted less than a year because they didn’t fully understand his demands. Referring to his initial stint as Twitter’s CEO, Business Insider called Dorsey “inept” and “a lousy first-time CEO.” One example of Dorsey’s recklessness was Twitter’s monumental mistake of not having a backup system to their database. Before this was created, if the system were to ever go down they would lose everything – every tweet ever written, every user ID, and every line of Twitter’s code. This carelessness was ultimately blamed on Dorsey, with some of his top engineers telling Business Insider that “he is in over his head.” Although Dorsey had very high standards, he was not great at communicating them. So how did this inexperienced, overcommitted, and obsessive man become the CEO of not just one, but two large tech companies? LEAVING THE NEST At around the same time as Dorsey’s founding of Square in 2011, he replaced his t-shirts and jeans for sleek Prada and Hermes suits. It also marked a period of maturity in his

leadership style, where he began to choose the details that he obsessed about and learned to clearly articulate his demands. Since his initial departure from Twitter in 2008, he has become a great communicator and motivator. Now, Dorsey routinely sends inspirational e-mails to all his employees at Twitter about his vision for the company and what motivates him to work there. Dorsey is proving that he can stop micromanaging and finally see the bigger picture, which is an important trait for someone who presides over 5,000 employees. Biz Stone, his good friend and Twitter co-founder, has also noticed a change, saying “I feel like he went into a time chamber and studied for 40 years and came out after one,” Stone said. “It’s like, what happened? Where did you get all this confidence and great answers and specificity? He seems to be much deeper now. It’s like talking to a much older person.” But is this transformation and maturation enough to run two companies? It seems Dorsey has been stacking his executive boards at both companies with people he can trust rather than micromanage. This trust is largely due to the high quality of employees Dorsey has recently hired. He has poached many qualified executives for Square’s board, including Francoise Brougher, Gokul Rajaram, Alyssa Henry, and Sarah Friar, who were previously executives at Google, Facebook, Amazon, and Goldman Sachs, respectively. He has already begun to heavily delegate the work, something he will have to continue to do and trust his employees to deliver. IS TWITTER FLYING TOO CLOSE TO THE SUN? No one has ever run two big companies simultaneously and no one is sure if Dorsey can pull this off. Furthermore, Square recently filed for an initial public offering, which will only mean more work and stress for Dorsey in the coming months. Only time will tell if he will be able to balance his commitments at both companies, or if Twitter will suffer as he focuses more on his passion project, Square. Members of Twitter’s executive board have said they wanted a fulltime CEO, yet they still offered the job to Dorsey. But as Dorsey is preparing to go on the roadshow for the Square IPO, the consensus, as stated by journalist Jason Del Rey, is that “if anyone can run these two companies. It’s Dorsey.”

INTERCOLLEGIATE FINANCE JOURNAL â&#x20AC;˘ FALL 2015

Recruiting From Ab

HOW TO FIND AN INTERNSHIP FROM TH by Christian Ackmann

BEFORE YOU LEAVE Before you leave campus, attend all the employer information sessions for companies that interest you, even if they are geared towards full-time recruiting. Introduce yourself to the recruiter and explain your situation. Ask if they have any specific policies for students who apply from abroad. When you write your cover letter, always explain which country you are studying in, what the time zone difference is, and how to best reach you.

PHONE INTERV

When scheduling an interview, alw the time zone where the employer difference prevents you from inter times, alert the employer as soon uling an interview at 4 in the mor

Most interviewers have difficulty dialing inter al numbers. If you have an international num ask the employer to set up a conference call. into the conference call using one of the inter tional dial-in numbers from your foreign pho the employer only has an American dial-in nu you can make toll-free calls to American num through Skype.

VIDEO INTERVI

If the employe them to set up both people m through the co never be affec

In order to simulate eye contact, look directly interviewerâ&#x20AC;&#x2122;s eyes on your screen. Minimize t yourself to look exclusively at the webcam.

CAREERS

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w, always list your availability in loyer is located. If the time zone interviewing during certain oon as possible to avoid schedmorning.

internationnumber, call. Dial internaphone. If in number, numbers

When talking on the phone, use either headphones with a built-in microphone or a Bluetooth headset so your hands are free to write down any notes or questions.

Most people sound more monotone over the phone than they do in person. Go out of your way to sound friendly and engaging by varying the pitch of your voice. If possible, request a video interview so you can take advantage of different types of nonverbal communication.

VIEWS

ployer schedules a video interview, ask et up a conference call simultaneously. If ple mute the video microphone and talk he conference call, the interview audio will affected by a poor internet connection.

ectly at the webcam, not the ize the window to encourage m.

If the employer has international offices, consider offering to come to their local office if they are more comfortable using their own video equipment or want a more secure connection.

Visit us at www.theifj.com