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Winter 2012

Northwestern Business Review

NU Sophomore Zoe Damacela’s Fashion Line Flourishes Matthew Wong

By 7 a.m. on a typical weekday, Zoe Damacela is already taking pictures of garments, looking over legal and tax documents, and updating the website for her self-named custom fashion design business she operates out of her Plex dorm room, Zoe Damacela Apparel. Her days end as late as 1 or 2 a.m. after a full line-up of classes, homework, press interviews, fashion events and afterparties. Damacela’s schedule, at its busiest, amounts to a 19-hour day. Five hours later, she is ready to do it all again. “Business came naturally for me,” said Damacela. “I was always selling things my whole life and my business ventures expanded little by little.” Damacela, who started her first business venture at the age of eight, is a sophomore who doubles as an entrepreneur and fashion designer with aspirations to create an internationally recognized clothing brand. Damacela already has some impressive feats to her name: keynote speaker for President Obama’s Start-Up America Initiative, a cover article in the October 2011 issue of Seventeen magazine and mentorship by model and media personality, Tyra Banks. Her popular custom-made dresses sell for as much as $300; more detailed items such as wedding dresses can net as much as $3000. It is Damacela’s entrepreneurial spirit that perhaps best accounts for her many impressive accomplishments. She is quick to point out her appreciation for the power of entrepreneurship, affirmed by her commitment to spreading its message beyond her own business ventures. Damacela is involved in the Network for Teaching Entrepreneurship, where she speaks with people in low-income communities about the importance of start-

ing entrepreneurial businesses. Her experience as a keynote speaker for President Obama’s Start-Up America Initiative as an 18-year-old illustrated the accessibility of starting one’s own business, Damacela said. “It was refreshing to have an 18-year-old teenage girl give (her) perspective on entrepreneurship,” said Damacela. “It goes to show how accessible it is, you don’t have to be a middle-aged guy to became an entrepreneur.” “I’ve been an entrepreneur since the third grade.” Damacela added. “Entrepreneurship is so important because you don’t need any prior knowledge, experience or training to get started.” Damacela started her fashion apparel line as a high school student at Whitney Young High School in Chicago with profits from her previous business


The Northwestern sophomore in Weinberg is expanding on her fashion line she started in high school. Though in high demand as a keynote speaker, Damacela still feels that she is not taken seriously. acela completed a fashion show for Chicago Coalition for the Homeless. And she is in high demand as an event speaker; Damacela recently gave a talk for the popular TED speaker series. –Zoe Damacela But Damacela’s business ventures have not been without ventures. Since then, Dam- difficulty. acela’s business has taken off. “The most challenging Initially a self-run business to thing is being taken seriously,” make clothes for her friends, she said. “At a recent event Damacela said that her clothing where I was a speaker, everybusiness now includes a board one would come up to my mom of officers including her moth- and ask if she was Zoe. It goes to er, Farah, who serves as Vice show that people still don’t take President, as well as a number me seriously.” of manufacturers and various Damacela may not have the interns. name-recognition she deserves The expansion in Damace- as a fashion designer and busila’s business has led to no short- ness owner, but they have not age of attention. affected her future ambitions. In early November, Dam“I am going to try to sell acela was featured in Latino more things online, which Fashion Week, an event that brings in more of a profit,” Damshowcases designers every year acela said. “I definitely plan in Chicago. Damacela show- on attending business school, cased a 14-piece collection at launching internationally and the five-day event and received getting more into children’s an award. In September, Dam- clothing and accessories.”

Business came naturally to me. I was always selling things my whole life and my business ventures expanded little by little.

Damacela was the keynote speaker for Obama’s Start-Up America Initiative, featured in a cover article of Seventeen magazine, mentored by Tyra Banks, and her 14-piece collection was featured in Latino Fashion Week.


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Inside This Issue

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January 2012

The Dangerous Persistence of the Eurozone Crisis Is the collapse of the euro or a recovery on its way?


Sophia Hsu

s the European Debt crisis attacks Greece, Italy, and Spain, European nations have been struggling to restore market confidence and prevent another eurozone recession. With the gross domestic product inching a mere 0.6% in the third quarter, the eurozone has reached its lowest growth rate in two years. Although Germany’s economy boasted a 2% annualized growth rate and France a 1.6% growth rate, other countries in the region have been facing contracting economies and a negative financial outlook. To combat the growing debt crisis, Germany had proposed a limited treaty change among all 27 EU nations to enforce tighter budget constraints by the end of 2012. As one senior EU official told Reuters, “they want treaty change and they are doing everything they can to push for it as rapidly as possible.” Despite Germany’s push for immediate restructuring, many EU nations like Greece, Italy, and Spain fear that they will be unable to keep up with such a fast change. Given the urgency of the situation, it will also be

difficult to adopt a plan for all EU nations. Consequently, German Chancellor Angela Merkel and French President Nicolas Sarkozy have directed their attention to just the 17 nations in the eurozone region. Initially, they outlined a proposal that takes after the Schengen III Treaty that was initially signed by only 7 members of the EU with 5 other nations joining soon after. Another possible model that has been tossed around is the creation of a mini-agreement between Germany and France alone; Sarkozy had recently acknowledged the possibility of a two-speed Europe. To combat the crisis, the


The eurozone grew a just 0.6% in the third quarter, a clear signal that the European economy may be heading towards a recession. cal changes and fiscal integra- to respond positively. Rumors tion, she believes that if imple- of these forming plans are not mented too early, the eurozone enough to instill confidence bonds will only within the market as seen by face failure. investors’ refusal to leave the Others have safety of U.S. treasuries. Dealso argued spite the urging of many eurothat common zone countries, the European bonds will Central Bank has refused to drag down the hard-earned intervene with bonds and has reputation for countries like upheld its conservative policy. Germany and increase the cost With ongoing debates and of borrowing for those who no signs of compromise, many have worked hard to achieve can only watch nervously and low loan rates. hope that the market plays out Although many are enthu- to prevent the continuation siastic that the European na- of the European debt crisis, tions are striving towards long- which has already started to term changes to their financial affect American companies like systems, the market has yet MF Global.

The eurozone has reached the lowest growth rate since its exit from the recession two years ago.

European Commission is in support of common eurozone bonds. Supporters of the plan argue that the “stability bonds” would bring back fiscal credibility to all eurozone nations, however, Germany and the European Central Bank have protested against the use of these bonds. While Merkel is in support of immediate radi-

Groupon IPO Surpasses Expectations, Paves Way for Facebook, Zynga Jordan Fudge

Reports of Groupon’s accounting problems appear not to have dissuaded investors from flocking to the daily-deal site’s offering last Friday. Initially priced at $20 per share, the stock hit $28 by the opening bell and reached its zenith at $31 before closing at $26.11. Groupon’s $700 million offering is tech’s largest since Google’s in 2004, with many counting its success in the market as a positive economic indicator. Still, concerns over Groupon’s business model and solvency continue to plague both new and prospective shareholders, with many speculating that the company’s questionable fundamentals do not necessarily support its eyebrow-raising $16.5 billion valuation. In any event, Groupon’s strong performance Friday sent an unmistakable signal to Silicon Valley and those in the venture capital community, perhaps acting as the inspiration for fellow tech-giants such as Facebook and Zynga to

Opened at

$20 p er share


As of Jan. 11, GRPN’s stock price is $19.00. quicken the pace with which they present their own IPOs in the near future. Groupon was advised and underwritten by Morgan Stanley, Goldman Sachs and Credit Suisse.

January 2012




At Grockit, Test Prep for the Digital Age


Dylan Kraslow

ocial media sites such as Facebook and Twitter are the ultimate forms of procrastination. When I want to take a break from my studying—or postpone the start of my studying—I usually end up on one of the two websites, if not both. Yet while such websites hurt work efficiency, one new social network is aiming to do the opposite. In 2007, Farbood Nivi founded Grockit, a social network for learning. Now, more than four years later, Grockit is taking off and is primed to revolutionize the testprep industry. The Founder At the University of Michigan, Farbood Nivi focused his studies on Organizational Psychology. After graduation, Nivi worked as a master teacher at Princeton Review, where he developed course curriculum and trained other teachers for instruction/test-prep for the SAT, ACT, LSAT, GMAT, GRE, and MCAT. Nivi later went on to serve as a the academic director at Kaplan Test Prep and Admissions for the region of Southern California. After several years of working in the test-prep and standardized test industry, Nivi decided that it was time for a change. In his view, the system in place—classroom based instruction—was not sufficient and was optimal only for the instructors. In order for students to achieve the highest possible test score, they would need more personalized instruction. The former Princeton Review Teacher of the Year turned his passion for progressive teaching strategies into a solution, developing Grockit, an innovative test-prep service. What Exactly is Grockit? Grockit is an online test-prep service unlike any other, helping students study for the SAT, ACT, GRE, GMAT, LSAT, and general K-12 education in an innovative way. As the company’s website states, Grockit is an “adaptive, personalized learning program distinguished by its unique social learning features that are proven to help people learn quickly and answer more questions correctly.” Most test-prep services today function in the “one size fit all” manner. Grockit does the complete opposite, developing personalized study plans and learning experi4


PHOTO CAPTURED FROM GROCKIT.COM gives detailed explanations for correct and wrong answers as seen in this practice writing problem for the SAT. Grockit also provides a video explaining the correct way to answer the question. ences for each of its users. Using Users can see and communicate successful. After only a few years a similar algorithm to the one that with others studying for the same of operation, Grockit has allowed Google uses to determine search exam. In doing so, they can share students vastly improve their SAT results, Grockit’s software pres- their experiences—their successes scores and has helped them to ents questions based upon each and their failures. In doing so, stu- gain acceptance into some of the individual user’s strengths and dents learn from each other. world’s best universities, including weaknesses. Say you are studying If students prefer, Grockit of- our very own Northwestern Unifor the math portion of your SAT. fers instruction from trained pro- versity. You successfully complete multiple fessionals. Video explanations Nivi and other Grockit peralgebra problems. Grockit will of questions and links to other sonnel recognize, however, that it respond by offering more com- instructional videos are built in to is nearly impossible for Grockit to plicated algebra problems. If you Grockit’s interface. The company compete with expensive, highly happen to struggle with geometry, provides more formal, yet still per- qualified tutors. A student who Grockit will, in turn, present easier sonalized, test-prep courses for spends one hour per week with a geometry problems. This same al- a reasonable fee, as well. (A pre- $200.00 per hour math SAT tutor gorithm also allows users to track mium membership costs $29.99 will almost definitely have more their progress over time. per month and tutors’ fees vary.) success on the exam than a student Moreover, Grockit is centered For the relatively miniscule cost— who spends one hour per week on a socialized learning experience. some SAT tutors can cost over completing Grockit’s math SAT Taking an idea from the history $100.00 per session—Grockit will questions. However, Grockit is not books, Nivi frequently references provide live, online tutoring ses- trying to compete with expensive the one-room schoolhouse model sions with expert instructors. tutors. Rather, as Grockit’s chief exin interviews. As Nivi notes, back Learning Can Be Fun ecutive, Roy Gilbert, stated in a rein the late 19th and early 20th cenGrockit is unique in one other cent interview, “We’re never going turies, twelve grades of students way as well: the website tries to to compete with $1,000-an-hour were frequently taught in a single make learning fun. The software tutors in Manhattan…Our biggest classroom. As a result, students— allows students to play “games” or competitor is doing nothing.” not the teacher—did most of the complete “challenges,” with each This past October, Grockit aninstruction. A senior would teach “game” or “challenge” targeting a nounced that it had raised over $7 a junior, who would, in turn, teach specific area of the curriculum or million in venture capital. Since its a sophomore and so on. Nivi be- skill set. “Badges” and “experience founding four years ago, Grockit lieves that such a peer-based learn- points” are rewarded based upon has now raised a total of $24 miling experience is far more success- a student’s success in the game. lion. With the new capital from ful than the now commonplace Grockit games can be completed investors such as GSV Capital and model, as students learn not only in two modes: single-player and NewSchools Venture Fund, Grockit from receiving instruction, but also multi-player. is primed to grow and really make from giving it. As such, Grockit is Testimonials and Success its mark on the test-prep scene in centered on a peer-to-peer model. So far, Grockit has proven the near future.


January 2012

Marketing Goes Mobile Businesses Use Location-Based Technology to Market to Consumers


Ross Gordon

n a rainy Saturday night in Evanston, Chris Morales checked in to Buffalo Wild Wings using a location-based services (LBS) application on his phone. “I check in so it looks like I’m doing something,” said Morales who attends Mather High School in Chicago and was at Buffalo Wild Wings for the UFC watch party. Morales did not redeem any discounts for checking in. However, he could have had a free Coke Zero or six free wings simply by a few clicks on his mobile device. Businesses are shifting marketing strategies to put emphasis on mobile devices — a way of responding to a rising consumer market: individuals who are always on the go. In just the last year, smartphone use among 13 to 34-year-olds rose about 20 percentage points, according to a recent Nielsen study. Discounts Move to Your Mobile Device The use of mobile marketing has increased over 40 percentage points in the last two years, according to an Association of National Advertisers study. “It now becomes possible for marketers to say how can I be relevant knowing where you are,” said Tom Collinger, the executive director of the Medill IMC Spiegel Digital & Database Research Initiative. “That’s not a question that was really all that relevant until this.” “The way that media was planned, bought and sold was not so much where you are, but what you are interested in.” Location, Location, Location Today, location plays a huge role in marketing efforts to entice consumers. At LuLu’s in Evanston, consumers who check in on Four-

The Struggle Between Noise and Knowledge Alec Schulman

The solution is engagement Here are three steps crucial to any firm’s success in online and offline markets.

square and spend more than $15 can get a free brownie desert. Through 55 days, the reward was unlocked 139 times, according to William Guth, the web project manager of the North Shore Media Company and manager of LuLu’s mobile marketing strategy. “The brownie did surprisingly well,” Guth said. “It is a good motivator to get people to come in.” INFORMATION FROM THE ASSOCIATION OF NATIONAL ADVERTISERS LuLu’s also offers a loyalty reward on Foursquare where if Mobile marketing use increased 43 percentage points from 2009. customers check in three times months ago when her friends ager Pablo Zayas said “no more before Dec. 31, they can get $10 told her it had deals at local than five” rewards have been rerestaurants, she said. Bronk, a deemed. off their next bill. Privacy vs. Commerce “The number of customers senior in the Weinberg College As businesses begin to ofwe do a day… the number of re- of Arts and Sciences, has only redemptions we get… it’s a very deemed one reward at a McDon- fer more LBS focused deals on mobile applications, the chalsmall amount,” said Owner Dan- ald’s in Chicago. Like Bronk, many consum- lenge arises for the business to iel Kelch. Buffalo Wild Wings uses ers do not seem to be using be more relevant than intrusive. these deals “We are on the very front SCVNGR — r e g u l a r l y . end of this wonderful, wonderful a mobile Desai Clay, sea change of making it possible application a part-time for people to get what they want, that allows associate at when they want it, where they customers RadioShack are,” Collinger said. “The probto check in, in Evanston, lem is that, from the consumer post photos said people side, if it really isn’t seen as cool, or complete challenges –Tom Collinger “don’t have if it’s seen as an invasion, they the incentive [businesses] have started to kill at locations their golden goose.” to receive points. Customers can to check in here by themselves.” “A year ago we had 20 perEddie Lakin, the owner of get $5 off of their purchase of $25 or more for 35 points and a cent off if you checked in and we Edzo’s Burger Shop in Evanston, all mentioned it at the counter,” does not use mobile marketing free Coke Zero for seven. However, Sheridan Foster, Clay said. “People were checking because it is “too crowded and confusing.” the manager of the Buffalo Wild in left and right.” However, RadioShack em“I’m ‘anti’ all of that,” Lakin Wings in Evanston, said she only redeems two SCVNGR deals a ployees were not supposed to said. “It’s just too much informention this deal to customers. mation. I can’t wrap my brain week. “I’m not seeing many people When they stopped prompting around it.” But like Lakin, some condo challenges,” Foster, 32, said. customers to check in, Clay said “It surprises me when they do he noticed the number of people sumers feel the same way. Carlos who check in on Foursquare dip Agrelo, a banker from Chicago, have it.” to roughly two people per week. does not use those applications Consumer Skepticism But the modest number of because they “seem a little silly” As of now, only 5 percent of cell phone owners, 12 percent unlocked LBS rewards does not and invade his privacy, he said. “Those coupons are geared for smartphone owners, use stop at consumer electronics as their devices to check in, accord- Red Mango has seen a modest if you have expendable income ing to a 2011 Pew Internet sur- number of unlocked rewards at not for staples of the household,” its Evanston location. The frozen Agrelo said. “People aren’t eating vey. Mackenzie Bronk started yogurt chain offers one deal on out every day. Let me check in to using Foursquare about two Foursquare and Assistant Man- Trader Joe’s for some hummus.”

It now becomes possible for marketers to say how can I be relevant knowing where you are.


CREATION The concept must be clear and concise; easily modifiable and has the ability to be revised and tweaked, because all content on the web is both looked over by the mass and scrutinized by the few. Its purpose must be stated strongly to reach out to the skimmers and intelligent enough to attract the critics.


NETWORK DEMOGRAPHICS One of the Internet’s most powerful innovations is behavioral targeting — the ability to document every click, purchase and comment. Collating this information into a database promotes logical advertising of thoughts and products to the groups that seek it.

January 2012



INSPIRING CONVERSATION The more relevant content becomes to a network, the more likely it is to be spread among others. If condition is not satisfied, the concept will be nothing more than noise — a cacophony that enters the ear but never makes it into the brain of the audience.



The MLB Hot Stove Season The Cost of Winning and Competitive Balance in MLB


Dylan Kraslow

ajor League Baseball’s “Hot Stove” season is heating up. Former three time National League MVP Albert Pujols recently signed a ten-year contract with the Los Angeles Angels of Anaheim, worth over $250 million. Even some of the league’s poorer teams have chosen to spend big this winter. The Miami Marlins committed nearly $200 million so far this off-season, signing shortstop and former National League batting champion Jose Reyes and pitchers Mark Buehrle and Heath Bell to free agent contracts. How can some teams afford to spend enormous amounts of money on star athletes, while others can only pay “scrubs” smaller salaries? And, more importantly, does the size of a team’s payroll really matter? Why are some team’s payrolls larger than others? Sports writers and league employees typically refer to baseball teams as belonging to one of two groups: big-market teams and small-market teams. Specifically, the “big-market” designation refers to those teams that play in the nation’s consolidated statistical metropolitan areas (CSMAs); “small-market” refers to teams that play in smaller CSMAs. In the league, the New York Yankees, New York Mets, Chicago White Sox, Chicago Cubs, and the Boston Red Sox are undoubtedly “big-market” teams. The Cincinnati Red, Kansas City Royals, and Milwaukee

Brewers are “small-market,” teams while the rest fall somewhere in the middle. While the size of the market refers only to the population of the respective city, it is also closely correlated, in most cases, to the amount of money that a team will spend on players. In general, teams in “big markets” attract more fans, allowing them to raise ticket prices. (This is a simple principle of economics. The larger the fan base, the greater the demand for tickets. Ticket supply is relatively constant; a stadium can only hold so many people. As a result, prices rise.) Larger ticket sales and higher ticket prices together increase a team’s revenue, allowing team owners to reinvest more money into their organization while still turning a profit. There are notable exceptions, however. Owners of big-market professional baseball teams may decide, for a number of reasons, to cut payroll and spend more like a middle-market or even smallmarket teams. For example, over the past few seasons, Fred Wilpon, the owner of the New York Mets, has lowered the team’s payroll by many millions of dollars amidst a Bernie Madoff lawsuit. On Opening Day of the 2009 MLB season, the Met’s total payroll was over $135 million—the second highest in the league. At the start of the upcoming 2012 MLB season, the club’s payroll is projected to be closer to $100 million. On the other hand, small mar-


Former New York Met, José Reyes, signed a six-year $106 million deal with the Miami Marlins. The Florida Marlins ranked 24th in spending during the 2011 MLB season. 6

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ket teams sometimes overspend, hoping that a higher payroll—and the signing of marquee talent—will attract a larger fan base. For example, the Miami Marlins—previously the Florida Marlins—play in one of the leagues smallest markets. (The team frequently struggles to draw fans and played a game in front of a dismal crowd of 347 this past August.) The Marlins, however, have rebranded them- PHOTO BY KEITH ALLISON, WIKIMEDIA COMMONS Mark Teixeira, first baseman for the New York selves this year. The Yankees, plays for the team with the highest team will be moving payroll in the league. to a new stadium for the 2012 season and The data is even more starrecently released images of its new tling when examining the payrolls uniforms. Considering the circum- of World Series winners. Of the stances, the Marlins’ owner, Jeffery ten World Series champions from Loria, has spent a large amount of 2001-2010, six ranked in the top money so far this offseason; the ten in end of the year payroll. The 2012 Miami Marlins’ payroll will remaining four teams all belonged be almost twice the team’s 2011 to the middle ten. payroll. The size of an organizaDespite the general trend, tion’s payroll is, in the end, com- there have been examples that defy pletely up to its owner. the common logic. Rich teams have Does a larger payroll crashed and burned; the New York really matter? Mets, for example, have accumuThere is a clear gap between lated a payroll of over $100 million the league’s richest and poor- each of the last few seasons, but est teams. At the beginning of the have not made the playoffs since 2011 season, the New York Yan- 2006. Last year, with a payroll of kees had the league’s highest pay- nearly $119 million, the Mets won roll; an astonishing $202,689,028. only seventy-seven games, and by Meanwhile, the league’s poorest the end of the season was barely team—the Kansas City Royals— competitive. Less commonly, poor had a payroll of only $36,126,000. teams have succeeded, playing (The New York Yankees highest over their heads and exceeding expaid athlete last season was Alex pectations. By example, in the early Rodriguez who earned $32 mil- 2000s, the Oakland Athletics, with lion, almost as much as the entire one of the lowest payrolls in the Kansas City Royal’s payroll.) game, ranked at or near the top of But does this payroll gap the league in total wins. really matter? Recently, CNBC’s MLB’s CBA sports business journalist (and Major League Baseball’s colNorthwestern alum) Darren Rovell lective bargaining agreement reported a study focusing on this (CBA) includes multiple condivery issue. During the period from tions that, when read together, 2001-2010, 61.5% of the league’s attempt to create competitive playoff teams were among the top balance. First, the league’s collec10 biggest spenders; 23.1% ranked tive bargaining agreement puts in 11th-20th in total end of the year place a system of revenue sharing. payroll and 15.4% were among Under the system, the league redisthe league’s poorest 10 teams. The tributes wealth away from richer evidence is clear: teams in the top teams towards poorer teams. Evthird in overall payroll have almost ery team is required to deposit a twice the chance of reaching the percentage of their local revenues playoffs than other teams. into a pot at the end of each season.

January 2012

Luxury tax payments and other miscellaneous funds are also put into the pot. The pot is then redistributed amongst the thirty teams, with poorer teams receiving larger portions of the pot. While the league’s revenue sharing system succeeds in redistributing wealth, it does not significantly improve parity amongst the teams. Rich teams still spend large amounts of money on team payroll, regardless or revenue sharing. Moreover, teams receiving large portions of the pot have often misused the funds. Rather than investing in a higher payroll and signing better talent, MLB organizations have, in the past, used the shared revenue to otherwise increase profits. The new CBA requires that teams spend a portion of shared revenue on payroll. The effects of this stipulation have yet to be seen, however. More importantly, the league’s CBA implements a luxury tax. Organizations that spend over a specified amount of money in total payroll face a monetary penalty for their actions. The luxury tax threshold varies from year to year and is stipulated in the CBA. For the upcoming 2012 season, the threshold is $178 million. The amount paid depends on the offense. First time offenders must pay 22.5% of salaries above the threshold. Second times offenders must pay 30% and third (and sequent) time offenders must pay 40% of salaries above the threshold. While the luxury tax attempts to deter teams from spending huge amounts of money, it has been wholly unsuccessful. Since the tax was first implemented in 2003, only four organizations have been

penalized. Over the nine-year period, the New York Yankees have paid over $192 million in penalties. The Boston Red Sox have been penalized approximately $15 million, the Los Angeles Angels of Anaheim $1.3 million, and the Detroit Tigers under $1 million. Why has the luxury tax proven ineffective? The most likely answer is that the threshold has been placed too high. The average team payroll at the beginning of the 2011 season was approximately $93 million, just over half of the luxury tax threshold. Moreover, only three teams were even close to the limit: the New York Yankees ($202.7 million), the Philadelphia Phillies ($173 million), and the Boston Red Sox ($161.8 million). What does the league need to do to achieve competitive balance? The league’s current luxury tax has done little to improve the league’s competitive balance, but would the league benefit from a different, more stringent system? Should the league adopt a salary cap? Of the nations four major professional sports leagues, Major League Baseball is the only league without a true salary cap. The NHL adopted a hard salary cap for the 2005-06 season. Under the new CBA adopted in the summer of 2011, the NFL also adopted a hard salary cap of $120 million and a salary floor of $108 million. The NBA’s salary cap is a “soft” cap; teams cannot spend above a certain payroll threshold except in the case of certain “exceptions,” included in the league’s new collective bargaining agreement. For example, under the “Larry Bird” rule, teams are allowed to spend above

the maximum payroll in order to re-sign their own free agents. Of the three contrasting leagues, the system currently in place under the NFL’s CBA provides the best solution the league’s concerns. A simple hard salary cap would be ineffective: unless the league were to adopt a lower maximum than the luxury tax threshold, the cap would only affect a few teams. A soft cap would also be fairly pointless—there are too many exceptions. With a salary cap and a salary floor, however, not only would teams be disallowed from generating a high payroll, but they would also be banned from spending too little money on major league talent. The system could be particularly effective in MLB, where astonishingly low payrolls are almost as big of a problem as high payrolls. Unfortunately, the league seems particularly hesitant towards change in this regard. In the recent labor talks that concluded in early December, team owners and the league’s players’ association debated the institution of a luxury tax in reverse. Under the proposed system, there would be a thresh-

old at the lower end of the payroll scale. Teams that spend below the threshold would be hit with a tax, just as teams that spend above the current luxury tax threshold are penalized. Not surprisingly, the system was not adopted. Team owners—particularly the owners of the league’s poorer teams— want to ability and opportunity to keep costs down. With a new CBA adopted only a month ago, the league’s luxury tax system will remain in place for at least the next five seasons, effectively ensuring that a competitive balance will not be achieved.


Jeff Francoeur, right fielder for the Kansas City Royals, plays for a franchise which had the smallest payroll in the MLB for 2011. The first and last time the Royals won the World Series was in 1985.

January 2012




The Self-Proclaimed Recessionista-in-Chief

Lapin leaves CNBC to start own company


Matthew Wong

icole Lapin is busy. At the time of our phone interview on a Friday afternoon, Lapin was traveling in a car en route to her next destination. And on Twitter, Lapin posted from New York—past midnight Eastern Standard Time on a Sunday— that she was “still going strong at the office,” made apparent by an accompanying photo on Instagram of a table filled with notepads, coffee cups, half-eaten food and sets of fingers typing away on three brightly-lit MacBook Pro laptops. Lapin has reason to be busy. In September, the do-everything journalist left her job as anchor of the CNBC business news program, Worldwide Exchange, to start her own multimedia production company, Nothing But Gold Productions, which will allow Lapin to bring her personal brand to a multitude of news outlets, both in broadcast and out of it. “As part of my production company, I am going develop and host television shows, and create digital and print content for major media outlets,” she posted on her Tumblr. For Lapin, a Medill graduate who was valedictorian of the Class of 2005, the career move is a chance to become the “Recessionista-in-Chief” she describes herself as, a business and financial journalist who can close the gap in knowledge between Wall Street and Main Street. “Building a multimedia production company consumes my mornings, afternoons and nights,” Lapin said. “I was a nerd in college and I am a nerd now, I love my work.” Despite the time and effort it takes to build a production company, a hectic schedule is nothing Lapin is not already used to. At Medill, Lapin worked full-time at news outlets in Chicago, including covering the floor of the Chicago Mercantile Exchange for First Business network, while still obtaining her Bachelor’s degree in Journalism summa cum laude and honors for her second major in Political Science. “Working full-time while 8



With her Medill degree, Lapin was able to create a company where she determines business stories to “decode.” taking classes enabled me to fast- CNBC, which I reached at 25. At track my career,” Lapin said. “It 27, I realized that I wanted to was an adjunct, invaluable expe- start a company that would allow rience.” me to disseminate my voice in the But “fast-tracking” her ca- most powerful way possible.” reer would be an understateAll of which brings back ment. Growing up, Lapin said Lapin’s self-described title as her goal was to become an an- “Recessionista-in-Chief.” As an chor for CNN. She accomplished anchor on Worldwide Exchange, that at age 21, becoming one of Lapin was able to shape the way the first anchors to launch CNN the recent economic recession Pipeline, a video news service by was covered. In September 2011, CNN that provides both live and Lapin told AdWeek that becomon-demand video via the Inter- ing founder and CEO of Nothing net. She then served as a reporter But Gold Productions would give for CNN in a variety of news ca- her the opportunity “to decode pacities, from anchoring major really intimidating money topics events such as the 2008 Presi- for different networks,” some of dential election and the Virginia which would be “finance news in Tech massacre to launching the a party dress” while her coverage “Young People Who Rock” series, for other outlets would consist where each week she profiled of “very straight financial news.” a different person both with a With ramifications from the reunique story and under the age cession still reverberating, bringof 30. When she moved network ing business news in a non-intimstations, Lapin honed in on busi- idating manner to the masses is ness and financial journalism. Lapin’s ongoing goal. As an anchor on Worldwide Ex“The economy is the story of change, Lapin would break ma- our time, the story of our generajor financial news stories around tion,” Lapin said. “The last biggest the world, interviewing major story was terrorism but today the CEOs or geopolitical figures and economy is the biggest conversaanalyzing movement in the stock tion we are having.” market among other business “People need to realize that news. financial information does not “My goal in life was to be need to be as intimidating as it an anchor at CNN, but I got that should be,” Lapin said. “The econat 21,” Lapin said. “What’s next? omy will change our personal


January 2012

lives and every story can be related back to money from celebrity bankruptcies to economic policies coming out of Washington.” But Lapin’s “decoding” will go beyond her role as an television anchor. Lapin is also working on publishing a book entitled Decoding The Wall Street Journal, which will break down moneyrelated topics in an easy-to-read manner, launching a suite of online personal finance and investment tools, and spending time on her charity “Lost Girls,” which gives career advice and pre-worn workplace attire to unemployed young women. Despite Lapin’s young age, her range of professional experiences allowed her to reflect upon the rampant changes in the media industry and broadcast journalism, specifically. When Lapin was still a student at Medill, a video news service such as CNN Pipeline had not yet come into existence. “There is no longer a space for the anchorman who is the voice of God,” Lapin said. “Viewers are smarter than that and want more authentic news as well as anchors who will talk with them and figure out the news together.” Lapin also offered some career advice for journalism students looking to make a mark in the industry. “Journalism is not about cutting your hair the right way, it is about being passionate about the news so if you are going into broadcast journalism because you want to be on television, you are in the wrong business,” Lapin said. “Know your voice and choose your own destiny.” On her blog, Lapin wrote that she left her role as an anchor on CNBC because she “had to act on the sense of urgency…to demystify the intricacies of Wall Street and personal finance for everywoman.” She wrote further, noting that helping people “navigate a time when the economy is in such turmoil will be the driving force for all of (her) endeavors.” While Lapin advised Northwestern students to choose their own destiny, it appears that she already understands her own.

The Trillion Dollar Disaster An investigation into the student loan debt crisis


Tosten Burks

he young woman reached into her backpack for her business cards. Bagged in a small Ziploc, the business cards advertise a photography company, the only part-time work Sara Schroeder has been able to find since graduating from Elmhurst College with a philosophy degree last spring. Except today, as with most days, she is handing them out not to a prospective client, but to a reporter. Schroeder is among those manning the corner of South La Salle Street and West Jackson Boulevard as part of the Occupy Chicago movement. She is also one of the hundreds of thousands of college graduates who are out of work and thousands of dollars in debt from college loans. Schroeder says she’ll be lucky to repay her loans in less than ten years, with the help of her parents. She says she has friends who won’t be fully free for 75 years. In 2011, total outstanding student loan debt surpassed $1 trillion, according to the Federal Reserve Bank of New York, an unprecedented figure that has been blamed on colleges, lenders, and the government, with proposed solutions ranging from a complete federal student bailout to a fundamental restructuring of the student loan lending and repayment system. Schroeder believes this student loan debt crisis boils down to the entire culture surrounding college education. “I think it has to do with the values we’ve been raised on,” Schroeder said. “We go to college, we get a job, we get the job that we wanted. “If you don’t go to college, you don’t have a future,” Schroeder added. “Now, you don’t have a future if you do go to college because it’s $40,000 worth of debt, $90,000 worth of debt.” Another Occupier, 23-year-old Chicago resident Christopher Reyes, echoed this antagonism toward the basic picture that society paints of higher education. “I’m not against college,” Reyes said. “I’m against the system with which they promote college.”

X 1,000

About 320,000 people started repaying student loans between Oct. 2008 and Sept. 2009 and defaulted before the end of 2010.

Of course, $1 trillion doesn’t stack up this quickly just because of misguided cultural perceptions. It is a vastly complex issue. Fast Company and Huffington Post writer Anya Kamenetz has authored two books on the matter. “There is a broken ‘market’ in higher education and colleges are only one piece of the problem,” Kamenetz said. “Education, like health care, is subject to a pattern called ‘Baumol’s cost disease.’ Put simply, these are highly skilled, labor-intensive industries so the base costs are always going to rise faster than inflation.” In other words, a college education comes at a high cost because it is an extremely and ever-increasingly expensive product to produce. Kamenetz said she does believe the colleges are partly responsible for the debt crisis. “Rather than focusing on affordability, they prefer to increase revenues and spending if they can in order to raise their profiles,” she said. “I would like to see the federal government extend and reinforce the ‘gainful employment’ rule, punishing colleges when too many of their students default on their loans.” Under the current laws, a school’s students’ default rate is not factored into whether a school prepares its students for “gainful employment.” Yet, defaults are becoming increasingly and dangerously commonplace. According to the Department of Education, around 8.8 percent of student borrowers who entered repayment in 2009, more than 320,000 people, defaulted by the end of 2010, up from 7.0 percent the previous year. In spite of these rising figures, Morton Schapiro, president of Northwestern University and author of hundreds of articles and multiple books on the economics of higher education, said he believes the price of college remains well worth it. “With the returns to higher education at record levels, reasonable loan debt makes perfect sense,” Schapiro said. “Graduation rates at highly selective private colleges and universities are very high, and so are the economic returns to attending these schools.” Northwestern’s six-year graduation rate for its entering class of 2004 was 94.36 per-

January 2012


cent, according to the Office of the Registrar.’s most recent “College Salary Report,” an annual ranking of schools and degrees based on post-graduation salary potential, says Northwestern’s mid-career median salary is $88,300. In comparison, the University of Illinois Urbana-Champaign’s six-year graduation rate for its 2004 entering class was 84.3 percent. Interestingly, the school’s mid-career median salary is $94,300. However, that some schools are producing less economically crippled graduates than others, as Shapiro said, does not take away from the fact that there are many economically crippled college graduates. To help out these hundreds of thousands of students, Kamenetz calls for the restoration of bankruptcy protection on student loans. Kamenetz said she believes that bankruptcy protection would provide “a fair recourse for borrowers in tough spots.” She also said debtors need to take advantage of income-based repayment options, such as the “pay as you earn” program executively ordered by President Obama in October this year, which administration officials have said could help up to 1.6 million borrowers by capping federal student loan repayments at 10 percent of discretionary income and relieving all remaining debt after 20 years. It remains to be seen though whether such measures are miracle drugs or mere stopgap solutions. Some believe that there must be more drastic action. “A full student bailout would be a lot more efficient than the [bailout of the] banks,” said Zach Warburg, a Northwestern senior and neurobiology major. Sara Schroeder agrees that a student bailout may be the best option. “There definitely needs to be some sort of student loan debt forgiveness. It’s become so unsustainable,” Schroeder said. “I think that education is a human right and that our society would benefit from everyone having an education.” “Had I not gone to college I would be a totally different person,” Schroeder said. “I wouldn’t be here. I am endlessly grateful.”



The American Brain Drain

Many of America’s best and brightest college graduates are not using their talent to profit America, but rather to hurt it


Jack Hodapp

merica needs to clog the brain drains that are sucking up its top students. Many of America’s best and brightest students are applying their talent in ways that hurt, rather than profit America. There are two main so-called “brain drains” weakening America as college students graduate: the return of international students to their homelands and the flocking of elite students into the financial industry. The International Brain Drain Brain drain has been a common term in international economics for decades, but not until recently has it become a cause for concern in the eyes of Americans. Brain drain is defined as the emigration of a large group of individuals with technical skills or knowledge. When inbound, brain drain has always remained essential to the strength of the country. America, the land of opportunity, has long been a prime destination for foreigners. Countries around the globe have had their top minds “stolen” by the U.S. These “stolen” minds have flourished and become some of the most successful people in America: Pierre Omidyar of France founded EBay, Sergey Brin of Russia co-founded Google, and Jerry Yang of Taiwan co-founded Yahoo. However, the tightening of immigration policies is beginning to destroy this advantage, creating a reverse brain drain as high-end talent leaves the U.S. Who is leaving the U.S.? The massive numbers of international students who enter America for college are increasingly choosing to say “goodbye America,” “gàobié měiguó,” “alavidā amērikā,” and so on as they exit the country upon graduation. In 2010, over 690,000 international students were studying in America. These international students take up an enormous part of the American education system, obtaining more than half of the doctorates earned by American universities in math, computer science, and engineering. Historically, most of these students would stay in America after finishing college: five years after graduation, 92% of Chinese students (128,000 total) and 81% of Indian students (105,000 total) were still in America. A combination of increased standards of living back home and restrictive American immigration policies have flipped the situation around. The booming economies and improved research and development of countries such as China and India, along with the prospects of living near family have led many of America’s top college graduates to return home, bringing their skills and ideas with 10


Top 10 Most Popular College Majors in 2011 Business Management  and  Administration General  Business Accounting Nursing Psychology Elementary  Education Marketing  and  Marketing  Research   General  Education English  Language  and  Literature Communications

8 5 5 4 4 4 3 3 3 3


The top three most popular majors in 2011 related to the business/financial industry, one of the “brain drains” of the nation. them. While America clearly cannot inhibit all of this, a loosening of rigid immigration policies could slow this trend. The United States limits the number of foreigners who seek careers in the U.S., creating a logjam of applicants struggling to gain citizenship. According to the National Foundation for American Policy, a highly skilled Indian national could wait up to 70 years for permanent status. Inventors, investors, and entrepreneurs who would love to enrich America, are being turned away. On top of that, the years the country just invested in the student’s education are wasted. If this movement continues, the strength of America is destined to fall. Immigrants have accounted for 52% of Silicon Valley start-ups, 25% of US global patents, and 47% of PhD students. Is the country beginning to lose sight of its roots stemming from immigration? Canada, Australia, and other countries have policies designed to attract and keep skilled immigrants. The US, however, is sending the best of the best back home, so they can compete with America. The American business community is insisting that President Obama takes action to keep these well-abled brains in the U.S. In rhetoric, Obama agrees that the brain drain is a concern, stating that, “Our future depends


January 2012

on reaffirming America’s role as the world’s engine of scientific discovery and technological innovation.” As mentioned earlier, over 50% of the company founders in Silicon Valley, the epicenter of America’s scientific discovery and technological innovation, are immigrants. In reality, nothing has yet to be done to solve the brain drain problem. Will America still be the most technologically advanced country in 20 years? Not at this rate. Immigration is a tough issue, and there are certainly key disputes over its real effects on the country. Many Republicans have the steadfast opinion that immigration can only be trouble. The chief point against immigration is that immigrants are taking jobs away from Americans. With unwavering views supporting and repealing this argument, you could spend a lifetime studying the complex economics of the situation and fail to find the correct answer. Do immigrants take American jobs away? Yeah, probably. But how many jobs do you think companies such as Google, EBay, and Yahoo have added? And how much have these companies and others alike contributed to America’s economy? In prominent Republican Pat Buchanan’s Suicide of a Superpower: Will America Survive to 2025, Buchanan associates continued

immigration with the end of the Republican party and the eventual demise of the United States. Citing bankrupt California as an example, Buchanan makes the argument that the immigrants coming in are tax consumers, rather than taxpayers. As this path continues, America will slowly crumble. Buchanan’s position, though, focuses on illegal immigration and that of Hispanics, not the largely eastern collection of international college students. Can a general consensus be reached that the other groups of immigrants who are entering America for college are indispensable to the country? Is there a way to favor the types of immigrants that are taxpayers and contributors rather than tax consumers and freeloaders? For the good of America, we sure hope so. The Finance Brain Drain A recent Los Angeles Times article highlighted a different problematic brain drain: The flooding of elite students into the financial sector – the same financial sector that many believed destroyed America’s economy over the past few years with their Wall Street greed. In other words, elite students are choosing money over social good. Prominent banks annually carry out their most rigorous recruiting pushes at top schools, such as the Ivies, MIT, and Stanford. In 2010, even with the crisis in the financial sector, over 15% of Harvard, Stanford, and MIT students entered the financial service industry. Only consulting jobs drew more students. A combination of aggressive recruiting, elite university culture, and the aura of high pay draw these incredible students into finance. Large banks always have a presence at these exclusive colleges, using large salaries to lure both the previously interested, and those with job insecurity or no distinct career path. For some students, the higher salary is a necessity. “I don’t have the luxury to go into a field that pays less,” one Dartmouth student told the Los Angles Times. “It’s kind of insurance in a way – it will give me a steady income for me to stabilize my life, pay down my loans – and it will open me up for more opportunities.” The recent financial crisis has brought out a lot of anger in Americans frustrated with workers in these types of positions, as demonstrated by the Occupy movement. The same resentment motivating the Occupy movement is spawning a new movement – Stop The Brain Drain. Stop the Brain Drain, founded at Stanford University, has its own website, and has slowly been gaining electronic signatures protesting the brain drain. The movement criticizes the “monopoly” that Wall Street holds on top young talent, arising from large donations to college career centers to obtain preferred access to recruitment. Instead of Wall Street, Stop The Brain Drain promotes careers as entrepreneurs, scientists, and public servants. While recognizing that the financial in-

dustry is very important for allowing the creation and growth of new businesses, the movement emphasizes that major companies are often still greedy. For example, its website notes that Goldman Sachs made 63% of revenue from its trading in 2010, compared to only 13% from corporate finance. I personally have nothing against finance jobs and do not view them as selfish or greedy, nor do I care about the Occupy Wall Street Movement. In fact, I am still considering a job in finance as a possible career opportunity. Finance is an integral part of the economy and is a great fit for a lot of people. Although employees in high finance may go over-the-top sometimes in their pursuit for money, it’s not like the majority of other jobs out there aren’t also for profit.

To prevent the international brain drain, America may want to develop a more economically focused immigration system. Despite some potential moral hazards, America could treat immigration like college admissions: only accept the best. If an immigrant does something good for the country, such as start a company, graduate from a top university, or purchase an expensive house, America should make it easy for them to become citizens and continue to contribute to the country. Do not forget the financial brain drain. America and its top universities should look to solve this as well. America must encourage careers that involve social good – entrepreneurs, scientists, engineers and researchers. Some of the first steps to stopping this brain drain have already started. MIT recently created an entrepreneurship center for those seeking opportunities at start-ups or small companies. Harvard has encouraged nonprofits like Teach for America to move their recruiting to the same times as banks to give students more options. Even loan forgiveness has been given to some law school students entering public service. Incentives such as these ought to be extended. Government aid for college could be redistributed to the areas of study that America wants the most. Albert Einstein once said, “I have no special talent. I am only passionately curious.” This curiosity and interest should be incentivized and encouraged at a young age. Earlier, I mentioned that America was misallocating its resources as its best and brightest students entered Wall Street. But isn’t capitalism all about allocating resources properly? If the free market system were to work as it is supposed to, there would be no reason for the finance brain drain to exist. Well in this case, maybe the problem is that Wall Street does not function in a free market. When the government bailed out the banks in the midst of the recession, America was counteracting its very own principles of capitalism. If America did not bail out the banks, would the high finance sector still have the same power as it does now? Would there even still be a finance brain drain? Perhaps the recent policies of America are the cause of this brain drain in the first place. If you are an international student, I am not telling you to stay here. If you are a student looking to go into high finance, I’m not saying you shouldn’t. It is America’s job to keep this under control. America cannot let its best young minds go to waste – it must stop both brain drains.

America can’t plug the drain. It can, however, clog it. The fact that international students have family and increasingly higher standards of living is certain to attract some students home. The high pay and prestige of jobs in high finance will also never cease to exist. Who doesn’t want more money?

Like many Northwestern students, the last few years of my life have gone as follows: After spending all of high school working extremely hard to try to be the best and get into Northwestern University, my focus is shifting. College will replicate high school – a bunch of late nights to ensure those A’s. After college, life takes a new direction. Where will my hard work and acquired talents go? Will my focus turn from grades to innovation, public service, money, etc? At this point, that money is looking very tempting. What can America do to stop me? The financial sector could be a perfect match for me. Maybe it is inevitable that I end up there. Nevertheless, America still can and needs to attempt to prevent this. In general, the high finance sector does not do much social good. In my opinion, trading money and stocks around isn’t doing anything noteworthy for the world. Considering how intelligent many of these people are, America is not allocating its resources correctly. These are the people who should be changing the world, not just padding their bank accounts. How Can America Plug The Drain? America can’t plug the drain. It can, however, clog it. The fact that international students have family and increasingly higher standards of living is certain to attract some students home. The high pay and prestige of jobs in high finance will also never cease to exist. Who doesn’t want more money? I’m no expert, but America and its people definitely need to look into these issues and attempt to solve them.

January 2012




Letter From The Editor

Great things are ahead for NU’s business publication During the past three months the Northwestern Business Review has been hard at work writing up-to-date financial, political, and insight articles. We are also in the process of revamping our website. Our growing readership now includes — according to our Google analytics — read- Jackson Siegal ers in Canada, Germany, Hungary, India, Russia, U.K., Australia, France, and South Korea in addition to all over the U.S.A. We hope to continue expanding our readership, both on campus and throughout the world. We had more than 1,000 unique visitors in the month of December alone. I encourage you to check out our website at www. Furthermore, we are in the process of launching a video segment that will focus on financial and political updates. We are implementing a calendar with business and caree related events for NU undergrads, and selecting next year’s edit board. If you are interested in advertising in our next publication or on our website, or are interested in joining our team please shoot me an email at Jackson@u.


(Top from left): Jihoon Ko, Sophia Hsu, David Rubino, Judy Wu, Alec Schulman, Matthew Wang and Jack Hopper. (Bottom from left): Amrit Kanesa-thasan, Ross Gordon, Jackson Siegal, Justin Chen and Nick Catrakilis.

Financial Outlook


NBR Winter 2012 Newsletter  
NBR Winter 2012 Newsletter