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 1

A lot of people think bikes are for hippies

or people who got a DUI, or for people who are poor
and cant afford a car. Or theyre for kids
PHOTOGRAPH BY RICKY RHODES FOR BLOOMBERG BUSINESSWEEK

p63

The words mining I dont know how Call me old-fashioned,

but I dont like
and gentle the hell they write a investments where if
dont go very well youre right you dont
together
platform this year make any money
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 Cover
Trail
July 18 July 24, 2016
How the cover gets made

Domestic Cover
Opening Remarks Brexit was a blow, but it wont turn back globalization 8

Bloomberg View A ghting chance for Afghanistan End federal coal leases for good 10 Cover is on Taser, which makes
cop cams as well as stun guns. Itll
likely see a huge jump in business
Global Economics because of recent events.

Migrant Chinese workers nd you can go home again 12 This makes me feel conicting
things. I guess theres nothing
The Hague, the Philippines, and China exchange words over the South China Sea 14
wrong with the company making a
Ukraines central banker tries to tame the tycoons 15 prot. After all, its making a device
that protects people, right?
Mexican President Pea Nietos dreams of reform run up against low oil prices and angry teachers 16
Thats kind of an open question.
Companies/Industries One day Ill get a simple
Carmakers and tech companies battle for the dashboardand the data inside it 18 yes or no.

China goes on a soccer buying spree 19

A successful digital revamp of Verizon could send Marni Walden to the corner oice 21

Breakdown: How does augmented-reality app Pokmon Go make money? And who gets it? 21

Politics/Policy
Forget elephants and donkeys. Americas political parties have always been chameleons 22

Technology
2 Live video puts Facebook back in the news business 29

Pro sports teams are drafting video gamers to attract younger fans 30

A cell phone locking device may have concertgoers holding up their cigarette lighters again 31

Drugmakers see a growing market in vaccines for expectant moms 32

Innovation: An air purier that uses UV light to help you breathe easier 33

Markets/Finance
COVER AND COVER TRAIL: TASER/DOMESTIC EDITION: PHOTOGRAPH BY AMANDA RINGSTAD FOR BLOOMBERG BUSINESSWEEK.

A boom in the bond market betrays investors gloomy outlook 35

Lower endowment returns put pressure on university budgets 36

After the win for Leave, investors in U.K. property funds are forced to stay put 37
International Cover
Miners dig for a better way to nd a diamond in the rubble 38

Dened: If you think cable is where you get Game of Thrones, then you arent a currency trader 40
Will Brexit stop globalization?
Features No.
GLOBALIZATION/INTERNATIONAL EDITION: ILLUSTRATION BY JEFF GLENDENNING

Crime Watch Inside Tasers plan to own the police body camera market 44

Great Scot! Post-Brexit, Nicola Sturgeon revives the ght for Scottish independence 52

Blowing Smoke How a Texas biodiesel plant made millions without making biodiesel 56

Etc.
Zak Pashak is peddling his Detroit-assembled bicycles to get the Motor City going again 63

Retail: Theres no rest for hammock makers 66

Weddings: Fast fashion marries itself to bridal wear 67

Fashion: Mirrored sunglasses youll take a shine to 68

The Critic: Netixs doc on Tony Robbins fails to hold the self-help gurus feet to the re 70

What I Wear to Work: P.S.I Made This ... founder Erica Domesek loves DIY fashion, but shell don Herms, too 71

How Did I Get Here? After college, future Genentech CEO Ian Clark opted for management over molecules 72
 THERE IS NO
AMERICAN HISTORY
WITHOUT
DR. KHALIL GIBRAN MUHAMMAD
DIRECT SCH M URG CENTER FOR RESEARCH IN BLACK CULTURE,
THE NEW YORK PUBLIC LIBRARY

The New York Public Librarys world-renowned Schomburg Center houses

and promotes the history and culture of people of African descent. But it urgently
needed renovations to keep its rich legacy alive. Citi provided the Center with the
necessary financial support and guidance to bring its redevelopment plans to life.
These changes will protect irreplaceable archives, increase visitor numbers and
help to preserve the story of black culture for future generations.

For over 200 years, Citis job has been to believe in people and help
make their ideas a reality.

citi.com/progress

2016 Citibank, N.A. Member FDIC. Equal Oppor.tunity Lender. Citi, Citi with Arc Design and The Worlds Citi are registered service marks of Citigroup Inc.
 Index
People/Companies

Pea Nieto, Enrique 16 SoftTech VC 33

Petro Poroshenko 15 Soros, George 15
Petrleos Mexicanos 16 Sothebys (BID) 38, 58
Pfizer (PFE) 32 Spotify 18
Plateno Group 19 Standard Life (SL/:LN) 37, 52
Point72 Asset Management 35 Stanley, Stephen 35
Posawatz, Tony 18 Statista 21
PrivatBank 15 Sturgeon, Nicola 52

12
Chinas
Putin, Vladimir
Qianlafang Ecological
8 Sucher, Bernard
Suning Holdings Group
64
19
Agriculture Development 12
migrants
T
R Taser International (TASR) 46
Raifeisen Bank Aval 15 Taylor, Bret 46
Rastar Group (300043:CH) 19 Tesla (TSLA) 46
Reed, Tom 36 Third Avenue Focused
Reformation 67 Credit Fund 37
Reynolds, Diamond 29 Toyota Motor (TM) 18
Ride Brooklyn 64 Trudeau, Justin 16
Rivkin, Philip 58 Trump, Donald 8, 22
Robbins, Tony 70 Twitter (TWTR) 29, 46
Robison, Haley 66
Roche (ROG:VX)
Romney, Mitt
72
22 V
Rose, Axl 31 Vanguard Long-Term
Royal Bank of Scotland (RBS) Treasury Fund (VUSTX) 35
52 Verizon Communications (VZ)
21

S VicNRG
Vodafone Group (VOD)
58
21
Safariland Group 46 Volkswagen (VOW:GR) 18
Salmond, Alex 52
Sanders, Bernie
Schwinn
22
64 W
Shankai Sports 19 Walden, Marni 21
Shell (RDS/A) 58 Walder, Jay 64
Shinola 64 Wang Jianlin 19
Warner Bros. (TWX) 29
4 Warren, Elizabeth 22
Wells Fargo Securities 21

PHOTOGRAPH BY GRAINNE QUINLAN FOR BLOOMBERG BUSINESSWEEK; GONTAREVA: VALENTYN OGIRENKO/REUTERS; STURGEON: JEFF J MITCHELL/GETTY IMAGES
Westway Terminals 58
Womack, Marcus 46

A Citigroup (C) 16 Genentech (ROG:VX) 72 Kolomoisky, Igor 15

Aberdeen Asset
City Football Group
Clark, Ian
19
72
General Motors (GM)
Gilbert, Martin
18, 22
37
Lamb, William
Larson, Luke
38
46 XYZ
Management (ADN:LN) 37 Clinton, Hillary 22 Gingrich, Newt 29 Ledman Optoelectronic 19 Xi Jinping 12, 19
Adele
Aalo, Yael
Agero, Sergio
31
67
19
Connery, Sean
ConocoPhillips (COP)
Corbyn, Jeremy
52
58
52
GlaxoSmithKline (GSK)
Glenn, Gregory
Glock
32
32
46
Lloris, Hugo
Lpez Obrador, Andrs
Manuel
19

16
52
Nicola
Yahoo! (YHOO)
Yasay, Perfecto Jr.
Yelp (YELP)
21
14
18
Akerson, Daniel 22 Cox, Chris 29 Goldman Sachs (GS) 64 Lucara Diamond (LUC:CN) 38 Sturgeon Yondr 31
Alibaba Group Holding (BABA) Crosslink Capital 33 Gontareva, Valeriya 15 M&G Investments (PUK) 37 Yoon, Jae 35
18, 19, 31 CSC Upshot 33 Google (GOOG) 18, 21 Ma, Jack 19 Singer, Paul 22 Zalishchuk, Svitlana 15
Allen, Sean 30 Goswami, Yogi 33 Maki, Dean 35 Smith, Rick 46 Zimmermann, Jack 58
AllianceBernstein (AB)
Amazon.com (AMZN)
35
46
DEF Gross, Bill
Gruber, Marion
8, 35
32
Marathon Oil (MRO)
Mastrov, Mark
58
30
Snyder, Orin 32 Zuckerberg, Mark 29

Amherst Pierpont Securities35 Daimler (DAI:GR) 18 May, Theresa 40, 52

AOL (VZ) 21 Dalian Wanda Group 19 Mazda Motor (7261:JP) 18
Apple (AAPL) 18, 21, 31, 46 Davids Bridal 67 McAdam, Lowell 21
Armstrong, Tim 21 De Beers 38 McCain, John 22
Asos (ASC:LN) 67 Deloitte 30 McKinsey 18
How to Contact
AT&T Services (T) 22 De Sousa, Givanildo Vieira 19 Mercedes-Benz (DAI:GR) 18 Bloomberg Businessweek
Detroit Bikes 64 Merrill Lynch (BAC) 64

B Domesek, Erica
DoubleLine Capital
71
35
Microsoft (MSFT)
Miller, Greg
46
30
Editorial 212 617-8120 Ad Sales 212 617-2900
Subscriptions 800 635-1200
Bailey, Andrew 37 Dragon Capital 15 Modi, Narendra 8
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BamBrogan, Brogan
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15
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Moore, Michael
33
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Fax 212 617-9065 Subscription Service
Barclays (BCS) 16 Electronic Arts (EA) 30 Gontareva Motivate 64 PO Box 37528, Boone, IA 50037-0528
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E-mail bwkcustserv@cdsfulllment.com
Berlinger, Joe 70 Empra 16
N Reprints/Permissions 800 290-5460 x100 or
Berlusconi, Silvio
Beyonc
19
31
ExxonMobil (XOM)
Facebook (FB)
18, 58
21, 29, 46
HIJ Nasty Gal 67 businessweekreprints@theygsgroup.com
Blair, Tony 52 Farage, Nigel 52 H&M (HMB:SS) 67 Netflix (NFLX) 46, 70
BMW (BMW:GR) 18 Feng, Tao 19 Henderson Group (HGG:LN)37 New Belgium Brewing 64 Letters to the Editor can be sent by e-mail, fax,
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Brown, Gordon 52 Fiala, Tomas 15 IBM (IBM) 46 Management 35 phone number(s), and e-mail address if available.
Buenda & Laredo 16 Fidelity Investments 35 Infront Sports & Media 19 Niantic 21
Connections with the subject of the letter should
Buress, Hannibal 31 FlightAware 58 Invictus iCar 18 Nintendo (7974:JP) 21
Ford Motor (F) 18 Irving, Bill 35 Nokia (NOK) 18
be disclosed, and we reserve the right to edit for
sense, style, and space.
C Forever 21
Fox, Rick
67
30
J.Crew
Janus Global Unconstrained
67 Novartis (NVS)
Novavax (NVAX)
32
32
C.K., Louis 31 Foxconn Bond Fund (JUCTX) 35 Corrections & Clarications
India Is Cutting Oil Deals Worldwide (Global
Cameron, David
Cannondale
19, 52
64
Technology (2354:TT)
Frampton, Peter
12
31
Johnson, Boris 52
OPQ Economics, July 11-July 17, 2016) mistakenly stated
Cantor, Eric 22
KLM Obama, Barack 46 that India would account for 25 percent of global
Chappelle, Dave
China Media Capital
31
19
G Kammok 66
P.S.I Made This
Partovi, Hadi
71
46
demand from 2013 to 2040. It should have said
Christies 58 Gavekal Dragonomics 12 Keys, Alicia 31 Pashak, Zak 64 that India would account for 25 percent of growth
Cicconi, James 22 Gem Diamonds(GEMD:LN) 38 Kimes, Jefrey 58 Peebles, Douglas 35 in demand for that period.
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 Globalizationthat irresistible force that
Opening was inevitably, inexorably making the
world latlooks to be in retreat. Trade
Remarks growth has never recovered to the levels
reached before the 2008 inancial crisis.
Donald Trump is fueling his presidential
campaign on fear of free trade and immi-
gration. The economic problems of the
The U.S., he blasted in a June speech, are the
consequence of a leadership class that
worships globalism over Americanism.
World Is Then came Brexit, the worst setback for
the European Union, that most ambi-
tious experiment in globalization. Money
manager Bill Gross said Brexit marks the
Still Flat
By Michael Schuman
end of globalization as weve known it.
In a sense, Gross is correct. The
rich West launched globalization on
the ideal that nations tied together by
bonds of trade, money, and culture
are less likely to destroy one another.
Now those in the U.S. and Europe who
believe themselves hurt by the massive
changes wrought by globalization want
to reverse it. Isolationism is being her-
alded as independence.
But anyone who thinks globalization
is dead misreads whats really happen-
ing. While there are pockets of resistance,
much of the world is still forging tighter
links between countries, companies, and
8 communities. Rather than retrench-
ing, globalization is deepening
and expandingwhether angry
Trump supporters or British
Leave voters like it or not.
This new and perhaps even
more exciting phase of globaliza-
tion presents serious challenges for policy-
makers, especially in the U.S. and Europe.
As working classessufering from stag-
nant incomes and joblessnesslash out at
the free movement of money, goods, and
people, their elected politicians face pres-
sure to detach from an increasingly inter-
connected world. In doing so, though,
they may cede to non-Western compet-
itors the potential beneits these fresh
linkages will create. The fate of nations
may depend on whether they continue
to embrace globalization.
Thats been the case for decades. The
irst round of globalization was, gener-
ally, a movement from the West to the
rest. As the open exchange encouraged
by the U.S.-led global economic system
and advancing technology smoothed the
way for doing business on an interna-
tional scale, inance and factories lowed
Brexit wont stop from the richest countries to the poorest.
With them came Western doctrines (from
globalization. Beyond capitalism to evangelical Christianity)
the West, links are and Western culture (from McDonalds
growing and deepening to Mickey Mouse). The countries that
took advantageChina, Japan, South
Korea, and, yes, the U.S.reaped the
rewards. Developing countries allevi-
ated poverty on an unprecedented scale,
while advanced nations gained greater
economic eiciency. Countries that sat
on the sidelinesRussia, much of the
Middle East, and Africaare still trying
to make up lost ground.
The success of that early phase of glo-
balization has spawned anotherone
that moves in all directions. Emerging
economies are knitting closer ties among
themselves as China, India, and others
gain in wealth, clout, and conidence.
The World Trade Organization igures
that 52 percent of developing coun-
tries exports went to other emerging
economies in 2014, up from 38 percent
in 1995. Trade between China and
India was $1.7 billion in 1997. By 2014
it had ballooned to $72 billion. Indias
total trade with Africa grew more than
60 percent in only four years, to
almost $48 billion in the countrys
2014-15 iscal year.
Most of the world contin-
ues to pursue free trade,
even as Trump derides
the North American Free
Trade Agreement, or
Nafta, as a disaster, and
Brexit excises Europes
second-largest economy
from the continents inte-
grated market. China is
pushing for a pan-Asia free-
trade zone; the 10-member
Association of Southeast Asian
Nations is forming a common market;
and African countries have started
negotiating a continentwide
free-trade area.
Todays global-
ization is also
drawing in
countries
previously
left out.
Textile and
apparel manu-
facturers from
Bangladesh, China,
and Turkey invested
$2.2 billion in Ethiopia last year to open
factories to export to the U.S. and Europe.
The Philippines, long a laggard in a region
ILLUSTRATION BY JEFF GLENDENNING
replete with hyperconnected economies,
has become a major hub for call centers.
New institutions are forming to
support these trends. In June the China-
backed Asian Infrastructure Investment
Bank, a development organization akin
to the World Bank, approved its irst four
loans, totaling $509 million, for projects
in Bangladesh, Indonesia, Pakistan, and
Tajikistan. Two months earlier, the New
Development Bankfounded by Brazil,
Russia, India, China, and South Africa, and
headquartered in Shanghaiannounced
its irst loans. They totaled $811 million
and will fund renewable energy projects
in the BRICS countries, except for Russia.
Companies from the emerging world
are becoming more important inves-
tors as well. According to the American
Enterprise Institute, Chinese companies
invested $111 billion around the world in
2015more than 10 times the amount in
2005. The total that Indian companies
have invested abroad, at $139 billion in
2015, rose 43 percent in only ive years,
growing faster than the amount of foreign
money invested in India. During a June
visit to China, Russian President Vladimir
Putin said the two countries are jointly
undertaking investment projects worth
$50 billion.
Growing antipathy toward immi-
grants hasnt kept people at home,
either. The World Bank estimates that
the number of international migrants
rose to a record 251 million last year.
More than 38 percent of them moved
from a developing country to another
developing country in 2013, compared
with 34 percent to advanced economies.
Of course, this new globalization may
encounter its share of Brexit-like set-
backs. Trade among emerging economies
hasnt escaped the global slowdown. The
WTO estimates that the growth of exports
among developing economies slumped
to 1.3 percent in 2014, down sharply
from about 33 percent only four years
earlier. In some cases, the ties between
nations are tightening less than they
appear. Despite the high-level friendship
between China and Russia, persistent dis-
trust has kept many of their promises
of cooperation just thatpromises. And
politicians and policymakers intent on
turning back globalism can hamper prog-
ress for everyone. Trumps protection-
ism, if ever implemented, could spark
retaliatory measures capable of dragging
down global growth. In Europe, German
C h a n c e l l o r A n ge l a
Merkel is talking tough on Brexit, saying
the U.K. cannot go cherry-picking what
it wants and doesnt from EU member-
ship. The trauma of the U.K.s impend-
ing exit is expected to dampen growth
not only in Europe, but possibly around
the world.
Yet the foes of globalization wont be
able to stop it. Too many countries see
their future as part of something bigger.
India long harbored doubts about partic-
ipating in globalization, but after liberal-
izing rules on foreign direct investment
in June, Prime Minister Narendra Modis
oice tweeted that his country is the
most open economy in the world for
FDI. Next door in Myanmar, military
rulers gave in to democratic reform after
realizing their impoverished country
could no longer remain isolated. They
hope to gain from the opportunities
embedded in this latest round of global-
izationnew sources of growth, inance,
and proits; new founts of information
and innovation; new job creators and
consumers; and new ideas sprouting in
a newly emerging global culture.
Those who blame globalization for
their problems think theyll be better
of watching from the sidelines. Trump
and his supporters contend that erect-
ing wallsliterally and igurativelywill 9
protect U.S. jobs and industry from an
unfair global economy. But early indica-
tions say otherwise. The pounds steep
post-Brexit swoon is a signal that inves-
tors believe the U.K. is less competitive
outside an integrated Europe than
within it. In Paris and Frankfurt,
bankers and politicians are eager to
capitalize on Brexit to siphon of inan-
cial business from London.
Instead of pandering to iso-
lationist forces, politicians
would do better to address
their very real con-
cerns directly. Workers
displaced by free trade
need more intensive
training to prepare
them for new jobs.
Un ive r s i t y e d u c a -
tion must become less
expensive, and vocational
schools more available.
Allowing labor a greater voice
in corporate management will
help wage earners share more equi-
tably in the proits globalization
creates for Big Business. As
the world continues to latten,
opponents of that inevitable,
inexorable change must mind
the edge. 
 Bloomberg
View
Giving Afghanistan
A Fighting Chance
The presidents surprise decision to cancel a
troop withdrawal will help the war-torn country
Two years after President Barack Obama declared he would
10 bring the war in Afghanistan to a responsible end, hes can-
celed the planned withdrawal of 4,300 troops and said the U.S.
will keep a force of 8,500 in the country indeinitely.
Perhaps he realized what a huge mistake it was to leave no
soldiers behind when he ended the war in Iraq in 2011, an
error thats been critical to the rise of Islamic State. Afghanistan
is likewise at risk of collapsing into anarchy, and again becom-
ing a safe harbor for groups plotting attacks against the West.
The U.S. needs to keep its force in place.
Given the enemies that the Afghan government facesthe
Taliban, the Haqqani network, al-Qaeda, and now an Islamic
State factionone may wonder how a few thousand U.S. troops
can make any diference. But they can: A relative handful of
highly qualiied Americans can go a long way toward orga-
nizing counterinsurgency campaigns and training Afghan
security forces. And the elite special forces units deployed in
Afghanistan are suited to taking out terrorist leaders.
Obama and his generals have recently strengthened the anti-
insurgency campaign by bombing Islamic States allies in the
east of the country and by relaxing the rules of engagement
so U.S. forces can bomb Taliban warriors to protect Afghan
forces whether or not Americans themselves are in danger.
Afghan forces, however, arent yet ready to stand alone,
even after years of training and billions in U.S. spending. One
main problem is that Afghanistan has enlarged its army and
police force so much, there are too many soldiers and oicers
to suiciently train and supply. The government needs to be
convinced that war isnt a jobs program.
Another problem is widespread corruption. The Pentagons
special inspector general for Afghanistan has identiied billions
of dollars wasted and siphoned of by oicials over the years.
Surveys have shown that Afghans widely distrust the police
whose job is to maintain control in places freed from Taliban
To read Conor Sen
on why millennials
need a housing bubble
and Mark Gilbert
on traders fleeing
London, go to
Bloombergview.com
controland a ifth of them dont trust the military.
The Pentagon shares some responsibility for the slow prog-
ress: Its been reluctant to let U.S. trainers accompany Afghan
forces into battleanother mistake also made in Iraqand its
been providing too little air support for Afghan ground oper-
ations. Perhaps the U.S. and other Western supporters would
ind it easier to help if the political situation in Afghanistan
were more stable. President Ashraf Ghani and Chief Executive
Abdullah Abdullah have yet to resolve their feud, ease tensions
among ethnic groups, and crack down on corruption enough
to ensure that parliamentary elections can be held in October.
But Obamas surprise announcement sends a strong message
to the Afghan people that the U.S. isnt abandoning them. They
need to know the world remains on their side.
Washingtons Really
Dirty Business
The government should stop issuing
coal leases on federal land
Six months into a three-year moratorium on new coal leases,
the federal government is considering how much to charge for
them when the ban expires. The price, which has long been
well below market value, stands to rise drastically. But heres
a better idea: Stop issuing coal leases altogether, at any price.
The public-health stakes alone justify a permanent mora-
torium. There would be climate dividends, too. Burning coal
produced one-quarter of all U.S. carbon dioxide emissions last
yearmore than any other source.
There was a day when burning dirty coal was considered a
worthwhile price for running a successful industrial economy.
That explains why the federal government has been leasing
coal mines on public land for just $3 an acre.
But now fracking provides access to an abundant supply of
natural gas, which generates just as much electricity as coal,
even more cheaply and with about half the emissions. Solar
power and wind energy have also increased dramatically.
By stopping new coal leases, the government could acceler-
ate the transition to clean power. And it could lay the ground-
work for ending all coal production on federal land. Existing
leases account for about 40 percent of U.S. production. Cutting
coal use by that amount would almost double the cuts expected
under the U.S. Environmental Protection Agencys proposed
regulations on power plants.
Unlike most climate policies, a ban on new leases would
require no congressional action. Leases are a simple legal
matter: The government has clear authority to set the terms
COURTESY U.S. AIR FORCE
for mining on federal lands.
Eventually, it might make sense to also stop new federal
leases for other carbon-intensive fuels, chiely oil. But the alter-
natives to gasoline-powered cars arent nearly as far advanced
as they are for coal-ired power.
Reinvent:
Banking
Capital One + the AWS Cloud
Unleashing the power of technology
to change the rules of banking.
 Global I will definitely not
let my future child
become a left-

Economics behind child. I will

find a job near
wherever they go to
school.
July 18 July 24, 2016
Pan Guofen

Chinas Factory Worke

12

Migrants from the interior return to set up businesses

The ood of rural labor has slowed to a trickle and may dry up altogether
The vast neighborhood outside
Foxconn Technologys Guanlan
plant in Shenzhen is eerily quiet on a
PHOTOGRAPHS BY GRAINNE QUINLAN FOR BLOOMBERG BUSINESSWEEK

recent Sunday afternoon, normally a

day of when the factory workers visit
bustling shops to buy bamboo mats,
electric fans, lip-lops, and shampoo.
Many of the migrants who moved to
Shenzhen and other Chinese factory
towns to work have pulled up stakes
to go back home for good. One des-
tination is Binghuacun (popula-
tion 968) in the interior province of
Guizhou, more than 670 kilometers
(416 miles) away.
Mo Wangqing left Binghuacun
at 18 to toil in the coastal factories,
 Back and Forth: Its banker vs. oligarch
Chinas South China in Ukraine 15
Sea claim 14

Union protests add to

Mexicos woes 16

making everything from electronics

components to wall paneling. Now
36, he returned a year ago. Factory
jobs on the coast were drying up, and
he sensed opportunity in his home
village. A push to develop interior
China had brought high-speed rail
and expressways to Guizhou, helping
spur economic growth. When Mo saw
locals running a ish farm near the
Vacation resort factory where he worked in Guangxi
under construction province, I decided I wanted to
in southern start one, too, he says. I knew that
Guizhou province
the water was so much cleaner and
better here in Guizhougood for
raising ish. Now that hes launched
his ish farm, he plans to open a res-

ers Head Home taurant in Binghuacun featuring his

mountain-farmed ish. He expects
tourists to lock to this out-of-the-way
place surrounded by steep mountains
and rushing rivers.

13

Being a migrant is
not fun. You cant
ever earn that much
money, and you are
far away from your
family.
Shi Wenjian
 Global Economics

Before, we relied on planting rice, Under a policy colorfully called are too old, so I returned to take care
corn, and peppers and remittances Returning Geese Revitalize Guizhou, of them, he says. I can easily go to
from our young people who went out provincial oicials are ofering return- see them.
to ind work, says Mo Bochun, a village ees free entrepreneurial training, tax Theres a growing national aware-
oicial sitting in the local party service waivers for businesses they start, and ness of the social costs of migration.
center under a huge poster portray- low-interest loans. Tourism is a pri- I have experienced how lonely it is
ing Marx, Engels, Lenin, Stalin, Mao, ority. Starting in the 1980s, Chinas to grow up lacking in parental love,
and Deng Xiaoping, set above images countryside grew through reliance says Pan Guofen, 23, who manages
of President Xi Jinping and his two pre- on manufacturing and processing, e-commerce orders for the organic
decessors, Jiang Zemin and Hu Jintao. says Sun Zhe, chairman of GoHome, vegetables, fruit, and meat produced
Now our migrants are coming back a travel website that helps urbanites at Qianlafang. While Pans parents
with new skills, such as a knowledge of enjoy Guizhous traditional country worked in a factory in Huizhou, in
computers, he says. life. Now we think that the service Guangdong province, she was raised
Last year the number of migrants economy and tourism should lift by her grandmother before going to
from the countryside edged up rural China. a government boarding school. I
0.4 percent, to a total of 169 million, Being a migrant is not fun, says will deinitely not let my future child
according to the National Bureau of Shi Wenjian. You cant ever earn that become a left-behind child, she says.
Statistics. In 2016 the total could fall, much money, and you are far away I will ind a job near wherever they
says Tom Miller, an analyst for the from your family. Shi worked in a go to school.
Beijing-based consulting irm Gavekal cloth-dyeing factory in Zhejiang prov- A survey released by the Chinese
Dragonomics. Many of the migrants ince before moving back to Guizhou Academy of Social Sciences in April
simply go to nearby cities and town- two years ago to live with his wife, found that one-half of rural Chinese
ships to live and work. The lood 5-year-old son, and 7-year-old daugh- arent interested in moving to the
of rural labor has slowed to a trickle ter. Now he raises free-range chickens cities, citing their age, the need to
and may dry up altogether, Miller at Qianlafang Ecological Agriculture take care of parents and children, and
says. The statistics bureau doesnt Development, an organic farm and unfamiliarity with urban life. Two-
track returning migrants, but Guizhou tourist resort in Luodian County, only thirds of those planning to migrate
does: Last year 1.2 million 70 kilometers from his home- said they intend to return to their vil-
returned to the province, up
14
from 520,000 in 2011.
Back and town, where his parents still
live. My mother and father
lages. My plan is to save more money,
then in the next couple of years, move
Forth back home and start my own busi-
ness, maybe a clothing shop, says
Zhang Chi, 25, who works in a toy
factory in Dongguan, which is also in
There was no evidence that Guangdong province, and is from a
village outside the city of Xian, in the
China has historically northwest. When I was very little,
there was a big gap between here and
exercised exclusive control my hometown, but not anymore. Now
life is good back there.
over the waters. Chinas State Council, the coun-
trys chief administrative authority,
The Permanent Court of Arbitration in The Hague, ruling July 12
against Chinas territorial claim to the South China Sea has issued guidelines to encourage
migrant workers, along with college
students and demobilized soldiers,
to start businesses in their home-
The Philippines strongly towns. Measures include simplify-
ing company registration, cutting
airms its respect for income and sales taxes, and setting
up special investment zones for
this milestone decision. returnees businesses.
Not everything is likely to go
Philippine Foreign Secretary Perfecto Yasay Jr.; the Philippines
brought the suit against China at The Hague smoothly in this vast reordering
of the population. After years of
living in cities, returnees dont have
the social networks necessary to
The award is null and void succeed in business, says Yang Meng,
a 30-year-old migrant from Yibin,
and has no binding force. Sichuan, working in Shenzhen. I
am already poor, and for people like
Chinas Ministry of Foreign Afairs
me who try to start a business in the
 Global Economics

countryside, the risk is we fail and

Accelerating
end up even poorer, he says. The
countryside can accommodate only
some of us. Not all the workers can
insights
go home and expect to ind a job.
Dexter Roberts, with Jasmine Zhao
The bottom line Chinas national and provincial
authorities are encouraging migrant laborers to
return home from the big coastal cities.

Reform
A Central Banker
Takes On an Oligarch
The head of Ukraines central bank
is forcing a tycoon to obey

He has people in Parliament, a big

bank, and media

In two years as governor of the

National Bank of Ukraine, Valeriya
Gontareva has shut down almost half
the countrys banks for being under-
capitalized or having links to crim-
inals. But at dinner this spring with
billionaire George Soros, she worried
that the closures wouldnt put an end
to what she calls oligarch banking.
What concerns us both is the domi-
nant position of one particular bank,
Soros says, describing his talk with
Gontareva. It has more than half the
banking business and is in the hands of
an oligarch who is very powerful.
Soros and Gontareva were talking
about PrivatBank, which is controlled
by Igor Kolomoisky, whose $1.4 billion
fortune makes him one of Ukraines
richest men. How Gontareva persuades
Kolomoisky to sever PrivatBanks ties
to the rest of his
empire will decide

$11.3 billion
the fate of her
reforms. Gontareva
wouldnt discuss
7 of the 10 Worlds Most Admired Companies
drive business decisions using
her conversation Data Analytics from Hewlett Packard Enterprise.
with Soros.
Assets of PrivatBank, So far, her eforts
which holds a third are a rare success
of Ukraines retail in attempts to ix
deposits
the economy and
curb oligarchic
control of the country since it split from
the then-Soviet Union in 1991. I call hpe.com/insights
these banks part of the oligarch banking
practice, she says. The structure
2016 HPED LP. Source: Fortune Global 500, Most Admired Companies 2015.
 Global Economics
was quite simple. You borrow money
from all the sources you can ind, and
afterwards you build your empire.
Before closing problem banks,
Gontareva is giving their owners
often oligarchsas long as three years
to come up with the money to plug the
holes in their balance sheets, in large
part by repaying the loans they had the
banks make to their own companies.
The owners must pledge assetsinclud-
ing yachts and mansionsas security.
PrivatBank Chief Executive Oicer
Oleksandr Dubilet says its loans to
Kolomoiskys companies are 8 percent
of its portfolio, making repayment by
his enterprises manageable. Others
say the real igure is higher. Tomas
Fiala, CEO of Kiev-based investment
bank Dragon Capital, says PrivatBanks
own data suggest more than a third
of its loans were made to companies
in oil, iron alloys, and aviation, where
Kolomoiskys group dominates. Dubilet
says the bank is completely trans-
parent in providing information on its
loan portfolio. Gontareva wouldnt
comment on PrivatBanks exposure to
16 Kolomoiskys debt. Kolomoisky didnt
respond to requests for comment.
It wouldnt be easy to shut
PrivatBank: With 280 billion hryvnia
($11.3 billion) in assets, it holds a third
of Ukraines retail deposits. If you
close PrivatBank, or people lose trust
in it, millions of Ukrainians will be
If you close lined up outside not just
PrivatBank, or its doors, but ours, too,
people lose trust in
trying to get their money
it, millions of
Ukrainians will be out, says Gerhard Bsch,
lined up outside not irst deputy chairman of
just its doors, but
the board at Raifeisen
ours, too, trying to
get their money out. Bank Aval, a local sub-
Gerhard Bsch of sidiary of Austrian bank
Raifeisen Bank Aval
Raifeisen. The regulators
have to compromise, but
they cannot let the bank
be run as it was, as a cash pump for
Kolomoiskys empire, he says.
Gontareva says the same rules are
being applied to PrivatBank as to
others. But Kolomoisky has a lot of
clout. He has people in Parliament, a
big bank, and media that can change
the course of elections, says Svitlana
Zalishchuk, a reformist legislator. I
think the president [Petro Poroshenko]
has no choice but to take Kolomoiskys
interests into account.
Some criticsmainly political oppo-
nents of Poroshenkosee the closure of
80 banks as an opportu-
nity for one set of rich
insiders to take assets
from another. It hasnt
translated into more
lending: Abandoned
branches and still ATMs
are a feature of Kievs
streets. Those who were
afected by the clo-
sures are also often crit-
ical. The central bank
has ruined the banking
system. Its policy has led to a lending
freeze and to skyrocke ing interest
rates, says Ihor Petrashko, a senior
executive for oligarch Oleg Bakhmatyuk
whose two banks were closed.
Others credit Gontareva for challeng-
ing the status q o. It is a huge achieve-
ment, says Aivaras Abromavicius,
the former economy minister. Along
with the gas trade, banking was
really the point f endless corrup-
tion in Ukraine. He quit in February
after Poroshenkos allies, he says,
obstructed his reforms.
In May, Gontareva ran into
Kolomoisky at the cent al bank. He
joked that her reforms were cleaning
out the market for us. People there say
Gontareva was the only one not la gh-
ing. Marc Champion and Daryna
Krasnolutska, with Volodymyr Verbyany
The bottom line The head of Ukraines central bank
has closed 80 banks and given others three years
to restore their balance sheets to health.
Protests
An Ao Horrible for
Mexicos President
Pea Nieto faces teachers wrath
and a cooling economy
A problem of this kind makes any
government look weak
For Mexican President Enrique Pea
Nieto, 2016 was supposed to be a good
year. The government had promised
that in the second half of his six-year
term, which started in 2012, the reforms
pushed through Congress during
his momentous irst few months in
oice would bear fruit. Theyd bolster
growth as well as the standing of his
Institutional Revolutionary Party (PRI).
Instead, the Mexican leader inds
himself battling problems, including
low oil prices and public dissatisfac-
tion with the governments response
to corruption. The measure Pea Nieto
said was most importanta plan to
improve public education by making
teachers more accountable for their
performancehas sparked protests in
the nations impoverished south.
The recent troubles began in the
state of Oaxaca, long a bastion of resis-
tance to changes in public educa-
tion. Protesters blocked highways
last month, and on June 19 , a clash
between police and members of the
countrys second-largest teachers union
left at least eight civilians dead and
more than 100 injured. The union says
the police ired on protesters, while
the police say they were shot at irst by
militants whod iniltrated the demon-
stration. The presidents press oice
declined to comment on recent events.
Protests have since spread to the
neighboring states of Chiapas and
Guerrero, cutting of access to roads. In
Oaxacas colonial-era capital city, nor-
mally full of tourists, hotel occupancy
rates have dropped to 5 percent. Wary
of risking more violence by forcefully
removing the blockades, the govern-
ment has airlifted food and medicine
to the state.
This standof couldnt come at a
worse time for Pea Nieto. Low oil
prices have hobbled his eforts to
boost the oil and gas industry by court-
ing private investment. Theyve also
LUIS ALBERTO CRUZ HERNANDEZ/AP PHOTO
driven the peso to record lows and
forced the government to cut spend-
ing. In addition, the government must
now provide inancial assistance to
state-controlled producer Petrleos
Mexicanos. Consumer spending, a
vital prop for the economy, shows
signs of faltering. Analysts see growth
 Global Economics

slowing to 2.3 percent from last years

Accelerating
2.5 percent as exports stagnate, a
Citigroup poll of analysts shows. The
central bank may raise rates beyond
protection
the 1 percentage point its already
hiked them this year to head of inla-
tion. The prime rate is 4.25 percent.
In June elections, the PRI lost the gov-
ernors oice in four traditional strong-
hold states. Pea Nietos approval rating
has fallen to 29 percent, according to
a late-June poll by pollster Buenda &
Laredo and newspaper El Universal, the
lowest of his presidency. A problem of
this kind makes any government look
weak, Alejandro Schtulmann, who
heads political risk group Empra, says
of the teachers protests. Pea Nietos
political capital isnt gone completely,
but its really damaged.
The president still has more than
two years left in his term. His weak-
ness increases the risk that the National
Action Party, or PAN, the biggest oppo-
sition group, will succeed in rolling back
some of 2013s tax increases and require
the government to cut spending further,
says Marco Oviedo, chief Mexico econ-
omist at Barclays. PAN was the biggest
winner of Junes gubernatorial races.
Voters also favored the Morena
party of populist Andrs Manuel Lpez
Obrador, the runner-up in the last two
presidential elections and a potential
candidate for the 2018 election. Lpez
Obrador has backed the teachers union,
leading a march down Mexico Citys
Paseo de la Reforma boulevard and
demanding the resignation of the inte-
rior minister, a potential PRI presiden-
tial candidate whom Lpez Obrador
blames for the deaths in Oaxaca.
The unrest in Oaxaca has diverted
attention from the progress the gov-
ernment has made in other areas,
such as the efort to improve trans-
parency in the courts and the pledge
secured from Canadian Prime Minister
Justin Trudeau to drop the tourist
/ e\ j^[ '& mehbZi bWh][ij dWdY_Wb i[hl_Y[i XhWdZi
visa requirement for Mexican visitors. h[bo ed >[mb[jj FWYaWhZ ;dj[hfh_i[ i[Ykh_jo iebkj_edi
Instead, when Pea Nieto traveled to je fhej[Yj j^[_h ZWjW" WdZ j^[_h h[fkjWj_edi$
Toronto to meet Trudeau a week after
the Oaxaca slayings, he was greeted by
demonstrators shouting murderer!
Eric Martin and Nacha Cattan
The bottom line President Pea Nieto started out
as a bold reformer, but developments inside and
outside Mexico have weakened his hand.

hpe.com/protection
Edited by Christopher Power
Bloomberg.com
2016 HPED LP. Source: Forbes Most Valuable Brands, Financial Services 2015.
 Companies/
Industries
July 18 July 24, 2016
150
100
50
Weight (lbs.)
0 TRIPS TO TACO BELL
14853
18
The Battle for Smart
Car Data
Detroit is ghting to keep information collected by connected cars away from Google and Apple
There is tremendous value in the data, and they are trying to gure out how to get it
Crank up one of todays newest car
models, and it will update more than
100,000 data points, from simple tire
pressure to pollution levels in your
engines exhaust. The onboard naviga-
tion system tracks every mile driven
and remembers your route to work,
while the vehicular brain can help
you avoid traic jams or score parking
spaces. Todays cars can even collect
some rather personal details such as
the front-seat passengers weight.
The internet-connected car will be
a wonderful convenience or an intru-
sive nightmare, depending on your
tolerance. But for automakers, it could
also be a data gold mine. Thats why
they are determined to keep the likes
200
in 7 mins.
Click for alternate route
250
20 mph
average speed
over the legal
300 limit
of Google and Applewhich have
proited handsomely by selling con-
nective services and handheld mobile
devicesfrom making more inroads
inside cars. The goal of the Silicon
Valley giants is to own the coming
web-on-wheels experience and leave
Detroit with the less lucrative task of
simply bending metal. McKinsey esti-
mates that in-car data services and
ridesharing could generate $1.5 trillion
of annual revenue by 2030. Everyone
is trying to control the screens in the
car, says Tony Posawatz, chief execu-
tive oicer of consulting irm Invictus
iCar. There is tremendous value in
the data, and they are trying to igure
out how to get it.
Bates Motel

in 2.4 miles
$32 $178
BOOK NOW
Both sides want to secure an early
beachhead in the battle for dashboard
dominance for a simple reason: Once
self-driving cars are the norm, people
will have the downtime to become truly
mobile consumers. And the detailed
data of where and how individuals
spend their time on the roadincluding
shoppingwill help marketers deliver
the kind of sharply targeted ads that are
considered the most efective. So Ford
and others are already angling to limit
access to the juiciest data that could be
used to sell in-car services or develop
ads for seat-belted shoppers.
Were not in a position of turning
over our vehicles to a Google or Apple
experience, says Don Butler, Fords

executive director for connected vehi-
cles and services. We want to make
sure our customers have a chance to
give informed consent about how
details concerning their habits are used.
And, he adds, we want to share in
any value created.
Ford, BMW, General Motors, and
other automakers have developed
or purchased special systems that
can hostand limitin-car apps pro-
duced by others. Many brands, includ-
ing Chevrolet and Ford, have elected
to allow drivers to plug in Apple and
Googles competing vehicle-screen
operating systems, CarPlay and
Android Auto, without giving the tech
companies access to drivers personal
information or vehicle diagnostics.
Fords ofering, which Toyota also
uses, is called AppLink; it enables the
car to access 90 phone apps without
using CarPlay or Android Auto as a go-
between. And BMW, Daimler, and
Volkswagen teamed up last year to
buy Nokias digital mapping business,
called Here, for $3.1 billion, giving
them a platform for location-based
services and, eventually, mapping
capabilities for self-driving cars.
GMs OnStar mobile information
subscription service is already ofer-
ing dashboard-delivered coupons for
Exxon and Mobil gas stations and the
ability to book hotel rooms. Mercedes-
Benzs concierge service Mbrace can,
at the touch of a button, route a driver
around traic or bad weather. Both
cost about $20 a month.
Asian companies are also getting on
board. Alibaba Group, whose YunOS
already connects phones, tablets, and
smartwatches, is working on deals
with Chinese automakers to operate
with vehicles. Mazda Motor helped
fund development of a network called
OpenCar. Bryan Mistele, CEO of soft-
ware maker Inrix, the company that
acquired OpenCar in March, says
agreements with other automakers
will be announced later this year. All
the automakers, he says, are worried
about Google and Apple.
ILLUSTRATION BY 731
For good reason. The Silicon Valley
giants are developing cars and self-
driving technology themselves, and
both are leaders in connected services.
At the moment, tech companies are
out ahead because of the many mil-
lions of people around the world who
have a smartphone on hand at all
times, including while driving.
Leaders among the apps popular
with people in cars include Googles
Waze, an advertising-supported and
crowdsourced program that ofers
congestion-avoiding directions;
Yelp, which provides locations and
reviews of local businesses; and music-
streaming service Spotify, which is
mostly accessed through smartphones.
Theres little evidence so far that
car companies are as good as the tech
giants at developing digital apps and
content, says Eric Noble, president of
consultant CarLab. What are the odds
that carmakers will come out with any-
thing that will compete with a phone?
he says. Theyre chasing a rainbow.
Google spokeswoman Kaori Miyake
says the company is eager to work with
the auto industry on car connectivity.
She says Google isnt interested in data
on in-car consumer behavior to use for
its own advertising purposes. She didnt
address the question of whether Google
would like to obtain such information
so it can sell it to others.
Waze already digs into personal data
in smartphones with users permission
and blasts pop-up ads on the screens
of its 50 million global users, says Julie
Mossler, head of
brand and global
228m Smartphones
marketing at Waze.
That intrusive-
in use in the U.S. ness is why David
in 2015 Fuller, a contrac-
tor in San Antonio,
says he deleted
258m Passenger cars
Waze after one day.
Plus he doesnt
on the road in the U.S. like pop-up ads.
in 2015 Thats as bad as
texting, he says.
Its not only tech companies that are
interested in car data. The insurance
industry would be thrilled to have
front-seat knowledge about a driver
it could charge higher rates for proven
lead-foots, for instance. Or vice versa.
Ford will soon ofer drivers a chance
to use an app to get a driver score that
could reduce their insurance rates if
Marni Walden wants to
reinvent Verizon 21
Catch em if you can:
Pokmon Go raises
Nintendos profits 21
they have safe habits. GM has a similar
feature in its cars.
GM plans to keep its in-car internet
oferings linked to motoring, says chief
infotainment oicer Phil Abram. We
have to be careful about what we push,
he says. It has to be relevant to the
vehicle. Its a win-winup to the point
that it becomes spooky. David Welch
The bottom line Todays sensor-laden cars collect
huge amounts of data for which marketers may
pay dearly. Automakers want to control such sales.
Sports
Whats Footballer
In Mandarin?
China is spending big to become
a soccer heavyweight
Its insane. I have never seen 19
anything like this before
Soccer star Givanildo Vieira de Sousa,
popularly known as Hulk, had quite
the welcome to China on June 29.
Shortly after his plane landed at
Shanghais Pudong International
Airport, hundreds of chanting fans
mobbed the Brazilian forward as he
pushed his way through the crowd.
Hulk, who recently inked a record-
breaking $61 million deal with the
Shanghai SIPG team, wont be the
last player to get a heros welcome on
the mainland.
Long a soccer backwater, China
has gone on a buying spree unprec-
edented in the history of the game.
Since the beginning of 2015, Chinese
companies have invested $1.7 billion
in sports assets, the vast majority
soccer-related, according to data com-
piled by Bloomberg. As recently as
ive years ago, that number was zero.
Its insane, says Brazil-based sports
lawyer Marcos Motta, whos worked on
several player trades to China. I have
never seen anything like this before.
Led by some of the countrys
richest men, including Dalian Wanda
Group founder Wang Jianlin and
Alibaba Groups Jack Ma, Chinese
 Companies/Industries
businesses have become ixtures at
the table for almost every soccer asset
put up for sale. In recent months,
a dizzying array of deals has roiled
the industryfrom signing soccer
players and coaches to investments
in storied clubs and buyouts of sports-
20 media businesses.
Next year the Milan Derbyone
of European soccers most pres-
tigious gameswill potentially
feature two Chinese-owned teams.
Suning Holdings Group in June
paid 270 million ($299 million) for
a 70 percent stake in 18-time Italian
champion Inter Milan, while a sep-
arate consortium has reached an
agreement to acquire 80 percent of
AC Milan, a seven-time European
champion, from former Italian Prime
Minister Silvio Berlusconi. There
will be more acquisitions and of very
famous teams, says Feng Tao, chief
executive oicer of Shankai Sports,
a Beijing-based consulting irm thats
advised on deals, including Wandas
$1.2 billion purchase of Swiss-based
sports-marketing company Infront
Sports & Media.
Most striking has been the sudden
rush by teams to pay huge sums to
import talent. The Chinese Football
Associations Super League clubs out-
spent those from any other country
this past winter, plunking down a
combined $280 million for European
soccer stars. The amounts doled out to
China-bound players and coaches are
far greater than what the athletes could
command elsewhere, according to
$1.7b
Amount invested in
sports assets in China
since the beginning
of 2015
Motta. Its common for top imports to
get 7 million or 8 million, more than
ive times what players of a similar
caliber would get in Europe, he says.
Motta is working on a deal that will
pay one player 13 million per year, he
addsand thats after taxes.
Chinese President Xi Jinping, an
avid soccer fan, is eager for China
to improve its global standing: The
national team is ranked 81st, just
after Jordan and ahead of Bolivia. He
wants China to host a World Cupand
win one by 2050. Thats encouraged
Chinese businesses, eager to please the
government, to open their wallets.
The sport is also beneiting from a
government efort to promote sports
and exercise to working-class urban-
ites. A national plan announced last
year contains the audacious goal
of building a sports industry worth
5 trillion yuan ($747 billion) by 2025,
when 50,000 schools are expected to
ofer specialized soccer training.
On a visit to the U.K. in October 2015,
Xi, accompanied by then-Prime
Minister David Cameron, visited
Manchester City, the English soccer
team owned by the royal family of
Abu Dhabi. He posed for a selie with
Cameron and Citys star Argentine
striker, Sergio Agero. Two months
later, City Football Group, which
owns the team, announced a
$400 million investment from private
equity irm China Media Capital for a
13 percent stake.
That same month, a unit of Alibaba
paid an undisclosed amount, believed
to be in the tens of millions of dollars,
to become title sponsor of soccer
governing body FIFAs annual Club
World Cup. In March, Wanda signed
a $150 million agreement to become
FIFAs irst Chinese sponsor. The two
companies are the only new spon-
sors to sign on with FIFA since the U.S.
Department of Justice indictment that
accused several senior FIFA oicials
of rampant corruption dating back
more than two decades.
Wanda has also bought a minority
stake in Atltico Madrid, last seasons
Champions League inalist. That deal
was followed by a slew of Chinese
companies investing in European
clubs: The owner of a monosodium
glutamate company bought Englands
Aston Villa Football Club, and a
consortium led by hotel entrepreneur
Chien Lee took control of Frances
OGC Nice.
For Lee, the Nice clubs training
academy, which has nurtured players
including French national team
captain Hugo Lloris, is a model to
export to the mainland. I see this as a
big opportunity, he says. Our plan is
to bring the Nice academy to China, to
open a training center in China.
Soccer investors such as Lee and
executives at Guangdong-based toy-car
maker Rastar Group, which controls
Spanish club RCD Espanyol, say they
see opportunities to proit from their
countrymens growing interest in the
sport and increasing willingness to
spend on overseas travel.
Our goal is not just to promote OGC
Nice, but to promote the whole city
FROM LEFT; KEVIN FRAYER/GETTY IMAGES; ILLUSTRATIONS BY 731. DATA: MACQUARIE CAPITAL SECURITIES
of Nice to China, says Lee, who co-
founded the hotel investment company
Plateno Group. He said hes been
scouting locations for a hotel in the
French city. Rastar has started orga-
nizing tours to Espanyols facilities in
Barcelona for Chinese children and
soccer fans since buying a controlling
stake in the team in November.
Still, Chinese investors risk a back-
lash for overreaching in Europe.
Soccer fans in Portugal cried foul
earlier this year when Chinese
LED light manufacturer Ledman
Optoelectronic made sponsorship
of a soccer division there contingent
on top teams ielding Chinese players.
Ledman later backed of.
The buying spree isnt limited to
players and teams. A bidding war

ended with a unit of China Media
Capital paying $1.3 billion for a ive-
year contract to broadcast Chinas
national league games. Thats about
13 times the value of the prior con-
tract. Its a very unique moment,
says Adolfo Bara, marketing director of
Spains top league, which has attracted
signiicant Chinese investment
recently. Theres so much money in
China. Tariq Panja, Rachel Chang,
and Jonathan Browning
The bottom line Chinese Super League clubs
spent $280 million for European soccer stars last
winter, more than those of any other country.
Telecom
The Woman Giving
Verizon a Reboot
New business chief Marni Walden
is reinventing the telecom giant
Its a high-risk, high-reward
assignment
Marni Walden knows a lot about career
planning. When I was growing up,
I wanted to be either a cowboy or a
ballet dancer, she says. But neither
seemed like reasonable options.
Smart move. Now Walden is Verizon
Communications president of
product innovation and new busi-
nesses, charged with transforming the
$231 billion telecom giant into a digital
information powerhouse. If she suc-
ceeds, it may alter not only Verizons
course but also her career. The 49-year-
old is on a shortlist of candidates to
potentially succeed Lowell McAdam as
chief executive oicer.
Key to her charge to dramatically
boost Verizons presence in mobile
media and internet services could be
winning the bidding for Yahoo!, for
which Verizon is a leading contender.
Yahoo is still the third-most-visited
website, but its online ad sales were
$4.2 billion last year, compared with
$67.4 billion at Google and $17.1 billion
at Facebook, according to researcher
Statista. That big gap is one reason
Walden took heat from analysts in
April over why Verizon was eager to
embark on a collision course with such
rivals in mobile advertising.
Companies/Industries
Its a high-risk, high-reward assign-
ment, says Rosabeth Kanter, a profes- Breakdown
sor at Harvard Business School who
has studied Verizons management for
10 years. Marni brings a whole new
skill and capability.
Walden doesnt exactly it the
mold of Verizon executives. Raised in
Cheyenne, Wyo., she spent much of
her youth on the family cattle ranch.
Her irst job after college was selling
briefcase phones for General Cellular
Pok-what? The augmented-reality app by
at a Chico, Calif., home-improvement Niantic is distributed by Nintendo for iOS
store. That was 1991. I called my and Android devices. Players go out in the
parents and told them I was going to real world to capture, battle, and train virtual
Pokmon using their mobile devices.
work with a cellular companyback
then we called them car phones, The Split Who gets what
she recalled. And my parents were
like, People are going to put phones
from players in-game
in their cars? And I remember them purchases at the App
thinking, this is not going to last. Store.
After a series of management jobs at Nintendo 10%
wireless companies, she ended up at
one bought by Vodafone Group, which Apple 30%
until 2014 was half-owner of Verizon Pokmon Co.
30%
Wireless. As chief marketing oicer at
Niantic 30%
Verizon in 2012, Walden and her team
introduced the irst major wireless
shared-data plan; such plans have since Nintendo owns 33 percent
21
become ubiquitous. of Pokmon Co. and can
In addition to overseeing AOLwhich include a third of that
Verizon acquired in 2015and its free-
wheeling CEO, Tim Armstrong, Walden
companys earnings in its
is responsible for wireless internet financial results.
services such as connected cars and
the companys push into online video,
The Draw Pokmon
which it hopes to include in its expand- is 20 years old, so the
ing premium-subscription services. So game can appeal to both
far, Verizons transformation is of to a younger fans and adults
slow start. Go90, the free YouTube-like
reliving their youth.
service overseen by Walden and geared
toward teens, which ofers short clips Nintendos Mobile Future
and shows supported by ad revenue,
 Sales of its Wii U and
hasnt attracted a large following.
Bagging Yahoo and its hundreds of 3DS player have declined
millions of users could boost go90s in recent months.
mobile ad fortunesand Waldens.  Nintendo shares gained
Yet that might not matter. I dont
$7 billion in value in the
think the top people at Verizon are
losing any sleep over whether go90 week after Pokmon Gos
is a success or failure, says Jennifer U.S. debut in July, as
Fritzsche, an analyst with Wells Fargo investors bet on a mobile
Securities. Walden is a major pillar in
push. Its next mobile
Verizons future. Her legacy wont be
judged by go90. Scott Moritz games: a simulation called
The bottom line If Walden can convert Verizon into
Animal Crossing and a
a mobile-media and internet-services powerhouse, role-playing title.
she may earn the big telcoms CEO job.
The skinny The app is free, but most players
Edited by James E. Ellis need in-game purchases to thrive.
Bloomberg.com
 Politics/Policy
The Conventions
July 18 July 24, 2016
Daniel Akerson, a lifelong Republican,
is voting for Hillary Clinton this fall.
The Navy veteran and past chief exec-
utive oicer and chairman of General
Motors says Donald Trump lacks the
temperament to be commander-in-
chief. What Akerson says worries him
22
more than that, though, is the possi-
bility that Trumpand everything he
representsisnt just a luke but the
future of the GOP. I think theres a real
threat to the party, he says. Its kind
of unsettling to watch whats going on.
We like to think of the two major
parties as ixed, known quantities,
like donkeys and elephants. But
theyve always been chameleons.
The Democratic
Party traces its
roots to 1792. The
Republican Party
goes back to 1854.
Theyve survived
by changing
with the times,
sometimes radi-
cally, even to the
point of swap-
ping positions
on key issues, whether
civil rights, foreign policy,
or taxation. Republican
hero Ronald Reagan
began his political life as
a New Deal Democrat. He
switched his registration
in 1962, before he ran for
oice. He always insisted
he wasnt the one who
changed: I didnt leave
the Democratic Party. The
party left me.
The question of iden-
tity cuts deeper than usual
this year for Republicans,
who convene in Cleveland starting
July 18. Trump rejects much of what
his party stands foror has stood for
until now, anyway. For that reason
some party regulars such as Akerson
still view him as an undeserving inter-
loper. Except that he got more votes
received. I dont
think when you
r
have this degree of political support
for a candidate, you can consider it a
luke, says James Cicconi, who worked
for President Reagan and went on to
be deputy chief of staf to President
George H.W. Bush but is voting for
Clinton this year.
ident was a gleam in
nobodys eye but his,
the Pew Research
Center clustered
American adults into
eight groups of roughly
equal size based on how
they answered 23 ques-
tions on subjects includ-
ing immigration and
gun control. No sur-
prise, business conser-
vatives and steadfast
conservatives tended
to agree with each
other on a lot of matters, as did solid
liberals and the lower-income faith
and family left.
Pew identiied several issues on
which voters busted out of the classic
left-right continuum. Business conser-
vatives and the older, less educated
Today they form the core of Trum
base, cheering him on when he th
ens to reduce the U.S. commitmen
NATO. There were splits on the Le
l
on things at home. Steadfast cons
vatives were far more isolationist.
as well. Pew found that 82 percent
of the faith and family left agreed
that most people can get ahead if
c
el
re
ism
draws heavily on support from Pews
steadfast conservatives and much
less on business conservatives, who
part with him on trade and immigra-
tion. He also reaches across the aisle
to appeal to what Pew labels hard-
pressed skeptics, a mostly white
group that leaned heavily toward
the Democratic Party as of 2014 but
believes government is wasteful, con-
siders immigrants a burden, and
agrees that success in life is deter-
mined by forces outside our control.
Even before Trump arrived on
the scene, the Republican Party
 cuts to pay for at him from the right. GOP leaders
them. His posi- created an opening for Trump by
tions on immi- overpromising and underdelivering,
gration and trade says Cantor, whos now vice chairman
conlict with of Moelis, a boutique investment bank.
the partys free- The inability of the party to connect
market agenda. to peoples problems and to demon-
strate that we have a solution

i ni
to their problems has become
a big challenge.
Top
Republicans
disagree on
whether the
Democrats
could proit
from the
GOPs disar-
ray by picking
On social issues, up more support
set of voting blocs. Bible- too, he departs from from business.
religious faithful keep their party orthodoxy. Trump has so far
ce from abortion-permitting, While opposing abor- managed to douse
ana-decriminalizing libertar- tion, hes praised eforts by hedge
ho are suspicious of subsidy- Planned Parenthood. fund manager Paul 23
king CEOs. The glue that He brags of having Singer and others
aditionally held the party so many fabulous to block his nom-
gether was support for small friends who happen ination. And hes
Elton John
vernment and low taxes. to be gay. uniied most of the
partys congressional caucus behind

c tist
him simply by not being Hillary
Clinton. Democrats are no longer
in suspicion of
business; they
now disdain
business,
says Cantor,
who points to
Clintons move
leftward in the
campaign to fend
The Republican leadership has no of Senator Bernie Sanders and win the
making America great again. He one but itself to blame for Trumps backing of Senator Elizabeth Warren,
opposes cuts in Social Security and emergence as its de facto head, says both outspoken critics of corporate
Medicare. Conservatives are skeptical former House Majority Leader Eric America. I dont think youre going
of his promise of tax cuts because he Cantor, who in 2014 lost in the primary to see business saying, Hey, the
hasnt sketched out plausible spending to a Tea Party challenger coming Democrats ofer us a better home.
Cicconi, the former Bush aide, is
more concerned than Cantor is that
Party Frustrated Angry CEOs will cross over to the blue side.
Poopers Trump has blown up the traditional
Percentage Republican agenda without developing
of voters with a usable replacement, he says: There
negative feelings Republicans Democrats Republicans Democrats
about their own 33% 13% 7% 3% is no coherent underlying philosophy.
party in 2016 Hes all over the map. When you strip
away the candidates, political parties
SURVEY CONDUCTED MARCH 228 AND APRIL 5MAY 2. DATA: PEW RESEARCH CENTER have to mean something vis--vis
 The Conventions

the other party. Otherwise theres identity is a murky

no need for a party. Cicconi, now a brew of ideology, a
senior executive vice president at sense of belonging,
AT&T Services, speaks from expe- and historical acci-
rience: He ran the GOPs platform- dent. Blacks were
writing process in 1988. I dont know solidly Republican for
how the hell they write a platform this decades because thats
year, he says. what Abraham Lincoln
Trumps embrace of Democratic was. The Democratic
positions on trade and other issues Party became the party
causes head- of the Jim Crow South,
aches for other overseeing a machine
Republican can- hostile to black inter-
didates whose ests. But Southern
positions diverge blacks made strange
from his. It also bedfellows with the
gives Clinton an prosperous, conserva-
opportunity to tive white Northerners
circle around and who dominated the
grab business- Republican Party for
minded voters on the irst half of the 20th
Republicans exposed right lank. If a century. It took a big
Clinton administration were conduct- tent to house such dif-
ing itself in a way where business was ferent constituencies.
doing well, GDP was growing, things The two parties
of that nature, I think you could ind began to organize
plenty of business community support along todays ideolog-
shifting, Cicconi says. ical lines in the 1960s.
24 That could possibly make this year President Lyndon Johnson, a Texas minority parties by building an
as transformative as the elections of Democrat, faced down members of electoral system that requires the

1932, when Franklin D. Roosevelt built
his New Deal coalition, or 1968, when
Democrats lost the South. Predicting a
realignment is tricky, though. Political
his party to pass the Civil Ri hts Act in
1964, giving rise to the Republicans
Southern strategyan app al to white
voters that eventually lipped former
Confederate states to the Republican
column, just as blacks looded into
DAVID J. & JANICE L. FRENT/GETTY IMAGES; MPI/GETTY IMAGES. THIS PAGE FROM LEFT: COURTESY FDR PRESIDENTIAL LIBRARY; RALF-FINN HESTOFT/GETTY IMAGES
leader of the government to win an out-
right majority, rather than a plurality,
as in many parliamentary systems.
They feared what James Madison
called, in Federalist Paper No.10,
Domestic Faction and Insurrection.

OPENING SPREAD CLOCKWISE FROM TOP: TAYLOR HILL/WIREIMAGE/GETTY IMAGES; THE LIFE PICTURE COLLECTION/GETTY IMAGES;
Two Cheers the Democratic Party. It to k several A breakaway party would be too small
Percentage of Republicans and Democrats decades; even in 1992, Bill Clinton to win an election, so theres no point
who agree with their partys policies this year could win the presidency as a Southern in breaking away, says Johns Hopkins
Democrat. But by 2014 almost all the University political scientist Daniel
Republicans Democrats liberals had been lushed out of the Schlozman. Instead of breaking apart,
GOP, and almost all the conservatives the parties would reshape themselves,
Climate change 59% 80% were gone from the Democratic Party. sometimes settling on compromises
that make no one happy. Jesse Jackson
Impressively, the parties have
Abortion 65% 73% managed to survive despite the dissat-
isfaction of their own members. A Pew
used to say a party needs two wings to
ly, says Tom Hayden, the co-founder
Budget decit 72% 73% survey this spring found that only a
quarter of Republicans and Democrats
of Students for a Democratic Society,
who later served in the California leg-
Rich-poor gap 73% 80% are enthusiastic about their own party.
Many are frustrated. If the U.S. were
islature and participated in writing
national Democratic platforms.
Health care 79% 84% a parliamentary system, there would The consensus-building architec-
likely be at least four major parties. ture of the Founding Fathers has been
Islamic State 79% 67% The Republicans would break in two partially undermined by innovations
along ideological lines, a libertarian- such as social media and gerrymander-
Economy 80% 81% lavored business wing and a religious- ing. A graphical analysis published in
conservative wing. So would the the online academic journal PLOS One
Gun policy 80% 71% Democratic Party, which struggles to shows that the party divisions in
hold together socially liberal but is- Congress have become far deeper than
Illegal immigration 82% 77% cally conservative voters and those they were immediately after World
who favor government intervention. War II. Partisanship has been increas-
SURVEY CONDUCTED MARCH 228 AND APRIL 5MAY 2.
DATA: PEW RESEARCH CENTER The Founding Fathers suppressed ing exponentially for over 60 years,
 S
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TREES R
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STRATOSPHERE N
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C CLIMATECHANGE
E R P
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F Y U
L R
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S O
S L W
O E S S
F R M
O E P O
O P I L K
T C O C A E
P L LA NS
RISINGSEA L T
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An w ls r
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 The Conventions
write the authors, led by Clio Andris
of Pennsylvania State University and
David Lee of MIT.
Americans who dont work on
Capitol Hill are also feeling more
prickly, but often not in the same way
as their representatives in Congress.
Most Americans are simply not ideo-
logically consistent, says Stanford
political scientist David Broockman.
They have a mix of liberal and conser-
vative beliefs, and that mix is diferent
for diferent people.
Trumps views are often labeled
incoherent by his critics, but they are
incoherent only when considered
against the current policy conigura-
tion of the two parties, Broockman
says. Thirty, 60, 90 years ago, dif-
ferent things were supposed to
go with diferent things, he says,
citing the research of University of
Maryland political scientist David
Karol. In his 2009 book, Party Position
Change in American Politics: Coalition
Management, Karol wrote, The
only way a politician can maintain
a reputation as a loyal Democrat or
Republican over time is by adopting
26
the new party line when it changes.
Shape-shifting by parties may be
hard for doctrinaire policy mavens
to grasp, but its no big deal to a lot
of voters, especially those who arent
involved in the parties. Ariel Malka,
a psychology professor at Yeshiva
University in New York, says Trump
has pulled in just the sort of inexpe-
rienced voters who dont demand
the ideological consistency that long-
time party operatives expect. Its
these lower-political-engagement
people who are the least likely to align
their diverse attitudes on the right-left
dimension, he says.
More than that, Malka says his
research inds that Trump may have hit
on a blend of political positions thats
Rocking the Vote have already departed the Democratic
Share of registered voters who say theyre very or Party for cultural reasons. Well, the
fairly satisfied with the presidential candidates working-class whites in the North are
75% now deserting the Democrats because
Democrats of economic reasons, Democratic
strategist Dave Mudcat Saunders told
the conservative Daily Caller in April.
50% He predicted Trump will beat Clinton
Republicans
like a baby seal.
Even if Trump fails in November,
a Trump-like candidate without his
25% baggage could be a formidable chal-
1992 2016 lenge to the Democrats in 2020. The
Jeb Bushes of the party would cer-
Half of Clinton tainly attempt to
Share of respondents who say theyre voting supporters are reassert control,
for a candidate vs. voting against the opponent anti-Trump rather arguing that the
than pro-Clinton
Among supporters of the Democrat election results
For Against
proved they were right all along. But
its hard to see how a message that
2000 64% 30% face-planted in the 2016 primaries
2004 59% 37% could suddenly inspire voters in 2020.
2008 68% 25% What may haunt the Republican
2012 72% 22% Party the most about 2016 is Trumps
2016 48% 50% contentious relationship with Latinos,
Among supporters of the Republican the fastest-growing group of voters.
The Republican Party has placed a
For Against
high priority on winning over Latinos
2000 60% 33% with an aspirational message of
2004 73% 23% America as a land of opportunity.
2008 59% 35% Trumps promise to eject 11 million
2012 38% 58%
Romney backers were undocumented
2016 41% 55% more anti-Obama immigrants and
than Trump backers build a wall on the
are anti-Hillary
OTHER RESPONSES SUCH AS DONT KNOW
border with Mexico
HAVE BEEN OMITTED. 2016 SURVEY CONDUCTED
JUNE 1526. DATA: PEW RESEARCH CENTER
threatens to set back that efort.
Although some polls show Trump
easier for many to embrace. People doing no more poorly with Latinos
with a conse vative personality, who than Mitt Romney in 2012 and John
value certainty and security, seem to McCain in 2008, the damage hes doing
be naturally d awn not to the bracing to the partys Latino project is likely to
air of free mar ets and free movement be lasting, says Duke University polit-
of people but to protectionism in trade, ical scientist John Aldrich, author of
restriction on immigration, and a Why Parties? A Second Look.
strong embrace of national identity. Once the party changes what it
Trumps laws as a candidate some- stands for, it may not readily change
times obscure the potency of his ability back. Physicists refer to the process
to tell voters what they want to hear. as hysteresis: When a hunk of iron is
His speech on trade at a steel and alu- magnetized, it remains magnetized
minum recycling plant in western even after the powerful magnetic
ennsylvania on June 28 was master- ieldTrump, in this caseis removed.
ful. Working from a text for a change, Says Aldrich: The cool thing about
he made his familiar arguments about realignment is you dont know whats
foreign cheaters but in a way that was going to happen until you get there.
more programmatic, less bar-stool Peter Coy
AARON JOSEFCZYK/REUTERS
philosopher. I will use every lawful
The bottom line Trumps rise is putting pressure
presidential power to remedy trade on both parties to change, as they have many
disputes, he said, citing arcana such times before.
as section 232 of the Trade Expansion
Act of 1962. Edited by Allison Hofman
Working-class whites in the South Bloomberg.com
 COME WITH GOALS,
LEAVE WITH A PLAN.
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 Meet the pro sports Moms may soon get
superstars who dont their childrens shots
play ball 30 for them 32

Cant put your phone Innovation: Purifying

away? Guns N Roses the air with UV light 33
will do it for you 31

July 18 July 24, 2016

Until recently, the big news in the world

of news was that Facebook was retreat-

Facebook ing from journalism. After an unex-

pected dip in the personal sharing that
is its core business, plus a mini-scandal
involving allegations of political bias

Gave 1.65 Billion in how it displayed content from con-

servative websites, Facebook said it
was updating its algorithm to prioritize
wedding announcements and baby

Users a photos over postings by media com-

panies. Friends and family come irst,
the company said in a June 29 blog post.
And when Chief Executive Oicer

Streaming
Mark Zuckerberg announced the
Facebook Live video function, he pre-
sented it as a platform for lifes small
trials and triumphs. You can feel like

Service
youre really there with your friends,
he said on April 6, when the service
launched. Among the videos he praised:
a young mans haircut as it happened,
a woman skiing downhill with her kids,
and a zoo camera trained on some baby
birds. Everyone is tuned in, watch- 29
ing these cute bald eagles, wondering
whats going to happen, he said, with
a wide grin. Its kind of a new thing.
The sentiment suddenly feels quaint.
On July 6, during what should have
been a routine traic stop, a police
oicer in suburban Minneapolis ired
multiple shots at Philando Castile, a
32-year-old black man. Seconds later,

Then This as he slumped, bloody and gasping

for air next to her in the car, Diamond
Reynolds, his girlfriend, opened the
Facebook app on her smartphone and

Happened pressed the Go Live button. She nar-

rated calmly, panning from the gun
pointed in her direction to her dying
companion, and even kept the broad-
cast going as she was thrown to the
ground, cufed, and taken into custody.
Its OK, Mommy, her 4-year-old
daughter could be heard saying in the
back seat. Im right here with you.
The next day, Facebook was used
by witnesses in Dallas to broadcast
live footage of the attack that left ive
police oicers dead and seven others
wounded at a Black Lives Matter
protest organized in response to the
Live video is creating a news site out of the platform shootings of Castile and Alton Sterling
in Baton Rouge, La. In the aftermath of
YOUTUBE (5)

AI isnt going to solve what happened in Minnesota the violence, Facebook Live was ines-
capable, as public igures took to
 Technology Facebook is in a
position of power.
At some point
[it] will be asked to
the platform to process in real shut down a live on such a scale raises legal
time what had happened. If you feed to make and ethical questions. At
are a normal white American, sure something least ive people this year
doesnt go viral.
the truth is you dont understand Jonathan Zittrain, have been shot while broad-
being black in America, and you Harvard University casting with Facebook Live.
instinctively underestimate the One, a man in Chicago,
level of discrimination and the was killed. Another man,
level of additional risk, Newt Gingrich an apparent sympathizer with
told CNN commentator Van Jones in a Islamic State in Paris, streamed threats
Facebook Live interview. after he allegedly murdered a French
Broadcasting video in real time on police commander and his partner.
smartphones isnt new. Twitters In Milwaukee, two 14-year-olds and a
Periscope made headlines last year 15-year-old ilmed themselves having
when it enabled users to stream parties sex. (Facebook deleted the Paris and
from the South by Southwest festival in Milwaukee videos; the Chicago murder
Austin and unauthorized coverage of ilm is still available.)
the Oscars. But none of the companies Videos are routed through a content-
that have rolled out live video have moderation system thats still a work
Facebooks scale or technological know- in progress. If any widely viewed live-
how. With 1.65 billion usersmore than stream or footage is lagged as inappro-
half of whom log in every dayfootage priate by a single Facebook user, its
can quickly command an enormous sent to one of four content-moderating
audience. And live videos are archived, call-center-like operations, in Menlo
adding even more viewers. Reynoldss Park, Austin, Dublin, and Hyderabad,
video of Castiles death drew more than India. Moderators are instructed to
5 million views on Facebook within a interrupt any live-stream that violates
day of the incident and was rebroadcast Facebooks community standards,
on several news channels. which include bans on threats, self-
30 The push for live video accelerated harm, dangerous organizations, bul-
in February at an all-hands meeting lying, criminal activity, regulated
at Facebooks campus in Menlo Park, goods, nudity, hate speech, and glori-
Calif., when Zuckerberg said the format ied violence. The gatekeepers weigh
would be central to the companys the public-interest value of a given
future. The new feature represents a video against these standards.
technical challenge, taxing cell phone Facebook is in a position of power,
networks and Facebooks own servers says Jonathan Zittrain, the director of
even Zuckerbergs own videos have cut Harvards Berkman Klein Center for the
out at times. Converting the video right Internet and Society. At some point
away to work on hundreds of diferent Facebook will be asked to shut down
devices at once is anything but simple. a live feed to make sure something
When a user goes live, Facebook must doesnt go viral, he says. The company
ensure it can process the footage, needs to be upfront about the deci-
regardless of the source, and trans- sions its making and the pressures
mit it instantly. The infrastructure for under which its making them. The
live-streaming is hard, Chief Product events of the past week have sparked
Oicer Chris Cox said in a 2015 inter- more discussion at Facebook about the
view. Its something weve been companys role in such situations.
working on for a long time. Facebooks Facebook has said it hopes to use arti-
custom-manufactured servers, set up icial intelligence to help make such
around the world to handle any sudden split-second judgments, but the tech-
demand for data streaming, helped nology is a long way of. You can
Reynoldss stream from the passenger have ilters for certain words, but AI
they can get it wrong, Bottigliero says.
The aftermath of the Reynolds
video is a case in point in the diiculty
of curating newsworthy but violent
content. Early on July 7, Facebook
took down the video without explana-
tion, then restored it an hour later with
an apology and a disclaimer noting
its explicit content. This led to news
reports citing anonymous sources who
claimed the police had deleted the
video while Reynolds was in custody.
Facebook spokeswoman Andrea Saul
sticks with the companys statement
on the issue, that it was a technical
glitch. A company statement described
the incident as one of the most sensi-
tive situations, saying: Weve learned
a lot over the past few months and will
continue to make improvements to this
experience wherever we can.
The same day, Zuckerberg addressed
the shooting in a Facebook wall post.
The images weve seen this week are
graphic and heartbreaking, he wrote.
I hope we never have to see another
video like Diamonds. In all likelihood,
more such video will come, however,
and Facebook will again be a news site,
whether it wants to be or not.
Sarah Frier and Max Chakin
The bottom line Facebook has yet to figure out
how to moderate the potentially explosive content
its 1.65 billion users could live-stream.
Gaming
Pro Sports Bets on
Video Stars for Growth
A star quarterback is great for
jersey sales; a star gamer is, too
Were really keen to engage with
younger audiences
Major league sports teams are recruiting
a new kind of player: one who can score
with a joystick. In the past two months,
FROM TOP: GETTY IMAGES; COURTESY YONDR

seat of a car go viral almost instantly.
Live-streaming at such a speed and
Reynoldss video of the
shooting drew more
than 5 million views on
Facebook within a day
isnt going to solve what happened in
Minnesota, says Blagica Bottigliero, a
vice president at ModSquad, which uses
a network of 10,000 contractors world-
wide to moderate online content for the
NFL and Warner Bros., among others.
You need the judgment of someone
looking at the content and bringing in
context, and even in those situations
Manchester City and West Ham United,
two of the top English Premier League
soccer teams, have signed professional
video gamers to represent the clubs
when playing FIFA, a hugely popular
Electronic Arts soccer video game. In
Germany, VfL Wolfsburg has outfitted
a pair of top FIFA game players in the
teams bright green jerseys.

American foot-
ball could be next.
At least three
National Football
League teams say
theyre considering
signing top gamers
of EAs Madden
NFL video game to
represent the fran-
chises in tournaments. The gaming
company recently revamped the
format for its pro tournaments around
Madden and is adding four new
events. Its also expanding its televi-
sion and digital broadcastsand offer-
ing $1 million in prize money.
Both kinds of football teams have
a chance to capitalize on the growing
popularity of professional video
gaming. E-sports is now a $500 million
industry, according to Deloitte, with a
mostly millennial audience75 percent
of players are age 18 to 34, and more
than 80 percent are male. Not long
ago, those folks would have been
fans of real-life sports; now they may
not even subscribe to cable. Instead,
theyre more likely to interact online
through fantasy sports or video games.
Were really keen to engage
with younger audiences, says Tara
Warren, West Hams executive direc-
tor for marketing and communica-
tions. E-sports is a route to those
younger audiences. The team on
May 16 signed Sean Dragonn Allen ,
who came in second at the 2016 FIFA
Interactive World Cup, to a contract.
Warren wont reveal how much Allen
will be paid, but she says such a deal
is far more cost-effective than tra-
ditional marketing platforms. Hell
wear a jersey (No. 50) at events and
will also develop video and online pro-
gramming for the team to share on its
social media channels. West Ham has
been fielding calls from other teams in
England and Europe asking about the
arrangement, Warren says.
EA Sports has met with the NFL
about sponsoring gamers, says Peter
Case
The
Essentials As people enter the
concert venue, their
phone is placed in
Yondrs socklike pouch
Moore, head of its
competitive-gaming
division. The NFL
did not respond
to a request for
comment. I dont
know why teams
wouldnt pursue
this, Moore says.
It feels like a very
small expense for what seems to get
a large amount of publicity. E-sports
can quickly extend a brand and
broaden a fan base. Gamers wear a
team jersey, complete with their name
and a number: Whether a fan attaches
himself to an actual quarterback or a
virtual one makes little difference to
a franchise, as long as he ultimately
buys a shirt.
Signing video players is an extension
of the move over the past few years to
professionalize e-sports. In Europe,
where its common for clubs to
sponsor more than one sportthe Real
Madrid umbrella, for example, covers
soccer, basketball, and team handball
squadsGermanys FC Schalke 04 and
Spains Valencia CF have invested in
full teams of video gamers. In the U.S.,
a pair of NBA owners, Greg Miller of
the Utah Jazz and Mark Mastrov of the
Sacramento Kings, started an e-team
that competes in League of Legends
tournaments. Former Los Angeles
Laker Rick Fox owns a video sports
team. At Miami University of Ohio,
video gaming is a varsity sport, and the
NCAAs Pac-12 Conference has thrown
its support behind organized e-sports.
Theres no downside for pro gamers.
Eric Wright, who lost in the final of
the 2016 Madden Championship,
says he earns enough at e-sports
competitionsfrom tournament win-
nings, private lesson fees, Twitch
video ad revenue, and sponsorships
to play full time. He says it shouldnt
be hard to get six figures in 2016.
As for his team allegiance, hes easy.
Right now, he plays Madden as a San
Francisco 49er.
Venue
Lock
Attendees hold on to
the encased phone; Stage Phone-free
the pouch automatically zone
locks once they enter
a phone-free zone
Technology
There are players in the NFL
who are die-hard fans of one
team, they get drafted to another
team, and now thats their team,
Wright says. Would I want it to
be with the Niners? Of course. But
do I care if its the Browns? That
wouldnt make or break the deal.
Eben Novy-Williams
The bottom line The growth and popularity of
e-sports, a $500 million industry, has caught the
attention of pro soccer and football leagues.
Etiquette
Taking Cell Phones
Out of Fans Hands
Yondr ofers a friendly way to
lock up devices during concerts
You dont feel like youve lost
a limb
When Axl Rose and the other
members of Guns N Roses decided 31
to end a 20-year hiatus in April at the
Troubadour, a small Los Angeles club,
they didnt want video from the secret
show leaking online. Thats no easy task
when every smartphone-wielding fan
wants to brag about being there with a
post on social media.
For help, the band called Graham
Dugoni, creator of a small case that
locks phones away, preventing audi-
ence members from taking pictures
and videos. Performers want people
to have a genuine experience, for fans
to come to a show and enjoy the entire
process and not be distracted, he says.
The GNR show worked perfectly, no
leaked footage, he says. Dugonis two-
and-a-half-year-old company, Yondr,
leases cases for about 30 shows a week.
After designing the low-tech device,
Dugoni sent specs to Asian manufac-
turers he contacted through Chinese
online bazaar Alibaba. When fans
Unlock
Attendees can step
Phone outside the phone-free
access zone and go to one of
zone several unlocking kiosks
to open the pouch
 Technology
enter a venue, they place their
phone into a socklike pouch made of
a wetsuit-type material. A lock at the
top looks like the security tag retailers
use on clothing. The locked-up phone
still works; concertgoers feel it vibrate.
To liberate the phone, a user must
leave the performance area and tap the
case on one of the wireless devices sta-
tioned at kiosks outside.
Comedians Dave Chappelle, Louis
C.K., and Hannibal Buress have hired
Yondr, as have musicians Alicia Keys,
the Lumineers, and Prophets of Rage.
Dugoni says the company typically
handles shows with audiences of fewer
than 2,000 people, but it did once
provide the cases for a performance
with 6,000 audience members, and its
been booked to handle events in venues
that can hold as many as 15,000. There
is no size limit to what venue Yondr can
be used for, Dugoni says.
Performers have tried to get people
to pocket their phones for years. Peter
Frampton does a short set at the start
of his show just for photo opps, before
announcing that people will be kicked
32 out if they continue
filming. Beyonc
and Adele have
$2.50
admonished fans
midconcert for dis-
rupting shows:
You can enjoy it
in real life rather
Cost to lease a Yondr
smartphone case
than through your
for a performance camera, Adele
said to a crowd
in Verona, Italy,
in May. Performers are frustrated by
it, anybody would be, says Christen
Greene, who manages the Lumineers.
She says Yondr worked well at a recent
concert. Fans, allowed to hold on to the
locked pouches, accepted it without
incident. You dont feel like youve lost
a limb, she says.
Dugoni, a Duke University graduate
who played pro soccer in Norway and
now lives in San Francisco, leases the
cases for about $2.50 each, depending
on the size of the venue, and hires the
people who dispense and collect them.
He declines to detail the companys
finances or investors but says that sales
are rising 30 percent to 40 percent a
month and that Yondr, which will have
15 full-time employees by the end of
the summer, is profitable. Apart from
concerts, school districts eager to get
Quoted
Todays lawsuit brought by
former employees of
Hyperloop One is unfortunate
and delusional.
Gibson, Dunn & Crutcher partner Orin Snyder, whos representing the company in
a lawsuit brought by its co-founder, Brogan BamBrogan, alleging mismanagement
and mistreatmentincluding a noose BamBrogan says was left on his desk.
phones away from students are an
additional, fast-growing customer base.
We get tons of inbound requests from
parents, Dugoni says.
Fans may protest, but Geoff Steele,
who runs the Gillioz Center for Arts
& Entertainment in Springfield, Mo.,
and worked with Yondr at a recent
Chappelle show, says efforts to keep
smartphones out of live events will
only increase. Apple recently received
a patent for a technology to tempo-
rarily disarm cameras in certain set-
tings. Thirty years ago it was still OK
to smoke in all these places, Steele
says. Then you saw the rise of people
who wanted to do smoke-free shows.
Adam Satariano
The bottom line Yondrs smartphone-locking
pouches have been used at about 30 concerts a
week so far this year.
Biotech
Vaccine Makers Target
Pregnant Women
tetanus-diphtheria-pertussis shots for
Shots could become routine for
expectant mothers
There is new and growing
evidence of unmet medical need
Vaccine makers are hoping to tap
an emerging market: babies in their
mothers wombs. While research-
ers have long known that maternal
inoculations could potentially save
lives, theyve held back in part because
of concerns about risk to the fetus.
It took me a while to igure out what
Snyder says the
employees suing the
transportation startup
tried to stage a
coup and failed
the problem was, says Carol Baker
of Baylor College of Medicine, whos
studied a bacteria called group B
streptococcus that can cause menin-
gitis in infants. The problem was the
word pregnancy.
Companies including Novavax,
GlaxoSmithKline, and Pfizer see big
business in baby-protecting vaccines
for expectant mothers. The companies
are working on inoculations against
group B strep and respiratory syncytial
virus (RSV), which infects newborns
lungs and breathing passages. The
infections pose a serious enough threat
to their health that shots could become
a routine part of pregnancy. Moncef
Slaoui, the retiring chairman of Glaxos
vaccines division, has said the market
could ultimately be as big as the one for
pediatric vaccines.
The industry began looking more
closely at the idea of injecting pre-
natal vaccines after the 2009 swine
lu pandemic, when public-health
authorities urged widespread immu-
nization of pregnant women, and
after whooping cough outbreaks in
2010 and 2011, which saw upticks in
expectant mothers. Those episodes
demonstrated that vaccines could be
used safely on pregnant women and
that they controlled the infections
spread, says Anne Schuchat, princi-
pal deputy director of the Centers for
Disease Control and Prevention. We
really had a sea change in the U.S. in
terms of pregnant women getting the
COURTESY MOLEKULE (5)
lu vaccine, she says. Drugmakers
have also been spurred by new and
growing evidence of unmet medical
need as well as scientiic advances,
says Ripley Ballou, head of Glaxos
 Technology

vaccine research and development

center in Rockville, Md.
Along with safety concerns, the
lack of a clear path to regulatory
Innovation
approval has discouraged pharma-
ceutical companies from develop-
ing maternal vaccines. The U.S. Food
and Drug Administration has never
UV Air Purifier
approved a vaccine speciically for Form and function Innovator Yogi Goswami
safeguarding fetuses. Marion Gruber, The Molekule air purier shines UV light Age 68
the director of the FDAs Oice of from LEDs onto a catalyst-infused lter to Engineering professor at the
Vaccines Research and Review, says break down volatile organic compounds, University of South Florida and
bacteria, mold, and viruses. A regular co-founder of Molekule, a seven-
the agency is open to discussing alter- puriers HEPA lters just trap them. person startup in San Francisco
native trial designs and alternative
endpoints for such treatments.
Even so, it will be a long time before Origin Goswami Funding Molekule
any vaccines reach patients. Glaxo wanted to develop an has so far raised 1.
is developing vaccines for RSV and air purier thats more $3.75 million
efective than HEPA through the U.S.
group B strep. The company will lters because his Environmental Capture A fan blows air
begin testing the RSV vaccine in preg- son Dilipnow CEO Protection Agencys across a prelter to trap
of Molekulesufers Small Business dust, pollen, and other large
nant women this year; its modifying a particles. Smaller, more
from severe allergies Innovation Research
group B strep inoculation it acquired and asthma. Program and a harmful particles are trapped
through a deal with rival drugmaker venture capital by a nanolter.
Novartis in 2015. Glaxo will likely have seed round led by
Crosslink Capital,
to carry out large-scale trials to prove CSC Upshot, and
the vaccines are efective. Ballou says SoftTech VC.
it could take ive to nine years before
data for either vaccine are submitted to
UV light
the FDA for approval. Pizer is studying 33
its own versions of both vaccines but Nanolter
hasnt started testing in humans.
The bacteria that cause group B strep
live in the birth canal and infect a baby
Prelter
as its delivered. Women in the U.S. are
often screened for it and treated with
antibiotics if necessary. The infection
is much more common in poor parts of Air intake
the world, such as sub-Saharan Africa.
Novartis Vaccines, whose assets are
now part of Glaxo, is among the com-
panies that have run trials of shots for
expectant mothers in African countries. 2.
The FDAs Gruber says the agency will
accept data from such studies, though Production
manufacturers will have to show the The purier went
on presale at
results would apply in the U.S. molekule.com on Clean UV light activates a
Data from Novavaxs trial of its RSV May 24 for $499a proprietary catalyst on the
nanolter to react with
vaccine in pregnant women could be $300 discount from
the expected retail moisture and oxygen in the
available as early as 2018. People were price. It includes a air. The process, patented
looking at us with interest in the topic years worth of lters. by Goswami, creates free
radicals that oxidize and break
six years ago, says Gregory Glenn, The rst devices will
ship in early 2017. down microscopic organic
president for R&D at the company. matter trapped by the lter.
Today theres a huge amount of air-
mation, support, and optimism. Next Steps
Cynthia Koons and Ketaki Gokhale The company is planning on another funding round later this year. Goswami
wants to target the commercial and transportation markets. Bernard Olson,
The bottom line Vaccine makers are looking more
closely at developing inoculations for pregnant a University of Minnesota research scientist who has tested Molekule,
women that could save infants lives. calls it a significant breakthrough that is completely efective in destroying
microorganisms and volatile organic compounds and in preventing
Edited by Dimitra Kessenides pathogens from colonizing lters. Michael Belfiore
Bloomberg.com
The Road to

1600.

In an election thats left us

in uncharted territory, only
the sharpest minds in political
journalism can navigate the
unpredictable 2016 Republican
National Convention. This year,
the quest for 1237 marches
through Cleveland.

Exclusive coverage at
BloombergPolitics.com

And on With All Due Respect

weekdays at 5pm/et.

t 1
 Weak endowment For big diamonds,
returns pinch college breaking up is all
budgets 36 too easy to do

British property funds The secret meanin

ng of
go into the deep cable 40
freeze 37

July 18 July 24, 2016

The Bull
Market
You
Havent
Seen 35

Bond
ds read backward: Low is the new high, and lousy news makes for a boom
Ive p
pretty much pulled out whats left of my hair trying to gure out bond yields this year
The way DDouglasl P bl talks
Peebles lk about chief investment oicer of ixed that Britain had voted to leave the
the $100 trillion global bond market, income at AllianceBernstein. European Union, the yield on Treasury
DANIEL SKEEN/FLICKR

youd never guess that bond inves- If Peebles sounds anxious, its bonds maturing in 10 years touched
tors have been on a winning streak. because this market has brought him 1.32 percent on July 6, the lowest rate on
The market in most countries is com- and his peers into uncharted terri- record going back to 1792, before climb-
pletely dysfunctional, says Peebles, tory. As markets digested the news ing back up to a still-low 1.5 percent.

Markets/Finance
Confusingly for the uninitiated,
falling yields mean that bonds are fetch-
ing higher prices on the market. So the
Record Low Rates headlines obscure
whats been a strong bull run: The
10-year Treasury has jumped almost
7 percent in price so far this year
not bad for a traditionally conserva-
tive investmentand the 30-year bond
surged 17 percent. In total, U.S. govern-
ment debt has delivered a $660 billion
windfall to investors in 2016.
Yields outside the U.S. have sunk
even lower. Theres about $10 trillion
of negative-yield debt, including the
10-year notes of Germany, Japan, and
Switzerland. That means investors want
those bonds so much that theyll pay for
the privilege of owning them.
Why would anyone put money into
a bond with a negative interest rate?
For some investors, its worth the price
for stashing money in a safe place. And
traders can proit if yields sink further
into negative territory, boosting the
value of the bonds they buy now. Yet
even many bond market professionals
are baled by negative rates. Theres
36 something of a mass psychosis going
on related to the so-called starvation
for yield, said Jefrey Gundlach, whose
irm, DoubleLine Capital, manages
$102 billion, during a webcast on July 12.
Call me old-fashioned, but I dont like
investments where if youre right you
dont make any money.
Low yields are sending a very gloomy
message about the future. Todays high
prices and paltry yield income imply
low returns in the years ahead. And the
investors who accept such rates seem to
be saying they arent concerned about
the risk of high inlation eroding the
value of their money; instead, they see
stingy raises for workers, weak con-
sumer spending, and slow economic
growth continuing indeinitely.
Theres just an uncomfortable
feeling that were in a low-growth world
and it may continue to get worse, says
Bill Irving, who manages $40 billion
of government and mortgage bonds
at Fidelity Investments. Thats why
theres demand for bonds.
Money usually lies toward Treasuries
during uncertain times, because theyre
among the safest inancial assets in
the world when held to maturity. And
theres uncertainty in spades: Along
with Brexit and the EUs murky future,
theres the economic slowdown in
Theres just an
uncomfortable
feeling that were in
a low-growth world
and it may continue
China, weak oil prices, and teeter- to get worse. Thats current low-interest-rate
ing banks in Italy. Even so, the U.S. why theres demand environment pure science
for bonds.
economy has been growing, and Bill Irving, iction. It resembles a
the unemployment rate is down Fidelity Investments inancial black hole from
to levels not seen since 2007. The which no interest or yield
Dow Jones industrial average just can escape and no further
hit a record high. There are other capital gains are possible,
forces at play in the U.S. bond he says.
market besides pessimism. Fidelitys Irving disagrees. He says
One is U.S. pension managers looking yields could still go loweras far
to fund their long-term liabilities with as 1 percent on the 10-yearin part
less-risky assets. Foreign buyers are because high rates would cause so
snapping up Treasuries, too, as central much economic pain that the Federal
banks in Europe and Japan continue to Reserve and other central bankers will
hold down rates by buying up their own keep working to keep them low. The
countries bonds. You can no longer overall debt in the developed world
look at America is at very high levels, he says. Yields
in isolation, says need to stay low to reinance that debt.
Return on 30-year Jae Yoon, chief Otherwise there will be defaults and
Treasury bonds vs. the
S&P 500 in 2016
investment oicer losses that would be very delationary.
at New York Few think the Federal Reserve will hit
Life Investment the bond market with sharp increases
Management. to the benchmark short-term interest
Bonds You have to see rate. The Fed is extremely risk-averse
how much more right now, says Dean Maki, chief econ-
17% attractive the U.S.
30-year bond is
vs. Japanese and
omist at Point72 Asset Management.
He predicts it wont act until it sees
the combination of economic and
European bonds. job growth in the U.S., more stabil-
S&P Investors gener- ity in Europe, and inancial markets
6.5% ally demand higher
rates for locking
up their money for
doing well. Its hard to imagine them
all looking good at the same time,
he says. The rip-roaring, nail-biting
longer times. And bond market has a hard time imagin-
the prices of longer-term bonds can rise ing it, too. Katherine Burton, Brian
and fall sharply in response to changes Chappatta, and John Gittelsohn
in prevailing interest rates. Thats why
The bottom line. Surging demand for bonds
the longest-dated U.S. Treasuries have brought Treasury yields to a record low, signaling
done especially well this year. A fund continued anxiety about growth.
investor could have earned 16.7 percent
holding the Vanguard Long-Term
Treasury Fund, compared with about
6.5 percent for the S&P 500.
Not that such returns were easy to Endowments
foresee. Many hedge fund managers,
considered the savvy players on Wall
Colleges Face Up to
Street, failed to bet big on Treasuries, Lower Returns
reasoning that rates were more likely to
rise than to keep dropping from such
Weak investment performance
depressed levels. Wall Street analysts
starts to show up in budgets
have found themselves unable to keep
up. Stephen Stanley, the chief econo- It puts more pressure on the
mist at Amherst Pierpont Securities, has college to try to find savings
cut his forecast for the 10-year Treasury
bond ive times this year. Ive pretty U.S. university endowments arent
much pulled out whats left of my hair making money like they used to. And
trying to igure out bond yields this now some are deciding they wont be
year, he says. able to pay out as much to the schools
Bill Gross, the widely followed that rely on them for part of their
manager of the Janus Global annual budgets.
Unconstrained Bond Fund, calls the Unless universities want to start

eating into the growth, we have to
decrease our spending, says Bruce
Arick, assistant treasurer of Butler
University in Indianapolis. He says the
schools $184 million endowment is
likely to post a loss for the most recent
iscal year, and it declined 0.9 percent
for the year ended June 2015. The
average gain for endowments in iscal
2015 was a modest 2.4 percent, accord-
ing to data from Commonfund and the
National Association of College and
University Business Oicers. In the
early 2010s, endowments often notched
gains above 10 percent.
The timing of the total-return slow-
down couldnt be worse for colleges
and universities. States have been
reducing funding to public universi-
ties as public budgets are crimped by
slow economic growth. And schools
are facing pushback on rising tuitions,
even as politicians ask questions about
the large, untaxed portfolios some col-
leges have built up. A congressional
inquiry is examining how endowments
are managed and spent at the richest
56 private schools. Representative
Tom Reed, a New York Republican, is
considering a proposal that calls for
wealthy colleges to devote 25 percent
of their annual endowment income to
inancial aid or lose tax-exempt status.
Schools typically spend 4 percent to
5 percent of their endowment annu-
ally, so the funds aim to earn that
much in a year, after inlation. But
many endowment oicials are pessi-
mistic
i ti about
b t future
f t returns
t given
gi
market volatility and the low
yields available on many bonds.
We need to begin
ratcheting down,
Arick says. The
ILLUSTRATION BY SIMON ABRANOWICZ
days of double-digit returns are gone
for the foreseeable future. Butlers
trustees voted in May to decrease the
spending rate to 4.9 percent from
5 percent. Further reductions are
likely in coming years, Arick says.
Michigan State University trustees
in April voted to cut spending on its
$2.3 billion endowment to 4.8 percent
from 5 percent for the coming year and
to 4.6 percent for subsequent years.
Lewis & Clark College in Portland, Ore.,
has decided to reduce its spending rate
by 0.2 percent per year until it reaches
4.5 percent in 2020-21, down from
5.4 percent in 2015-16.
It puts more pressure on the college
to try to ind savings or other sources
of revenue, says Carl Vance, chief
investment oicer of Lewis & Clark,
which has a fund of $228 million. He
says theres no single place in the
college budget for obvious cuts: Its
going to be a combination of whatever
can be identiied. Its likely, however,
to afect the amount of tuition a school
can shave of to attract favored stu-
dents. Were trying to give less dis-
counts, he says.
Not all schools are scaling back.
Lehigh University spent 6 percent
of its endowment on average from
2013 through 2015, the most among
49 schools that provided data to
Bloomberg. The school says it doesnt
plan to change its payout policies. Nor
does Duke University, which spent
5.3 percent from 2013 to 2015, or the
University
U i it off Rochester,
R h t which hi h spentt
5.4 percent.
Were raising money for the
endowment through
giving, says Douglas
Phillips, chief
investment
Markets/Finance
oicer of Rochesters $2.2 billion fund.
He believes that what our donors are
giving us is just as much a part of the
endowment as what our markets are
giving us. Janet Lorin
The bottom line College endowments expect
lower returns just as the richest among them are
under scrutiny for building up untaxed wealth.
Investing
Funds Close Their Exit,
Because of Brexit
U.K. property funds tell investors
they cant take money out just yet
The selling process for real
estate can be lengthy
A few days before the Brexit vote,
Mark Curtis thought about pulling his
money from a 3.9 billion ($5.1 billion)
U.K. commercial real estate fund run
by Henderson Group. But then he
changed his mind, convinced that 37
Britain would remain in the European
Union and the property market would
keep humming.
Curtis, who lives in Bristol and
works in IT, again thought about
selling on June 24, after waking up
to the news that the election results
went the other way. Again he decided
to hang on, believing it was best not
to sell into a falling market. Then
other real estate funds stopped allow-
ing investors to withdraw their invest-
ments. That scared him.
As soon as some of the other prop-
erty funds said they were being sus-
pended, I put my trade in to sell just
in case to preempt Henderson, says
Curtis, who says he had a ive-igure
investment as part of his retirement
plan. Unfortunately, whilst my trade
was going through, they suspended.
Henderson is among seven U.K.
asset managers that temporarily halted
trading in property funds in the wake of
the Brexit vote. Similar to U.S. mutual
funds, the funds are open-ended, which
means investors normally are free to
withdraw their money whenever they
want and get their share of the current
value of the funds holdings.
After the vote, though, lots of inves-
tors wanted to get out of their bets
 Markets/Finance
on British real estate. The fund
managers became nervous about
dwindling reserves of the cash they
normally hold to handle redemptions
and worried theyd be forced to sell in
As soon as some of a hurry the oice build-
the other property ings, shopping malls, and
funds said they warehouses in their port-
were being
suspended, I put my folios, further pushing
trade in to sell. down the assets value.
Unfortunately, Henderson cut its asset
whilst my trade was
going through, they value by 4 percent on the
suspended. day of the referendum
result. Others, includ-
ing Aberdeen Asset
Management and M&G
Investments, also reduced their
value. That meant any investor tempted
to sell would immediately take a hit,
but that wasnt enough to stop redemp-
tions. Wealth managers and funds that
buy other funds were moving fast to
reduce their clients exposure.
Then, on July 4, Scotlands Standard
Life suspended trading its 2.9 billion
real estate fund. The other six money
managers soon followed. The suspen-
sions must be reviewed every 28 days.
38 The selling process for real estate can
be lengthy, Standard Life said in a
statement announcing the move.
Andrew Bailey, the new chief exec-
utive oicer of the Financial Conduct
Authority, a U.K. regulator, has ques-
tioned publicly whether it was appro-
priate for funds to allow investors to
take out money on short notice when
the assets they hold can take three
months or more to sell. We have a mis-
match in liquidity here, Martin Gilbert,
chief executive of Aberdeen, said in a
Bloomberg TV interview. He suggested
it might be better if investors in prop-
erty funds could sell only once a month.
Gilberts irm, unlike the others,
said its fund would be suspended for
just a few days to give investors time
to change their minds and stick with
the fund. It resumed trading on July 13.
Aberdeen cut the asset value of its fund
more than 17 percent, on top of the
earlier reduction.
Last year the Third Avenue Focused
Credit Fund, a U.S. mutual fund
that held junk bonds, got p permission
from the U.S. Securities and
Exchange Commission to
enact a similar freeze. In
the U.K., property funds
have had trouble before.
Amid the 2008 inancial
crisis, fund suspensions and a lack of
liquidity contributed to a 40 percent
slump in British property prices.
This time, fund managers didnt wait
until they ran out of money. At least
half of the funds, including Standard
Life, Henderson, and Aberdeen, still
have cash on their balance sheets.
Even so, fund managers have already
hired real estate brokers to start
selling properties, mainly London
oices. The most likely buyers are
overseas investors.
Curtis, the investor in Bristo
ol,
says he accepts that hes likelyy
to lose money. I understand
that Ive been part of the
problem by trying to cash in
and make a dash to the exit,
he says. One of my concerns
is that if trading opens again
and everyone still wants out ofo
the fund, will they have enough cash
available? Sarah Jones, Jusstin
Villamil, and Jack Sidders
The bottom line Funds had promised that
investors could get their money out da aily, but
held assets that are hard to sell quick
Hard Assets
First, Find a Diamond.
Then Dont Break It
The biggest stones can lose big
chunks in the mining process
You pulverize the rock and take
out what you want
A dump truck rumbles up from a giant
pit, carrying a load of freshly blasted
slate-gray rock from the Letseng
Diamond mine in the southern African
kingdom of Lesotho. With lots of luck,
the haul will contain a golf ball-size
diamond worth millions of dollars. With
even more luck, it wont get smashed.
Keeping giant gems intact during
the mining process is a challenge for
Gem Diamonds, which runs Letseng,
and for Lucara Diamond, which runs
milar mine in Botswana.
a sim
Thee two companies have
nearthed 15 of the 20 largest
un
diamonds found in the
d be more resilient. But in early July, a
past decade and account
for most of the global
production of these multimillion-dollar
whoppers. Almost every one lost a
chunk at some point in the process.
Since the time of the caveman,
mining hasnt changed muchyou
pulverize the rock and take out what
you want, says Cliford Elphick, chief
executive oicer of Gem. Thats ine
in the metals business, but in the
diamond business its not an appeal-
ing technique.
m Diamonds and
Lucara are in a v very dif-
ferent businesss from
De Beers, tthe
worlds biggest
pr ucer.
Largge stones
are their core
product,
ratherr than
an unexp pected
windfa all. And
theyre bru-
tally hard
ind. At
Letseng,
L
diamond-
bearing
rock,
nown
kn
as kimberlite,
kimb
is drilled, blasted with explosives,
hoisted and hauled around the mine
and plant, and crushed repeatedly to
pry out the gems. The Letseng mine
produces 1.6 carats of diamond for
every 100 tons of rock, so each dump
truck, on average, hauls out less than
a small engagement rings worth of
gems. By contrast, there are 130 carats
per 100 tons at De Beerss Jwaneng
mine in Botswana.
Because of their size and quality,
diamonds at mines such as Letseng
can be worth much more per carat.
A Letseng diamonds average value
is $2,299 per carat, the highest in the
industry, according to a Gem earnings
release in March. De Beers diamonds
average $207 a carat.
Rough diamonds are in a market
slump after falling 18 percent last year.
A slowdown in China and a drop in oil
prices has weakened demand for the
WALDO SWIEGERS/BLOOMBERG
luxury goods. Prices for bigger, rarer
diamonds, which may be used to create
ultra-valuable jewelry, are thought to
massive 1,109-carat diamond found
by Lucara called the Lesedi La Rona
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 Markets/Finance

failed to sell at a Sothebys auction.

Defined By Mark Cudmore

The biggest stone found in more than
a century, it was expected to fetch
$86 million, based on prices paid at
a sale in May. The highest bid was

Ca ble (n) $61 million, below the minimum Lucara

set. The ofer was still the second-
highest ever for a rough diamond.
In hopes of getting the most from
Currency-trader slang for the each rock, Gem Diamonds last year
introduced scanners called XRTs, for
X-ray transmission. They can identify
exchange rate between the loose diamonds from a conveyor belt
of rubble and move them to a secure
British pound and the U.S. area for processing. Lucara has also
installed the scanners, and Gem is con-
sidering using them before the rocks are
dollarthe rst two currencies crushed, so they can be spotted earlier.
X-ray technology has been used to
for which prices were updated identify diamonds since the 1970s, but
only in the past few years has computer

via trans-Atlantic cable. processing power become sophisticated
enough to tackle the sheer volume of
rubble generated from mining. XRTs

Quotes were transmit-
Dont be a noob
Some think cable is an
are also more adept than previous X-ray
machines at picking out the more valu-
interchangeable term
able kinds of diamonds because they
ting regularly over the
for the pound. But its
specically the price
of the pound in dollars.
analyze stones chemical composition
rather than simply their ability to relect
40
cable as early as 1866.
So a sentence like
Whats cable against
euro? makes no
light. The more valuable stones tend to
be less relective.
sense. A trader would Gem Diamonds recovered a dozen
Boris and Nigel talked
know what you mean
but shed think you
stones larger than 100 carats last year,
compared with four in 2012, thanks
sounded pretty silly.

voters into leaving the partly to scanning as well as changes in

blasting techniques. Still, all its big gems
had chunks broken of, including a
European Union, and now cable 357-carat rock that sold for $19.3 million
last year. Weve made important

is so low youll trip over it if you inroads, but we still havent solved the
problem because were still using the
same basic technology, says Elphick.
arent careful. Some of those breaks can be fortu-
itous. The Lesedi La Rona lost a 374-
carat chunk. Lucara says if that hadnt
happened, the stone wouldnt have
Other exchange rates Terms for amounts On July 5 the value
have nicknames, being quoted often of the pound dipped
fallen through a sieve at the mine plant
too. The price of come from Cockney below $1.28, the and would have gone on to another
a U.S. dollar in slang, since London lowest rate vs. the stage of crushing. When people say
Canadian dollars has long been a dollar in 31 years.
is sometimes center for global
you broke a 1,500-carat diamond, I say
known as currency trading. we recovered an 1,100-carat diamond,
DATA COMPILED BY BLOOMBERG; GETTY IMAGES (2)

funds. Less Lady means

$1.42 $1.31 says Lucara CEO William Lamb. The
obscurely, 5 million. Lady 7/13/16
currency Godiva rhymes with
4/14/16 words mining and gentle dont
traders, like many fivah, or fiver. go very well together. Thomas
Canadians, call the Pony is It jumped back up Biesheuvel and Kevin Crowley
Canadian dollar a Pieces of the cables 25 million. above $1.31 after
Looniefor the bird laid in the 1850s and Monkey is Theresa May was The bottom line Miners of big diamonds are on
on the coin. 1860s. The cable was 500 million. named prime minister. the hunt for ways to spot the gems before they
twisted steel on the start crushing rubble.
outside, with copper
wire in the center.
Edited by Pat Regnier
Bloomberg.com
 NATURE
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the natural flow, filtration and regulation of watersheds that supply
drinking water to people across Latin America, North America and Africa.

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* World Water Assessment Programme (WWAP)


Seeing Potential
Through the Noise
Balancing gut instincts with the picture
formed by data is criticalwhether youre a
Ryder Cup captain, or an investor.
In 1995, U.S. Ryder Cup captain Lanny
Wadkins used one of his wild card picks to
place Curtis Strange on his team. The two
had been friends since their days as team-
mates in college, and Strange had a well-
earned reputation as a ferocious competitor.
He had won the U.S. Open in 1988 and
DQGLQRQHRIWKHQHVWFRPHEDFNV
in Ryder Cup history, pipped Ian Woosnam
LQE\ELUGLHLQJWKHQDOIRXUKROHVRI
their match after being two down with four
to play. On an emotional level, handpicking
Strange to be part of the team seemed to
make sense.
Heres what the pre-Big Data data said
about Curtis Strange circa 1995, however:
His career record in Ryder Cup matches
was 6-9-2a winning percentage of .382.
He was No. 61 in the World Golf Rankings,
had not won a tournament since the 1989
U.S. Open, and missed more cuts in 1994
DQGWKDQKHKDGWRSQLVKHV
Wadkins gut was wrong; the data was
right. Strange played in three Ryder Cup
ADVERTISEMENT
WORLD CLASS AS STANDARD
matches in 1995 and lost all three points.
Europe won the overall competition by a
single point.
Informed instincts
Winnowing and prioritizing the list of players
who might be captains picks is a major
responsibility for Darren Clarke (Captain,
European Team) and Davis Love III (Captain,
U.S. Team) in the lead-up to this years
Ryder Cup (Hazeltine National Golf Club,
Chaska, Minnesota, Sept. 30Oct. 2).
Clarke and Love III already have a
watchful eye on players who have the po-
tential to increase team performance levels.
The two men are both old enough to fondly
remember the pre-digital, pre-Big Data
days of professional golf, but young enough
to have experienced the transition period
when data analysis emerged as an impor-
tant tool in evaluating a players game.
The fact remains, however, that golf is an
emotional game, and the choices made by
the 2016 captains wont be any easier than
those made by Wadkins 21 years ago.
I think we both realize the importance of
going with our gut because we know all the
players, says Clarke. While data will help
and direct us towards some of the decisions,
the bottom line is that weve both got to
go with our gut feelings as well. We know
the players who thrive on being in possibly
momentous situations, and thats the big dif-
ference between some players and others.
Previous Ryder Cup records indicate
that gut instincts alone are not enough in
making captains picks. Stranges 1995
performance is hardly uniquecaptains
picks have lost three or more points 10
times in The Ryder Cup, including twice
by Nick Faldo, the all-time points-won
leader on either side. As a group, through
2014, captains picks for both sides have
won a few more matches than theyve lost,
with a cumulative record of 111-101-35.
Can more effective use of data improve
the quality of captains picks? Golfs
leading data expert says that the captains
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WILL A CAMERA
ON EVERY COP
H E L P S AV E L I V E S
OR JUST MAKE A TECH
C O M PA N Y R I C H E R ?
BY KAREN WEISE
PHOTOGRAPHS BY
A M A N D A R I N G S TA D

Tasers Axon Flex camera, perched on a shirt

collar or glasses, is designed to record an
oicers eye-level point of view
 O
n Aug. 9, 2014, in Ferguson,
Mo., a white police officer
shot and killed an unarmed
black teenager named
Michael Brown. Several wit-
nesses described the shoot-
ingwhich wasnt captured
on videoas unprovoked. In the national furor
over police violence that followed, one remedy
found common support across much of the
political spectrum: outitting more cops with
body-mounted cameras to deter misconduct
and create a record of tragic encounters.
When a grand jury decided that November not to charge the
oicer in Ferguson, the victims family pushed to ensure that
every police oicer working the streets in this country wears a
body camera. The White House proposed $75 million in match-
ing funds for state and local police to buy the devices.
A few months later, in January 2015, employees of Taser
International, the maker of stun guns, gathered for a sales
meeting at the companys futuristic headquarters in Scottsdale,
Ariz. They illed the ground loor and lined the catwalks that
crisscross the three-story atrium, a space where a lightsaber
duel wouldnt seem out of place. Shades blocked out the desert
sun, and in the darkness, low, long trumpet sounds blaredthe
famous Richard Strauss theme used in 2001: A Space Odyssey.
As the sound of the timpaniboom boom boom boom boom
46 boomkicked in, Rick Smith, Tasers chief executive oicer,
appeared high up among the rafters, dangling in a harness on
a thin wire. He descended slowly, brandishing a giant yellow
triangle: the logo for Axon, a recently expanded line of Taser
body cameras and related tools. Woooooo! he shouted as he
landed, pumping his ist in the air. The staf erupted in cheers
and whistles as he lifted the logo triumphantly over his head.
Axon! Axon! the group chanted.
Smith, 46, has intense round eyes that never seem to blink
and loppy dark hair that channels Joey from early episodes
of Friends. Hes often seen around the oice in jeans, a Taser-
branded shirt, and Taser-branded sneakers, with a Taser-
branded Bluetooth headset wrapped around his necka get-up
that echoes how ubiquitous the companys black-and-yellow side-
arms have become in law enforcement. When I ask for statis-
tics on market share, Chief Financial Oicer Dan Behrendt says
hes comfortable saying that almost 100 percent of the CEWs
conducted electrical weaponsin use in North America have
been supplied by us.
When he co-founded Taser in 1993, Smith says, his goal
was making the bullet obsolete. The war on drugs and the
1992 Rodney King riots in Los Angeles had led Americans to
reconsider how lethal they wanted their police departments to
be. Tasers breakthrough product, a pistol-shaped device that
uses electricity to incapacitate a target, made the company
worth more than $1 billion by 2004. But with market saturation
came personal-injury and wrongful-death lawsuits; for almost
a decade, Tasers stock languished. The Ferguson incident,
as the company refers to it, gave it a chance to grow again. By
the next summer, with its shares at a record high, Taser execu-
tives were telling investors that thanks to body cameras, 2015
is our Super Bowl.
Cop cams are inextricably tied to Taser, by far the dominant
supplier, and the company will likely shape whatever the devices
evolve into. For Taser, the cameras are more than just a new
product category. Founded at one national moment of police
angst, the company is using another such moment to transform
from a manufacturer into a technology company. From a busi-
ness perspective, body cameras are low-margin hunks of plastic
designed to get police departments using the real moneymaker:
Evidence.com, which provides the software and cloud services
for managing all the footage the devices generate. Taser markets
these tools under the Axon brand. About 4.6 petabytes of video
have been uploaded to the platform, an amount comparable to
Netlixs entire streaming catalog. All of it must be preserved
to an evidentiary standard. The company can sell a weapon
or camera once, but cloud services are billed year after year.
Taser wants to be the Tesla or Apple of law enforcement,
says Hadi Partovi, a venture capitalist who sits on the board.
There are early signs the efort is working. In the irst quarter
of 2016, for the irst time, Tasers bookings for future revenue
from the cameras and cloud services, $52 million, surpassed
revenue from weapons sales. Every time a controversial police
killing occursmost recently with the July 6 death of Philando
Castile in Falcon Heights, Minn.theres more pressure to outit
cops with cameras. And those cameras generate footage that
will wind through the court system for years.
The oicer who shot Castile wasnt wearing a camera; Castiles
girlfriend used her phone to post live footage of the immediate
aftermath to Facebook. The scene looks terrible, and its hard
not to conclude it is terrible, Smith says. We look at that and
say if that [oicer] had a camera on, we would at least have some
idea if there was any justiication for what happened. Situations
where witnesses have cameras but police dont are maybe the
worst of both worlds, he says. You get all of the bad and none
of the potential good, at least from the law enforcement perspec-
tive. You are missing the most critical elements to determine if
its abusive or reasonable. After the Castile footage went viral,
demonstrators gathered for a march in Dallas, where a U.S.
Army Reserve veteran ambushed and killed ive law enforce-
ment oicers. One incident somewhere can afect police oi-
cers around the world, Smith says.
Dallas is an Axon customer: Last year the police there signed
a $3.7 million contract to buy 1,000 Evidence.com subscrip-
tions and cameras, some of which are already in use. This
will enhance our opportunity to document critical incidents;
it will enhance oicer safety; it will enhance courtroom tes-
timony, which we think will turn into more convictions, the
citys deputy police chief, Andrew Acord, told a local public
radio station at the time.
Body cameras are too new for anyone to say how theyll
change policing. Early studies show that oicers who wear them
use force less frequently and face fewer citizen complaintsand
that the footage may increase conviction rates and guilty pleas
in prosecuting crimes. The results from one of the largest con-
trolled studies in the U.S., at the Las Vegas Metropolitan Police
Department, are due this fall.
B
efore setting out on patrol one day in March,
Las Vegas police oicer Sal Mascoli makes
an inventory of his weapons. Write down
my badge number, he says, in case some-
thing goes wrong. P number ive-one-one-
ive. In a bracing New York accent, Mascoli
points out where he hides a knife on his khaki
uniform, where the riles are stored in his
SUV, and how to release his pistol. Theres
a Taser stun gun strapped toward the back of his belt. Peeking
above the collar of his crisp shirt is an Axon camera the size of
a lipstick tube.
Mascoli is a cops cop, with short, close-cropped hair and a
never-ending squint. Hes worked for Metro for two decades,
after irst serving in the U.S. Marines, and hes trained hundreds
of his colleagues in hand-to-hand combat. Out on patrol, hes
stern but afable. At a gas station, a lanky young man in hipster
glasses lags Mascoli down. A driver just tried to run him over in
a crosswalk, he says. Mascoli cant do much about that, but he
chats up the citizengiving a young black man a good vibe about
cops never hurts, he says later. The guy says hes a comedian
from Harlem looking for work. Im from Queens! Mascoli says,
as if his accent didnt give him away. Im all Italian, all the time.
Mascoli hands out his phone number, recommends a comedy
club with an open mic night, and rolls on.
Soon, a scraggly middle-aged white man pushing a shopping
cart catches his eye. Did he throw something over that fence?
Mascoli pulls a U-turn and, almost imperceptibly, taps his chest.
Two quiet beeps signal that hes activated the Axon. He gets
out of his SUV, pats down the suspect, and inds a long kitchen
knife tucked in the mans jeans. Youre losing your knife today,
you know that, right? Mascoli says. He runs the mans priors.
Eighty-four times youve been arrested, brother, and you aint
learning, he says. He sends the man on his wayno arrest.
Mascoli tosses the knife into his SUV, speaks into the camera
to say the recording is ending, and taps the body cam. When
his shift is over, hell dock his camera at the station to transmit
the footage to Evidence.com. As he drives toward a burglary
alarm, Mascoli says he doesnt care for Taser weapons, but hes
made a bet on the business of cop cams. When the department
issued him his Axon, he bought 25 shares of Taser stock. Mascoli
likes wearing the camera, because it provides a balance to the
citizen footage, from Facebook Live streaming to smartphone
video, that increasingly monitors policing around the country.
I wanted my perception to be portrayed instead of someone
else pulling out a camera phone and putting out a 10-second
snippet, he says. As his stubby ingers hunt and peck on the
new dispatch computer installed in his police car, he groans,
Im so bad at technology. But with the camera, I want to be
on the early edge, he says. I know its coming.
T
aser initially turned to cameras as a way to
ward of lawsuits, for both the company and
the police. It was about defending our busi-
ness, Smith says. As police departments
across the U.S. discovered Taser in the early
YOU ENDED UP WITH
A HIGHLIGHT REEL
O F P E O P L E
GETTING TA S E D
2000s and bought into the idea that cops armed with a stun
gun might reach for their Glock less often, the company saw
explosive growth: Sales increased sixfold from 2002 to 2004.
That brought scrutiny and charges that the companys prod-
ucts were more dangerous than advertised. In 2004, Amnesty
International published a report tallying more than 70 people
whod died after being shocked, either during the event or
shortly afterward. (The groups 2012 report says that number
has risen to more than 500.) Dozens of plaintifs have sued over
injuries and deaths. Taser has prevailed in most of the cases,
but in 2009 it revised its product warnings to say exposure in
the chest area could cause cardiac arrest. The U.S. Securities
and Exchange Commission investigated Tasers safety claims
in 2005 and eventually closed the case without an enforce-
ment action.
In 2006 the company started selling the Taser Cam, a $400
clip-on device that automatically begins recording when an
oicer engages the stun gun. Street cops were skeptical. Smith
likens it to the early hesitancy about dashboard cameras in
squad carsmany oicers dislike feeling as if theyre under
constant surveillance. Few departments adopted Taser Cams.
For those that did, it didnt help Tasers image that the device
captured only the inal moments of a conlict. Smith says, You
ended up with a highlight reel of people getting Tased.
The few agencies that used Taser Cams gave the company
a glimpse of an unexpected problem. Even large departments
with ample resources struggled to download and preserve
the video clips. As Taser began to develop a standalone body
camera, one that could record long encounters or an entire
patrol shift, it realized it needed to create a system to manage
a new scale of footage.
The company started to build a cloud-engineering team in 47
Carpinteria, Calif., a beach town near Santa Barbara, in 2008.
Taser announced its irst body camera, which cost $1,800, and
an early version of Evidence.com in 2009. Smith said the plat-
form would help our customers not only doing their job in
the streets, but defending their actions and protecting them-
selves against false allegations and claims against them. His
brother, co-founder and then-Chairman Tom Smith, said video
evidence could cut Tasers own legal liabilities in half.
That would be true only if clients bought the package. The
physical product was clunky, with three componentsa small
camera worn like a Bluetooth headset, a radio device the size
of a pack of cigarettes, and a minicomputer the size of a VHS
tape. That thing was a lead zeppelin, says Taser President
Luke Larson, who was the cameras product manager at the
time. It was dead on arrival. Only 14 small agencies adopted
them. And while the website supported the basic
process of uploading and managing footage, it
had the dated look of an enterprise product,
more IBM than Apple. We heard from our cus-
tomers that our technology absolutely sucks,
Smith says. It looked like airline reservation ter-
minals from the 80s.
Tasers board at the time included medical,
government, and business figures. In 2010,
Smith recruited Partovi, a fraternity brother
from Harvard, to join the board. Hed worked
at Microsoft and invested early in Facebook and
Zappos. (Partovi later helped recruit Bret Taylor,
Facebooks former chief technology oicer, to be
a director.) Partovi says he lew to Carpinteria,
interviewed the Evidence.com staf, and
told Smith most of the team needed to go.
An oicer activates the chest-mounted
Axon Body 2 camera by double-tapping the
large logo on the front
He suggested starting over in Seattle, which Amazon.com and
Microsoft had turned into the capital of cloud engineering, and
acquiring Familiar, a startup in which hed invested. It was
developing an app for families to share photos privately, but
the technology and team could adapt. Taser bought Familiar
in October 2013 for about $3 million in cash and stock. It beat
out Twitter and Dropbox, Partovi says.
The Familiar coders shut down the photo app immedi-
ately. No longer were they devoting their time to pictures of
cute babies; they suddenly had to ind out what police needed
from Evidence.com. I knew nothing about law enforcement,
absolutely nothing, says Marcus Womack, Familiars earnest,
khaki-wearing former CEO, who now runs the Axon unit. Rick
[Smith] says, OK, you guys are going to spend 90 days in the
ield. Youve got to do ride-alongs, youve got to talk to every
person in the agency and command staf, and youve got to
learn our customers pains.
Womacks irst time in a police car was in Mesa, Ariz. We
were doing 120 on the way to some robbery, he says. It was
invigorating. He visited 16 law enforcement agencies, from the
Vermont State Police to the Los Angeles Police Department,
and got a sense of the procedural headaches they faced in their
jobs; he saw that Taser needed to create something simple
and reliable. Womacks team prettiied the Evidence.com user
interface; created an app for oicers to tag footage on the go;
and expanded the cloud infrastructure to support large agen-
cies. All this cost millions, but sales of the package were unre-
markable. Meanwhile, by 2013 stun-gun revenue had climbed
to a high of $127 million. At Tasers next annual staf meeting,
Smith says, the No. 1 question from employees was When are
we going to shut down this video unit?
hen came the summer of 2014: Ferguson.
After that and other killings, President
Obama convened a task force on the future
of policing, which recommended the use of
body cameras. The task force cited a study
that found oicers in Rialto, Calif., who wore
body cameras were half as likely to use force.
In June 2015, South Carolina funded cameras
in a bill named after Walter Scott, a black
man whose shooting by a white police oicer was captured
on a cell phone. I just thank God for it, Scotts mother, Judy,
said at the bill signing. Its not just going to help the citizens,
but the police oicers and everyone everywhere. We thank
God for this irst step. Later that summer, an activist group
called Campaign Zero unveiled a slate of 10 policy reforms to
reduce violence, including protecting the right of bystanders
to ilm police interactions and supporting widespread adop-
tion of body cameras.
Las Vegas, where a series in the Las Vegas Review-Journal
had documented above-average rates of police shootings, had
been considering body cameras since 2012, when it agreed
with the U.S. Department of Justice to work on reforms. Bill
Sousa, a professor at the University of Nevada at Las Vegas,
began working on a study, still under way, with cops ran-
domly assigned either to a group wearing cameras or to a
control group without them. We had a hell of a time getting
400 volunteers, Sousa says. Oicers were paranoid about
supervisors ability to review footage to monitor oicer per-
formance. They feared their bosses would look for petty vio-
lations by cops they didnt like. Six months passed. Then the
department narrowed supervisor access to a few situations,
such as when a policeman uses force, and enough oicers
volunteered for the study to begin. Some, like Mascoli, now
embrace the camera. Others have turned their recorders
back in, upset about being reprimanded when they forget to
activate the device.
Dan Zehnder, a no-nonsense lieutenant, runs the depart-
ments body camera program. Metro buys Tasers Axon
devices, but there are many smaller competitorsZehnder
says he stopped counting after identifying 35 diferent com-
panies. The devices arent what really distinguish one vendor
from another. Someone said one time in jest that all of these
cameras are made within 30 kilometers of each other in
China, he says. Its the way vendors manage all the digital
evidence that really sets them apart.
When the Las Vegas police department set out to buy
cameras, its request for proposal listed 46 criteria. Each
aligned with Tasers existing product, from having unique
audio tones that signal a cameras been activated to provid-
ing a secure cloud-based solution, prefer use of Evidence
.com or direct equivalent. Taser beat four other vendors
for the contract. It charged $800,000 over ive years for the
irst 200 cameras, later upgrades, and licenses to Evidence
.com. The Las Vegas department has added almost 1,200 more
cameras and multiyear Evidence.com accounts, costing an
additional $3.2 million.
The rush to get body cameras on cops is so forceful
that many law enforcement agencies are buying products
without knowing what they need, according to a December
survey from two professional groups, the Major Cities Chiefs
Association and the Major County Sherifs Association. Taser
has been happy to tell them. Because of its weapons business,
it has relationships with 17,000 of the 18,000 law enforce-
ment agencies in the U.S., and it says its won 32 of the 39 49
camera contracts awarded in major city departments. Axon
brought in $35.5 million in revenue in 2015. Vievu, a body
camera startup acquired last year by the private Safariland
Group, widely believed to be Tasers largest competitor, has
$10 million in annual revenue, according to conidential data
provided to a job candidate this May. Safariland says the infor-
mation is outdated.
Half of the contracts in major cities were no-bid, Taser
told investors in May, which has led to some criticism. The
Wall Street Journal reported in April that Taser coaches police
departments on how to avoid competitive bidding. Taser says
it was educating customers on why its products were unique
enough to qualify for sole-source contracts. The company,
which survived a decade of being accused of electrifying
people to death, doesnt appear concerned about a procure-
ment issue. In a slideshow about company strategy shown
at a May investor gathering, Taser said it would embrace
being the gorilla (this slide was illustrated with a picture of
the large primate) and block out the noise (a stock photo
showed a man with ingers jammed into his ears, as if singing
to himself, La la la la la).
Hardwarecameras and docking stationsmade up less
than 15 percent of Tasers irst contract with Las Vegas. Our
strategy is not to maximize the proits on the sale of the
cameras, but to get people into the ecosystem and on our
service, CFO Behrendt told investors last year. The remain-
ing 85 percent of Tasers fees were for Evidence.com sub-
scriptions. The raw cloud storage to keep the videos is cheap.
Tasers bid document showed it would pass on about a third
of subscription revenue to its cloud provider, Amazon Web
Services. (It has since switched to Microsofts Azure.)
The other two-thirds Taser would spend on custom
 0:38 1:00

Other oicers

WHAT
TASERS
CAMERA
SAW
On June 27, police in An oicer arrived at the scene Oicers surrounded the man with
Washington, D.C., responded to in Northeast D.C. wearing guns drawn, pleading with him
a call of a man with a gun. Tasers Axon Body 2 camera to drop his weapon. It later turned
mounted on his chest. out to be a pellet gun.

applications, such as the website to manage access to the
iles, the mobile app, and tools for redacting parts of footage
and creating audit trails to submit in court.
That seems like it should create a fat margin, one that
grows fatter as more customers get on board, but Tasers
inancials show the Axon unit is operating more like a tech
startup, with blazing bookings but more and more losses over
time. In the irst quarter of 2016, Axons operating losses were
$10.2 million, more than twice what they were a year earlier.
The weapons unit, meanwhile, produced a $15.4 million proit.
Most of Axons losses come from increased sales and engi-
neering costs. To hire talent in hypercompetitive Seattle, Taser
50 President Larson says the company will start ofering Tesla
Model 3 sedans to select new hires. Its recruited staf from
Amazon, Microsoft, and other tech companies. More than
80 people work in Axons Seattle oice, a new space named
the Geekiest Oice Space by the local tech site GeekWire. It
has the usual startup perkspingpong table and kegswrapped
in a sci-i pastiche, with a spaceship entry portal out of Star
Wars and a retina scanner, though employees
can badge in through an old-fashioned side door.
The Complete Idiots Guide to the Criminal Justice System before
taking the job. Prosecutors tell him theyve been hit with a
wave of new evidence that they struggle to manage. None
of the Justice Department funding for body cameras went
to prosecutors. They as a group commiserate about that,
Cozart says.
Taser says it reaps a network efect from prosecutor cus-
tomers, because district attorneys often work on cases from
multiple law enforcement agencies. The company argues
that its helpful to get them all on one platform. Prosecutors
in 20 major cities and counties are on Evidence.com, Taser
says; Delaware has adopted it statewide.
Add-on products could lead to more revenue. The basic
Axon camera must be activated manually, but departments
can buy Axon Signal, which activates the device automat-
ically in certain situations, such as when an oicer licks
on the light bar on his car. For $10 per oicer per month,
another Taser service links Evidence.com iles with existing
dispatch and records software, so oicers no longer need to

ince Ferguson, the push to

put cameras on cops has
focused on protecting civil-
ians, but its likely that most
footage will be used as evi-
dence in prosecutions. The
mentality is, We are out to
catch a cop doing something
I KNEW NOTHING ABOUT
wrong, says Las Vegass
Zehnder. My belief is that in three to ive L AW E N F O R C E M E N T,
years, well no longer be talking about the
accountability piecewell be talking about the
impact of the videos in the court system, which
ABSOLUTELY NOTHING.
will be the largest consumer of these videos.
In 2015, Taser began ofering free Evidence
RICK SAYS, OK, YOU GUYS
.com licenses to prosecutors, allowing them
to access and share videos with police depart- ARE GOING TO SPEND
ments digitally. Taser says it started the
program after some prosecutors in Florida said
they feared being inundated by DVDs because
90 DAYS IN THE FIELD
so many interactions were ilmed. The prose-
cutors service is run by Mike Cozart, whom
Taser recruited from Amazon; he says he read
 3:25 4:19
Gunman Another oicer
The oicer took cover behind a car. The oicer rushed to the
It blocked the cameras view when suspect, who was on the ground,
he and others red at the suspect, and kicked the weapon away.
who they say raised his weapon.
individually tag iles for retention or risk having an untagged
ile automatically deleted.
Of course, the footage must exist to be useful. Both oicers
involved in the shooting death of Alton Sterling, a black man
in Baton Rouge, La., on July 5 were wearing body cameras,
which the police department there says fell of during the
altercation. Taser says a competitor supplied those devices,
though the failure is a reminder that the widespread deploy-
ment of the technology is still quite new. Many people see
this as showcasing the limits of the cameras, Smith says. We
look at that as no reason to give up.
Body camera footage is already starting to enter the
court system. Tim Fattig, the chief deputy district attorney
in Clark County, which includes Las Vegas, estimates about
20 percent to 25 percent of his cases have video evidence from
the devices. Much of the footage is banal, but some can be
helpful, he says. One recent trial involved a traic stop that
turned into a high-speed chase after a suspect ired a gun into
the air and ambushed an oicer. It brought to life the oi-
cers perspective to the jury, Fattig says. They saw this all
happened within a couple of minutes. It went from a minor
traic thing to life and death. The defense challenged the
footage, saying the suspect wasnt identiiable in the record-
ing and the gunshots werent audible, but the suspect was
convicted and sentenced to as much as 157 years in prison.
Other Las Vegas cases show that body cameras arent the
panacea that transparency advocates may be hoping for. The
police department regularly releases body camera footage
within three days of an oicer-involved shooting, a practice
praised by the American Civil Liberties Union. So far, none has
caused a major uproar. But theres one video, whose contents
are almost certainly inlammatory, that the department hasnt
released. At 5 a.m. on Jan. 6, 2015, oicer Richard Scavone
saw a woman named Amanda Ortiz drinking a cup of cofee
in the parking lot of an area police say is popular for prostitu-
tion. According to a federal indictment, Scavone handcufed
Ortiz, then beat her, throwing her to the ground, striking
her, and slamming her face into his patrol car several times.
The Justice Department charged Scavone with violating
Ortizs civil rights and falsifying his report. He contests the
charges. Although his camera captured the whole incident,
VIDEO STILLS: YOUTUBE
Metro wont release the footage, saying its part of an ongoing
investigation. We are not going to release evidence in this
case, Lieutenant Zehnder says. Some people say, We want
to see it. You dont get to. It will come out in court.
4:41
Gun
Oicers handcuffed the suspect
and said they feared he was
unconscious. The man later died
at a hospital.
I
n Las Vegas alone, police have uploaded more than
16 terabytes of video to Evidence.com; that will likely
pass 30 terabytes by yearend, Zehnder says. Combined
with footage from other cities, its an unprecedented
trove of interactions between police oicers and the cit-
izens they serve. What Taser does with all that data may
shape the companysand policingsfuture.
Weve kind of leveraged a weapon to introduce a
camera, and weve leveraged the camera to introduce
Evidence.com, Larson says. This is really, really awesome,
because no one else in the world is going to capture the data
that we capture. The company may explore license plate
recognition, automated dialogue transcription, and other feats 51
of machine learning. I mean, the possibilities are endless,
Larson says.
From where Zehnder sits, its obvious that big data is
the next frontier for Taser and policing. Some of it is very
Orwellian and very scary and will rattle the cages of civil
libertarians around the country, but its coming, he says.
Zehnder rifs on how facial-recognition technology might be
deployed: An oicer could patrol the Las Vegas Strip with a
camera streaming to the cloud, and there is real-time analy-
sis, and then in my earpiece there is, Hey, that guy you just
passed 20 feet ago has an outstanding warrant. Wow.
Smith says Taser plans to roll out live-streaming capabil-
ities in 2017, and he expects facial recognition will become
a reality someday, so agencies can query police records or
social networks in real time. If we think about that situation
in Minnesota, maybe that oicer did have some preconcep-
tions [about Castile], and maybe they were unhelpful precon-
ceptions, Smith says. If the oicer had known that Castile
didnt have a violent police record, as has been reported,
his death might have been averted. The more we can help
reduce that uncertainty, the better, Smith says.
In Las Vegas, Professor Sousa is still crunching the data
from the study on whether cop cams lead to better polic-
ing. Early results indicate some improvement, but Sousa
warns against expecting too much from mere electronics.
The technology is being sold very strongly as a means to
improve trust and enhance legitimacy, and I worry about
tossing around those terms too loosely, he says. While body
cameras provide transparency and have come to represent the
hopes of restoring faith in policing, Sousa says, it is asking
a lot of the technology to do that, especially in a really short
period of time.

 NOB
CAME OUT
52 LOOKING G
EXCEPT
eave it to the land of Shakespeare to stage a drama
L
where all the male leads end up dead. The irst
head to roll after the U.K.s June 23 vote to leave
the European Union was Prime Minister David
Camerons. He resigned just hours after losing the
Brexit referendum, having gambled the nations
economic future for a few more years at 10 Downing
Street. Next on the chopping block was Boris Johnson, who
after leading the Leave campaign appeared startled and unpre-
pared for victory, and was forced out of the race to succeed
Cameron by an allys betrayal. A third leader, Jeremy Corbyn,
lost a vote of no conidence to the Labour Party rank-and-ile,
which was furious over his halhearted case for the Remain
side. Possibly the most shameless igure to exit the stage was
Nigel Farage, the leader of the U.K. Independence Party. He
admitted after victory that a critical argument for Brexit had
been a mistake, and then resigned his position.
The only major British politicians standing are two women:
Theresa May, the Tory member of Parliament who will be the
next prime minister, and Nicola Sturgeon, the Scottish irst min-
ister. And unlike May, who lucked her way into a battleield pro-
motion, Sturgeon had a planand is arguably the sole British
party leader to emerge stronger from the Brexit bloodbath.
She campaigned to remain in the EU but has been steadier in
SCOT
defeat than anyone on the Leave side has been in victory. The
morning after the vote, Sturgeon gave a televised speech: a small,
hardy woman in a red suit, standing between Scottish and EU
lags and projecting conidence to a rattled world. Sturgeon,
46, reminded her audience that her Scottish National Party had
run a digniied, issues-based campaign. She spoke directly to
immigrants, much maligned in the contest, saying, You remain
welcome here, Scotland is your home, and your contribution
is valued. And she acknowledged the legitimacy of the Leave
sides grievances. The vote, Sturgeon said, was a clear expres-
sion of disafection with the political system that has failed in
too many communities. The Westminster establishment has
some serious soul-searching to do.
Political commentators around the world were wowed by
the appearance of a grown-up. The Week, a popular British
news magazine, ran an illustrated cover showing Sturgeon
standing on solid ground while Cameron, Johnson, and
Corbyn teetered over issures in the earth. In an editorial
headlined A Modest Proposal to End Political Anarchy in
the U.K., the Toronto Star asked, Why not ind a way to put
her in charge of righting the British ship and steering a path
through the Euro mess? The answer is that Sturgeon doesnt
aspire to lead Britain. She would rather sever it in two.
Since the age of 16, Sturgeons lodestar has been Scottish
ODY
LANDS NICOLA STURGEON
independence. She almost saw her dream realized in 2014,
when Scotland voted 55 percent to 45 percent to remain in
the U.K.a closer margin than many had expected. In the
Brexit referendum, 62 percent of Scots, and a majority in
every Scottish county, voted to remain in the EU, but they
were outnumbered by the English and Welsh who wanted out.
This was, Sturgeon told the reporters watching her June 24
speech, democratically unacceptable, and she declared that
a new Scottish independence referendum was on the table.
The Monday after the Brexit vote, Sturgeon rose at 4:15 a.m.
and traveled to EU headquarters in Brussels to discuss options
for keeping Scotland in the bloc. The same day, the Scottish
Parliament voted 92-0 to support Sturgeons eforts, and she
appointed a council of experts to advise her on European
afairs. Sturgeon clearly had a plan, says Michael Moore, who
served in Camerons cabinet as secretary of state for Scotland
from 2010 until 2013. It sits very neatly in contrast to the
chaos that has happened in every party in Westminster since
the EU referendum.
Sturgeon is an anomaly not only in Britain. She is a
nationalist courting Brussels at a time when nationalists in
other Western European countries are threatening to rend
the EU apart. Populist parties in France, Austria, and the
Netherlands applauded the Brexit and are hoping a Frexit,
BENCRAIR
Oexit, and Nexit will soon follow; Sturgeon, meanwhile,
happily snapped photos of herself with EU technocrats like
a teenager backstage at Coachella. Shes what George Reid,
the former presiding officer of the Scottish Parliament,
calls a canny radical, the political unicorn for which
liberals in just about every other European country hunt in
vaina beloved leader who has harnessed populist energy
to outward-looking social democratic policies, rather than
isolationism and ethnic rage.
here is a story about Robert the Bruce, who is
T Scotlands irst hero king, says Alex Salmond,
Sturgeons predecessor as first minister of
Scotland and the architect of the SNPs success over the past
30 years. In the early 14th century, Bruce hid in a cave after
an unsuccessful revolt against the English. He watched a small
spider fail several times to weave a web across the cave ceiling.
On the seventh attempt, the spider successfully spun its web,
Salmond says. And that is when Robert the Bruce said, Ill have
one more go, which was successful.Nicola Sturgeon has shown
the same perseverance as Robert the Bruces spider.
Sturgeon declined to be interviewed, but party col-
leagues, political journalists, and a 2015 biography
describe a singularly focused career. She irst dreamed
 of independence as a teenager in Dreghorn, the town in western
Scotland where she was born in 1970. At the time, Margaret
Thatchers economic policies were leading to the closure of
steel mills and industrial works across the country. Sturgeon,
the daughter of an electrician and a dental nurse, watched
hopelessness spread as Dreghorn boarded up its coal mines
and unemployment soared. Thatcher was the motivation for
my entire political career, she said later. I hated everything
she stood for.
Sturgeon was in good company. Under Thatchers
Conservative administration, Scotland became so pro-Labour
that people joked that election oicials weighed votes instead
of counting them. But it wasnt enough to oust the PM, who
remained popular in England, where more than 80 percent of
Britains population lived. Sturgeon feared that Scotland would
always be at the mercy of its southern neighbor, and she decided
a divorce, after almost 300 years of marriage, was the only cure.
In 1987, Sturgeon, a quiet teen with a porcupine-like haircut,
visited Kay Ullrich, the local candidate for Parliament repre-
senting the Scottish National Party, which had been founded
in 1934 to advocate independence. I went to the door, and
this young girl was standing there, Ullrich remembers. She
said, Hullo, Mrs. Ullrich. My name is Nicola Sturgeon. Can
I help with your campaign? The SNP was on the fringe of
Scottish politics, and Ullrich had no real chance of winning,
but Sturgeon canvassed neighborhoods late into the night,
long after the other volunteers had retired to the pub. She
was absolutely gutted that I didnt win, says Ullrich. Political
realism set in quickly with Nicola.
Sturgeon enrolled as a law student at the University of Glasgow
in 1988 and volunteered for Salmonds 1990 SNP leadership cam-
54 paign. She struck many of her peers as shy and awkward. She
was unnaturally serious, says Alex Bell, who served as the SNPs
policy director from 2010 to 2013. She didnt really have small
talk. Some party members called Sturgeon nippy sweetie
behind her backsexist slang for an ambitious woman.
In 1992 the SNP recruited the 22-year-old Sturgeon as the
youngest candidate in that years parliamentary elections.
She was more left-wing than Salmond, a former banker, but
she subscribed to his vision for the party. Unlike SNP hard-
liners, who demanded full independence as soon as possi-
ble, Salmond advocated a gradualist approach. For the SNP
to thrive, it would need to develop a robust social democratic
platform so it could compete for votes with Labour. The SNP
should not be for Scotland, for its own sake, he said. We
should be for Scotland for social and economic justice.
As a novice campaigner, Sturgeon struggled to connect
with voters and lost badly as Labour again trounced the SNP
across Scotland. She also lost in 1994, 1995, and 1997, in both
local and parliamentary elections, but each time she gained
stature in the SNP. Do not underrate the importance of stub-
bornness, stamina, and perseverance, Salmond says. By the
end of the decade, many saw Sturgeon as the most talented
young politician in the party, says James Mitchell, a political
scientist at the University of Edinburgh.
In 1999, Tony Blairs Labour government in Westminster
created a Scottish Parliament to address lingering resent-
ment over Thatchers interventions. Sturgeon ran for the
new chamber and lost, again, but was given a list seat that
DO NOT UNDER
the SNP, which inished second to Labour, was free to assign.
She quickly rose to the partys frontbench. Only ive years
later, Salmond tapped her as his deputy. Sturgeon had still
never won an election, but at the age of 34 she was anointed
the SNPs future leader.
ith her new proile, Sturgeon nobly endured a media
W
campaign to warm her image with Scottish voters.
She led reporters on tours of her apartment, chat-
ting about shoes and designer clothes. Sturgeon
talked about Sex and the City, saying she identiied
most with Mirandathe least vivacious, but most suc-
cessful, member of the shows quartet. Her countryman Sean
Connery taught her how to project her voice. Theres no doubt
that she became a much more outgoing person and politician,
Salmond says. She was much more willing to display her emo-
tions. Sturgeon also developed a political style distinct from
her mentors. For all Salmonds gifts, hes a gambler, says
Tom Devine, a Scottish historian. The thing about Sturgeon
is shes disciplined and methodical.
During debates before parliamentary elections, Sturgeon
outclassed her opponents. Some radicals will take to the bar-
ricade and shout the slogans. She is not like that at all, Reid
says. She does her homework. She delineates the issues, she
measures the risks, she consults, she decides. Finally, in 2007,
Sturgeon won an election, as a representative for Glasgow
in the Scottish Parliament. Left-wing voters had come to see
the SNP as a credible alternative to Labour, which was begin-
ning to lose its stranglehold on the Scottish electorate in the
waning years of the Blair administration. When Blairs succes-
sor, Gordon Brown, lost to Tory candidate Cameron in 2010,
Labours slide turned into collapse. The SNP won an outright
majority in the Scottish Parliamentand with it a mandate to
call for a long-awaited referendum on Scottish independence.
Salmond assigned Sturgeon to write the SNPs 670-page
white paper on independence and negotiate with Westminster.
Her counterpart was Moore, the secretary of state for Scotland.
He was disarmed by her preparedness. Her approach to it
would be to look for a weakness in the enemys logical argu-
ment and deploy fact-based arguments that came from very
thorough research, he says. There were no histrionics. It
became clear to me that she had been given the authority to
get the deal done. A referendum was announced for 2014.
When Salmond had to manage the government in Edinburgh,
Sturgeon led the SNPs independence campaign. They began
with polls showing support of just 30 percent, as their oppo-
nents framed the debate as a choice between the status quo
and a leap into the unknown. At rallies and as a frequent guest
on British news broadcasts, Sturgeon made the case that there
were risks in staying, too: Presciently, she pointed out that
PREVIOUS SPREAD: JEFF J. MITCHELL/GETTY IMAGES
England could vote the U.K. out of the EU.
The SNP argued that an independent Scotland could thrive
like Ireland or Norway. There were good reasons, though,
to worry about an independent Scotlands economic future.
University of Glasgow economist Ronald MacDonald estimated
that independence would cut Scotlands economic output by
as much as 100 billion ($132.6 billion) by 2023. The SNP used
perhaps overly optimistic revenue projections for North Sea oil
to paint a rosy picture of Scotlands self-suiciency. Salmond also
assured voters that Scotland would remain on the pound sterling
and seemed unprepared when the Treasury in London quickly
ruled out that possibility. Major inancial institutions such as the
Royal Bank of Scotland and Standard Life threatened to move
to London if Scotland seceded. Still, Sturgeon and Salmonds
methods found converts from Camerons Better Together cam-
paign, which was dubbed Project Fear in the Scottish press.
By the day of the vote, Sept. 18, 2014, support for inde-
pendence had risen to 50 percent in the polls. That night,
Sturgeon and Salmond gathered with the rest of the SNP lead-
ership at Dynamic Earth, a museum next to the extravagant
Scottish Parliament building in Edinburgh, and prepared for
a massive celebration. Instead, Sturgeon learned from an exit
poll at 10 p.m. that voters had chosen to remain in the U.K. In
a small room, she hugged Salmond in silence. After the results
became oicial, her political mentor resigned as irst minister.
There was no contest over who would replace him.
cottish nationalists know they cant lose a
S second referendum. The Parti Qubcois,
Quebecs separatists, managed to get a ref-
erendum for the provinces independence from Canada on
the ballot twice, in 1980 and 1995, but after the second close
loss, some concessions from Ottawa resulted in the Parti losing
momentum and cohesion. In Scotland, Sturgeon believes the SNP
can win an independence vote if the timing is right. Im sure
that her ideal would be to wait to have another independence
referendum until the polls have been running at 60 percent
for six months and absolutely everything was in the bag, says
Hamish Macdonell, former political editor of the Scotsman.
Defeat in 2014 turned into a boon for the SNPs popularity.
The referendum turnout was 85 percent, and with so many
new people involved in politics, party membership quadrupled
before the 2015 national elections, giving the SNP a chance to
send more of its members to Parliament in London. Sturgeon
hosted rallies across the country. The SNP began selling
T-shirts emblazoned with her signature, and British newspa-
pers described a Cult of Nicola. She continued to excel at
pre-election debates. At one, in April 2015, her cool-headed
intensity contrasted with leaden performances from Cameron
and Labours Ed Miliband, and polls afterward declared her the
winner. She was even stronger in the next debate. She called
it a disgrace that Cameron skipped the event, and it became
clear that the anger at the Conservative Party she had devel-
oped as a teenager still boiled. This election is about getting
rid of the Tories, she scolded Miliband, who had ruled out a
governing coalition with the SNP. We have a chance to kick
David Cameron out of Downing Street. Dont turn your back on
it. People will never forgive you. The SNP swamped Labour,
winning 56 of the 59 Scottish seats in Westminster, a gain of
50 that made it the third-biggest party in Parliament. Sturgeon
was now a force beyond Scotland. Polls showed her as the most
popular politician in the U.K., even among English voters.
When Brexit debates began, Sturgeon was ruthless with
Johnson, the silver-tongued but clownish ex-mayor of London.
Whatever else you do, she warned the audience, do not
trust a word Boris Johnson says about the NHS [National Health
Service]. Sturgeon and Cameron were on the same side of this
referendum, but while the PM spoke of economic calamity, she
RRATE
crafted a positive argument for remaining in the EU, pointing to
the blocs protections for expectant mothers and the beneits
for young people of freedom of movement across the continent.
Yet Sturgeon didnt really believe the Brexit would happen.
It was only 10 days before the vote that she and her team
began drafting contingency plans, but still it was enough time
to prepare her better for the fallout than any of her rivals.
Afterward, when she visited Brussels, Sturgeon met with any
oicial who would receive her. Her goal was to create as much
negotiating space as possible, suggesting Scotland could remain
in the EU with or without another independence referendum.
(The EU allowed Greenland to withdraw in 1985, even though
its a part of member state Denmark, setting a precedent for
one section of a country to leave and another to remain.) So
far, though, the EU has insisted it will negotiate only with
Westminster. Another major obstacle is that any country in
the bloc can veto a new member, and Spain doesnt want to
give its own separatists, in Catalonia, an example to follow.
Sturgeon must also consider that the economic case for
Scottish secession from the U.K. is weaker than it was in 2014.
The price of oil has plummeted from $90 a barrel to about
$45. And it will need to create a stable currency to join the EU,
which the University of Glasgows MacDonald says could require
Scotland to impose exactly the type of austerity measures that
the SNP denounces from Westminster. Even if these problems
can be addressed, its not clear if access to the European market
can ever be as important to Scotland as access to the English one:
some 80 percent of Scottish goods and services go to England.
Still, some economists see a brighter future for Scotland in
the EU rather than an isolated U.K. Christian Ewald, head of
the economics department at the University of Glasgows busi-
ness school, campaigned in 2014 for Scotland to remain with 55
Britain. The EU referendum has changed my mind fundamen-
tally, he says. On the streets of Edinburgh and Glasgow, one
hears lots of wishful thinking that English businesses would
move to Scotland to retain access to European markets.
One impact of the Brexit vote may be that economic argu-
ments hold less sway. Im not so sure that those issues are so
important anymore, Macdonell says. Oddly enough, what I
think the Brexit vote has done is legitimize big, shocking votes.
Short-term economic damage seems inevitable either way, and
Scottish voters are asking themselves with new urgency which
values they want their nation to enshrine.
Polls on Scottish independence after the Brexit vote have
put support in the low 50sa swing in Sturgeons direction, but
still less than the 60 percent level that many people think the
SNP needs to ensure victory. People who know Sturgeon say
shed hoped the possibility of such a vote wouldnt come up
so early in her administration. Shed have preferred to govern
and continue to prove the SNPs abilities. If its clear now that
Sturgeon will have the opportunity to realize her lifelong dream
of Scottish independence, then its also clear that, for all her
success so far, her legacy isnt yet written.
All the big challenges of currency, economy, creating a
broad national consensus, the response to a possible Spanish
veto on an EU application, and the timing of a new referen-
dum have yet to be faced, says historian Devine. Only when
some of them are and the battle is joined can her capacities
really be measured.
STUBBORNNESS
 THE FAKE FA
BY MARIO PUM ED OUT
PARKER,
P
JENNIFER A.
DLOUHY,
& BRYAN
GRULEY
 ACTO RY THAT
T REAL MONE
Y

MAKING HIGH-
QUALITY BIO-
DIESEL IS HARD.
GETTING PAID
$100 MILLION
TO NOT
MAKE IT
WAS KIND
OF A
SNAP
 T
he biodiesel factory, a three-story steel skeleton crammed
with pipes and valves, squatted on a concrete slab between
a railroad track and a ield of storage tanks towering over
the Houston Ship Channel. Jefrey Kimes, an engineer for
the Environmental Protection Agency, arrived there at
9 a.m. on a muggy Wednesday in August 2011.
Hed come to visit Green Diesel, a company that appeared
to be an important contributor to the EPAs ledgling renewable
fuels program, part of an efort to clean the air and lessen U.S.
dependence on foreign fuel. In less than three years, Green
Diesel had reported producing 50 million gallons of biodiesel.
Yet Kimes didnt know the company. He asked other producers,
and they werent familiar with Green Diesel either. He thought
he ought to see this business for himself.
Kimes, who works out of Denver, was greeted at the Green
Diesel facility by a man who said he was the plant manager.
He was the only employee there, which was odd. For a big
plant like that, youre going to need a handful of people at least
to run it, maintain it, and monitor the process, says Kimes,
a 21-year EPA veteran. The two toured the grounds, climbing
metal stairways and examining the equipment. The place was
weirdly still and quiet. Some pipes werent connected to any-
thing. Two-story-high biodiesel mixing canisters sat rusting,
the ittings on their tops covered in garbage bags secured with
duct tape. Kimes started asking questions. They showed me
a log, and from that you could see they hadnt been produc-
ing fuel for a long period of time, he says.
An attorney for Green Diesel showed up. Kimes asked how
he could reconcile the lack of production with what Green
Diesel had been telling the EPA. The attorney said he didnt
know, hed been hired only the day before. It was obvious
58 what was going on, Kimes says.
The next day, he appeared at Green Diesels oice in
Houstons upscale Galleria neighborhood, 15 miles from the
plant, hoping to collect production records and other infor-
mation. Someone stuck him in a conference room. Soon he
was on the phone with the lawyer from the day before, who
told him not to speak with any more Green Diesel employees.
Kimes went back to Denver and started calling Philip Rivkin,
Green Diesels founder and chief executive. He wasnt available.
And he never would be. That fall, Rivkin left Houston to live in
Spain with his wife, their teenage son, a $270,000 Lamborghini
Murcielago Coupe, and a $3.4 million Canadair Challenger jet.
A passport Rivkin obtained in Guatemala, where he moved
after living for an undetermined period in Spain, shows him
with dark hair, a double chin, a lazy eye, and an impassive
look. Its one of the few publicly available photographs of the
man. Now serving a 10-year sentence at the federal prison
in Bastrop, Texas, Rivkin declined through his lawyer, Jack
Zimmermann, to be interviewed for this story. He remains a
bit of a mystery. But he is, for now, the king of the latest gov-
ernment playground for con artists. Biodiesel scams are puny
compared with Medicare and Social Security fraud. For sheer
moxie, though, its hard to beat Phil Rivkin.
Rivkin is a short, stocky 51-year-old who grew up in Atlanta,
the son of a surgeon. He started Green Diesel in October 2005,
two months after President George W. Bush signed legislation
Some pipes werent
connected to anything.
Two-story-high biodiesel
mixing canisters sat
rusting, covered with
garbage bags
creating the Renewable Fuel Standard program. The law
directed the EPA to oversee a regulatory regime designed to
foster production of alternative transportation fuels, includ-
ing corn-based ethanol, as well as biodiesel derived from veg-
PREVIOUS SPREAD: PHOTO ILLUSTRATION BY 731; PHOTOS: ALAMY (1); GETTY IMAGES (3); THIS PAGE: PHOTO ILLUSTRATION BY 731; PHOTOS: GETTY IMAGES (2)
etable oils, animal fats, and used cooking grease.
The statute was a boon to renewable fuel makersand an
irritant to gasoline and diesel reinersbecause it required rein-
ers to blend at least 4 billion gallons of ethanol (for gasoline)
and biodiesel (for diesel fuel) into their products in 2006, with
the amount rising to 7.5 billion gallons by 2012. The program
now calls for 36 billion gallons in 2022, with varieties of ethanol
representing the bulk of the requirement. Each year, the EPA
sets obligations for individual reiners. Most years, ExxonMobil
is on the hook to blend the largest amounts of renewables.
How Rivkin made his way into the green fuel business
is unclear. A rsum he gave federal investigators said he
was vice president at an Atlanta investment company at the
age of 18. He doesnt appear to have graduated from college.
Investigators couldnt conirm his employment at several of
the companies listed on his rsum. Public records dont indi-
cate any past criminal record.
Former Green Diesel employees describe him as a bright
man who was fond of boasting about building a $500 million
company without any debt. He favored lip phones and loathed
the smell of cigarette smoke. Interviewing a job candidate, he
might mention that he hadnt lown commercial in years. He
liked to talk about the vintage photographs and ine Bordeaux
wines he collected. He also had a temperand a tendency to
express frustration in ALL CAPS e-mails, former employees say.
He always considered himself the smartest guy in the
room, says Ken Columbia, who worked for Rivkin for 11 months
exporting renewable fuels made by other companies. (Rivkin
ran multiple businesses out of his oices, buying and selling
various fuels in the U.S. and Europe; Columbia wasnt involved
 RINs and Repeat
Refiners are required by law to buy something they dont
particularly want: biofuels to add to their conventional products.
Or they can buy credits called renewable identification numbers,
or RINs. Thats where Philip Rivkin saw his opportunity.
Blending
A biodiesel plant
facilities mix the
can sell both the
fuels.
fuel it produces
and the linked
RIN
RINs.
Rivkin mostly skipped
the fuelmaking step
and just sold RINs.
RIN
A refiner can
RINs can be traded after
either blend in
separation from the actual
biofuel or buy RINs
biodiesel. Refiners who buy
to comply with
fake or duplicate RINs have to
federal mandates.
eat the loss and may be fined.
*AVERAGE OF 2012-16 BIODIESEL RIN PRICE. GRAPHIC BY BLOOMBERG BUSINESSWEEK. DATA: ENERGY INFORMATION ADMINISTRATION, STARFUELS
in the crimes that landed Rivkin in prison.) Columbia says his
old boss believed he had an answer for everything and he
would never get in trouble.
Making biodiesel is simple enough that high school students
do it in chemistry class. In a process called transesteriica-
tion, producers use a chemical catalyst such as methanol to
separate methyl estersthe scientiic name for biodiesel
from glycerin in such feedstocks as poultry fat. (The leftover
glycerin can be used to make soap.) Rivkin designed his plant
as a system of interwoven tubes that would churn out biodiesel
24 hours a day and be more eicient than conventional plants.
He imported equipment from a company in India and reas-
sembled it on land he leased from Westway Terminals, a bulk
liquid storage provider that ofered the ability to pipe ingre-
dients into the plant and move inished product into storage
tanks for shipping out. He kept a miniature, stainless-steel
working model of it in his oice. I could put vegetable oil
through it and get a cup of the most beautiful biodiesel you
ever saw, Harvey Greenwood, Green Diesels former direc-
tor for engineering, says of the model.
The methodology never translated to the full-size factory,
however. In late 2008, Green Diesel produced a batch of about
130,000 gallons of biodieselthe last it ever made, EPA investi-
gators say. The quality was too poor for commercial sale, and
Rivkin never igured out how to remedy that. Thus the dis-
abled plant Kimes would discover in 2011.
Fortunately for Rivkin, the government had provided an
appealing alternative to the hassle of making fuel. Per EPA rules,
each gallon of ethanol or biodiesel produced is assigned a 38-digit
numbera renewable identiication number, or RINthat travels
with the product as it moves from producer to reiner to end
user. Ethanol RINs generally remain ixed to their respective
gallons throughout the process. But the EPA allows biodiesel
makers to strip RINs of their product and sell them separately
as tradable credits. Reiners who fall short of blending the stat-
utory minimum of biodiesel into their reined products must
buy RINs to make up the diference or pay penalties.
These credits have become their own sort of currency.
In theory RINs are as tradable as hog futures, but theres no
formal market used by traders. Swaps are usually agreed upon
between companies, traders, and brokers via e-mail, phone,
texts, and chat-room messages. Prices for biodiesel RINs in
their early years luctuated from 40 apiece to as much as $1.98
at one point during 2011, according to Bloomberg data. In the
past three years, the price for a RIN has bounced from $1.98
Biodiesel RINs tend to cost more than ethanol RINs
or other types because they are scarcer and can
be used to satisfy multiple requirements under the
Renewable Fuel Standard.
$1.50
Prices spiked
Diesel with added
50 percent from
biofuel heads to
June to July 2013
the pump.
when the EPA
refused to lower
biofuel consumption $1.00
targets.
$0.50
Average
biodiesel
RIN price*
1/2012 6/2016 $0
in September 2013 to 57 one year later to $1.04 as of July 11.
In the early going, sellers sent the EPA spreadsheets listing
RINs sold, strictly for record keeping. Skeptics wondered
whether this system would work in the real world. Michael
Hubbard, a former EPA special agent for criminal enforce-
ment in Boston, says, Folks like me would sit in the room
with senior leadership, and theyd be saying people are going
to self-report, and we would be rolling our eyes.
All an unscrupulous biofuel trader really needed in the early
RIN years was a talent for Microsoft Excel. Over a phone or a
computer, hed negotiate with a reining company or a third-
party broker to sell RINs at an agreed-upon price. Then hed
generate some numbers, send them over, and get paid. No fuel 59
exchanged hands. And the onus was on buyers to make sure the
numbers were associated with gallons of actual fuel; if the RINs
proved fraudulent, the holder had to purchase new credits to
replace phony ones. A man named Rodney Hailey sold $9 million
in counterfeit RINs from his Maryland garage without even trying
to make biodiesel. When EPA inspectors wanted to visit the plant
he didnt have, he told them he had recently removed all the
equipment and sold it. When they asked who the buyer was, he
said he couldnt remember. He did send pictures of the plant
before it was dismantledbut those turned out to be images hed
found on the internet. He was convicted in June 2012 of selling
fraudulent RINs and is serving a 12 -year prison sentence.
In February 2009, shortly after Green Diesel produced
its last fuel, Rivkin registered a user ID, PRIVKIN2, and an
e-mail, pjr@dollarbill.net, with the EPA. Nine months later he
reported that Green Diesel had produced 22.1 million gallons
of biodiesel. The next year, the EPA began phasing in an elec-
tronic system for reporting RIN trades. From October 2010
through July 2011, Rivkin logged into the tracking platform at
least 25 times and laid claim to more than 45 million RINs,
the federal criminal complaint said. During the same period,
he sold $48.5 million in sham RINs.
Federal investigators think Rivkin stopped dealing RINs
sometime in late 2011, though some of his falsiied numbers
were still being traded by others months later. In return for the
hollow credits, ConocoPhillips paid Green Diesel $18 million,
according to court documents. Shell got stung for $14.4 million,
BP for $13.6 million, Marathon Oil for $12.4 million, Exxon
$1.2 million. All these companies also were forced to buy new
RINs to replace Rivkins phony ones.
It isnt hard to see how Rivkin was able to snooker
Fortune 100 companies. To them, Green Dieselor some
 sel factory
The Green Die
equally innocuous broker
that had bought RINs from
itwas merely an entry on
a computer offering to
make a problem go away.
The refiners needed
RINs, Rivkin was
selling, and the price
was trifling. In 2011,
BP had revenue of
$375.5 billion. The $13.6 million
it paid Rivkin represented 19 minutes worth.
On the Friday evening after Kimes visited his oice, Rivkin
summoned police to his home, a six-bedroom Mediterranean
in Houstons Royal Oaks neighborhood. He told them that
two men dressed in ninja-like apparel had broken in and held
him and his wife, Thida Aung Rivkin, at gunpoint. A Houston
Police Department report says the men stole smartphones,
credit cards, $900,000 in jewels, $200,000 in gold coins, and
a $168,000 Bentley.
Rivkins then-assistant, Angela Hall, saw him the next day.
He was very shaken, she says. He told her he no longer felt
safe in Houston. A few weeks later, Hall accompanied Rivkin
to Geneva for meetings with bankers. He also looked at houses
for sale there, she says. Again in November, she helped him
house-shop in Barcelona, where he was attending an industry
conference. After Hall returned to Texas, she says, I never
saw him again.
To federal investigators, the home invasion looked like a ruse.
No one was ever arrested. The Bentley and a single diamond
60 reappeared soon after the supposed burglary (the Bentley a few
blocks from his home, undamaged), but the other loot was never
found. Its a lot easier to make a coin collection disappear than
a Bentley, says Lea Bauer, a senior special agent for the U.S.
Secret Service who investigated Green Diesel. We could not
determine whether the burglary legitimately happened.
Rivkin was living in Spain when the EPA sent
Green Diesel a formal demand for information. It
was December 2011. He responded with a pile
of falsiied documents saying hed altered his
business model and was now importing bio-
diesel for resale, using a barge listed as
HMS 1024. Investigators took to calling it
the HMS
HM Pinafore.f It didnt exist, says
Leslie Lehnert, the U.S. Department of Justice attorney who
prosecuted the case.
Rivkin employed about 20 people, including a driver and
a jet pilot, but he kept Green Diesels inancial information
to himself. Hed go into his corner oice and shut the door
and do his trades, Columbia says. An unnamed employee
cited in court documents told authorities that money would
come in and he would move it out.
In early 2012, the Internal Revenue Service and the Secret
Service joined the investigation. With Rivkin in Spain, Green
Diesel was being inundated with payment-demand letters and
unpaid-tax notices. I was expecting a raid any day, says Martin
Brau, a consultant who worked for Rivkin from August 2011 to
March 2012. We were kind of looking forward to it.
Armed agents from the EPA, IRS, and Secret Service showed
up at Green Diesels oices the morning of July 24, 2012. With
the help of Rivkins employees, they spent the day removing
computers and boxes of documents. Meantime, the Secret
Services Bauer was combing through thousands of pages of
Green Diesel bank records. It took six months, she says, because
Rivkin had churned tens of millions of dollars through dozens
of bank accounts.
Bauer noticed a large number of payments to Sothebys
and other art dealers. She and a colleague did some digging
and learned Rivkin had been buying photographsmore than
2,000at prices as high as $675,000 (for an Alfred Stieglitz
portrait of Georgia OKeefe). To Bauer, it appeared he was
laundering his illegal gains. Another agent, scouring Houston
COURTESY EPA; ILLUSTRATION BY 731
art storage facilities, discovered that Rivkins photos had been
shipped to Newark, N.J., by truck. Fourteen crates of photos
were in New York being readied for a trip to Spain in the
summer of 2012 when the Justice Department won a court
order to coniscate the cache, estimated at $15.8 million.
Rivkin did nothing to stop the seizure. Justice told a federal
judge that Rivkin had enough money stashed abroad that
saving the photos was not worth his time or efort.
Rivkin was busy, too. According to light tracking logs kept
by aviation company FlightAware, his Challenger jet made
stops in the Colorado Rockies, Bermuda, the Bahamas,
Portugal, the Dominican Republic, and Toronto from
2012 into 2014. Authorities believe that by late 2013, he
was living in Guatemala under the name Felipe Poitan
Arriaga and trying to start a biodiesel business there.
Federal agents were watching, as was Houston
attorney David Fettner. Hed been appointed by a
 I was expecting a
raid any day, says
consultant who w a
o
for Rivkin. We werked
kind of looking for re
ward
to it
court to ind and seize Rivkins property on behalf of commod-
ities trader VicNRG, which had sued Green Diesel and other
Rivkin companies for selling it $3.8 million in bogus RINs.
Rivkin left a trail of unhappy people behind him, he says.
Fettner tracked Rivkins jet on FlightAware and made a bid
to grab it in Guatemala. But the Challenger was gone by the
time he got through legal channels. On June 3, 2014, he took
two pilots and two mechanics to Panama. The jet was stowed
at a private airport, due to ly out at 8:30 the next morning.
Fettner and his crew showed up early that day. The jet was
blocked in by two other aircraft. One of Fettners guys bet the
locals they couldnt get the planes out of the way. Fifty bucks
later, Fettner was aboard the Challenger, taxiing. A voice on a
loudspeaker insisted the plane didnt have clearance to take of.
Fettners pilot took of anyway, shouting, Close
that hatch, and lets get out of here.
Zimmermann, Rivkins attorney, says Fettner
stole the plane: He should have had a mask and
gun. Fettner calls the seizure perfectly legal,
because he had a court order to grab Rivkins assets.
He liked the jet: It had the Pininfarina leather, like they
put into Ferraris, he says. Supple leather.
Two weeks later, Rivkin boarded a commercial light
from Guatemala to Houstons George Bush Intercontinental
Airport. Hed been expelled from the country after author-
ities learned about the passport hed obtained under the
assumed Arriaga name.
Unbeknownst to Rivkin, two U.S. Secret Service agents were
also on the light, watching. He looked gaunt and disheveled,
with a salt-and-pepper beard and graying hair, when the agents
took him into custody upon landing. A grand jury indictment
charged him with 68 counts of mail fraud, wire fraud, money
laundering, and violating clean-air laws. The government said
Rivkin had sold more than 60 million invalid RINs for at least
$78 million and illegally claimed an extra $21 million in biofuel
tax credits, for a grand total of almost $100 million in criminal
gains. Thats close to half the value of the $220 million in biofuel
scams uncovered by the EPA since the program started.
Facing the possibility of more than 20 years in prison,
Rivkin pleaded guilty to two counts. If we thought there was
a defense, we would have raised a defense, says Zimmermann.
This March, a federal judge sentenced Rivkin to 10 years in
prison and ordered him to pay restitution of $87 million.
Christies started auctioning of his coniscated photo collec-
tion. Proceeds will go to Rivkins victims.
The EPA says scams involve less than 1 percent of the value
of the billions of RINs produced under the program. But the
agency, whose traditional expertise is in oil spills and air pol-
lution, has all it can handle with sophisticated inancial crimi-
nals. It recently sought assistance from the Commodity Futures
Trading Commissionwhich is itself stretched thin because of
its responsibilities under Dodd-Frank. Reiners, which have
been trying for years to persuade Congress to undo the renew-
able fuel mandates, are eager to call attention to the EPAs strug-
gles. It doesnt take much to look at the program and see that
its broken, says Chet Thompson of the American Fuel and
Petrochemical Manufacturers, a Washington-based trade group.
In 2014 the EPA created a quality assurance program under
which agency-approved third-party auditors validate biodiesel
makers and the RINs they generate. Still, many nonaudited sup-
pliers remain. Fresh twists on biofraud keep cropping up, with
one new case scheduled for trial next year and two men cur- 61
rently awaiting sentencing in Florida after pleading guilty to
money laundering and wire fraud conspiracy. At least three
other cases are under investigation. Things have gotten dra-
matically more sophisticated, says Doug Parker, the recently
retired director of the EPAs criminal investigation division. The
agency is adapting, but the fraud losses will grow, in my view.
Even the hucksters have gotten burned. During the Rivkin
investigation, federal agents stumbled over
a peculiar link between their target and
Rodney Hailey, the Maryland biodiesel
felon. In 2009 and 2010, Rivkin bought
several batches of bogus RINs from Hailey,
for a total of $687,830.  With Brian Louis
COFFEE
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 COOL THE ENIGMATIC TONY DO
GIRL WEDDING GOWNS SEE YOURSELF IN SUNNIES ROBBINS YOU HAMMOCK?

Zak Pashaks
made-in-
Detroit bicycles
are coming to
a bike-sharing
program
near you

ee er
By
Tim
Higgins Dealer
Photographs
by Ricky Rhodes
 Etc. Innovation Clockwise from right:
Shaun Lewis assembles
a wheel; Citi Bikes
ready to ship; Steven
Sprankle powder-coats

T
he Detroit Bikes factory sits on the West Side of the Broken City, which became one of
frames; welder
city near scattered abandoned homes and a junk- Calgarys premier live-music venues, Will Walker at work
yard full of rusted car parts. Inside, workers are without having run a bar before. He ran
taking test rides through the 50,000-square-foot for City Council in 2010, having never sought public oiceand
facility on a leet of freshly assembled bicycles des- lost. It forced him to igure out what was next. Hed been fasci-
tined for New Yorks Citi Bike bike-share program. nated with Detroit since childhood, when he watched 80s action
On foot, founder Zak Pashak, 36, dodges the riders, navigat- heroes such as Tom Selleck in Magnum, P.I., Peter Weller in
ing a path around the chaotic loor and holding forth on the RoboCop, and Eddie Murphy in Beverly Hills Cop, all of whom had
virtues of American-made chromoly steelwhich, in case youre ties to the Motor City. I had this feeling that cool people came
not a metallurgist, is from Detroit, Pashak
lighter and stronger says. I felt a gut draw.
than standard steel He wanted to be part of
and is what Pashak its economic rebound.
uses in his house line. Detroit didnt need
He stops and points another Broken City, he
to the loading dock, decided, but a factory
where a tractor-trailer made sense. Its got a
waits to haul the bikes history of manufactur-
more than 600 miles ing; there are a lot of
to Citi Bike headquar- people whove got skills
ters in Brooklyn. This who havent been able
was my dream when to use them in a long,
we got the factory long time, he says.
watching semis drive It was Pashaks
away at the end of the failed City Council bid

PHOTOGRAPHS BY RICKY RHODES FOR BLOOMBERG BUSINESSWEEK

day, Pashak says.
When his factory
opened in 2013, bicycle
64 manufacturing in the
U.S. had all but disappeared. The long, downward spiral began
in the 1980s, when industry-giant Schwinn shifted work to Asia,
a cost-saving move that other manufacturers such as Hufy soon
copied. In 2015 only 2.5 percent of the estimated 12.6 million bikes
sold in the U.S. (not including those for children) were made here,
according to the National Bicycle Dealers Association. A lot of
people thought it was really goofy when I irst started this, says
the bearded Pashak, who describes Detroit as a good spot for
urban revitalization to take hold and is prone to similarly gran-
diose talk about changing the world. If his tech-
nology werent 200 years old, he could pass for
a startup founder.
It probably was really goofy, based purely on
economics. But at a time when we want our kale
organic and our beer microbrewed, manufac-
turing bicycles in the cradle of the U.S. trans-
portation industry turns out to be just rational
enough. Shinola, which also sells bikes, might
have stolen Pashaks thunder by becoming the
face of Detroits rebound. Yet Detroit Bikes
contract with Motivate, the company that runs
bike-sharing programs in 12 metro areas, has helped put Pashaks
company on pace to churn out 10,000 bikes this year. Its nice
that in doing so hell employ 50 people in a city with 10 percent
unemployment, about double the national rate. Its perhaps
more signiicant that without this Canadian transplants opera-
tion, options for how busy urbanites get from point A to point B
might literally be fewer and farther between.
Pashak, whose former stepfather was an oilman and co-owner
of the Calgary Flames, had millions to spend on risky endeav-
ors when he relocated to Detroit from Calgary ive years ago. He
was used to riding without training wheels: In 2003 he opened
that gave him a passion
for t wo -wheelers.
While running for
office, he studied
urban-transit public policy and came to see bikes as a solution
for big-city ailmentseverything from pollution to traic conges-
tion. Its a highly eicient machine, yet people have this compli-
cated relationship with it, he says. A lot of people think bikes
are for hippies or people who got a DUI, or for people who are
poor and cant aford a car. Or theyre for kids. Even more com-
plicated: price. High-end bikes with carbon-iber frames, sus-
pension packages, and multispeed gears are expensive to buy,
let alone maintain. So Pashak thought a basic bike, meant for
the nations urban jungles, might have
marketplace potential. And that was it.
He was of to Detroit.
When Pashak arrived, he bought an
old house in the citys historic Boston-
Edison neighborhood, just blocks from
where Henry Ford once lived. Like
any good American entrepreneur, he
began tinkering in his garage with a
prototype inspired by a 2012 trip to
Copenhagen, a city famed for its riding

culture. It was a process: Everything
that couldve gone wrong has done
so at least once, he says, explain-
ing that equipment broke and the
factory wasnt laid out eiciently. In
2013 production began on the A-Type
model. The $700 A-Type has a utilitar-
ian, matte-black frame, three speeds,
and a rear rack with the Detroit Bikes
logo. A womens version, the B-Type,
comes in white and mint.
Production was slow in 2014 when
Pashak cold-called New Belgium Brewing in Fort Collins, Colo.
He had a simple question: Did it need a bikemaker? The brewery
is best known for its Fat Tire amber ale, with a shiny, vintage,
red bicycle on the label. Every year the company bestows bikes
on employees to celebrate work anniversaries and other special
events, and for years it had turned to manufacturers in Asia. It
just so happened that New Belgiums bike designer had started
looking for an American manufacturer around the time Pashak
called. He was having trouble actually inding a company in
the U.S. that could scale up and make 2,500 bikes, says Bryan
Simpson, a New Belgium spokesman.
Detroit Bikes had capacity to spare; pro-
duction began in earnest earlier this year.
Pashak says: It was hugea big leap of faith
for them. They made this company possi-
ble. The contract with Motivate this spring
made it a business. Currently, Motivate uses
Detroit Bikes-assembled bicycles in New
York, Boston, and Jersey City.
Back at the factory, Pashak heads to a
corner and shows of a machine that makes
wheels. This is how we won the con-
tract for Citi Bike, he says. Although New
Belgiums bikes are constructed start-to-
inish in Detroit, Citi Bikes technically arent
entirely American-made. The aluminum
Etc.
frames come from Asia, and Pashaks crew assembles
them. Wheels, however, are more cumbersome and
expensive to transport. By making those locally, says Jay
Walder, Motivates chief executive oicer, the company
has reduced the number of shipping containers coming
from Asia by two-thirds. Better yet, being able to say
that Motivate bikes are assembled at home gives it a
leg up in negotiations with city governments as the
company expands. If youre a mayor or a transporta-
tion commissioner, its nice to be talking about the fact
that this program, which is a big part of the commu-
nity, is creating jobs at home, Walder says.
When Walders tenure at Motivate started in October 2014,
inding a domestic manufacturer became a priority. But he strug-
gled to ind anyone who could handle a 3,000-unit order built
to Motivates specs. The industry is not set up to do anything
like this, Walder says. Before Detroit Bikes, there were no bike-
share bicycles that were being made anywhere in the United
States. This year, Motivate plans to add 8,000 bikes, bringing the
total to 28,000. Pashakwhose factory has gone from pumping
out 20 bikes a day to 80 since signing on to make Citi Bikeswants
as much of that business as possible. He estimates that he, his
mother, and an inves-
tor named Bernard
Sucher, a native son
whos worked for
Goldman Sachs and
Merrill Lynch, have put
as much as $4 million 65
into Detroit Bikes.
Pashak is on pace
to break even this
year, he says.
With the New
Belgium and Motivate
contracts providing
some stability, Pashak
is looking to expand his
retail business. Earlier
this year he hired Scott Montgomery, a 30-year indus-
try veteran whose father co-founded Cannondale,
to head national sales. The move signaled to indus-
try watchers that the quirky company is emerging
from Shinolas shadow. If they expand their lineup,
theyll appeal to a lot more people, says Pete Kocher,
whos sold a few Detroit Bikes at Ride Brooklyn, with
shops in the boroughs cyclist-dense Park Slope and
Williamsburg neighborhoods. Theyve got a load of
potential to grow. Montgomery says he wants Detroit
Bikes in 100 more stores by yearend, for a total of 400
retail outlets in 150 U.S. cities. The company plans to
start selling a new design, the racing-oriented C-Type,
later this summer. The A-Type and B-Type will soon
get more gears and colors.
After walking through the factory, Pashak looks for
a quiet moment away from the banging of metal and
lingering smell of welded steel. Outside, the street is
calm and empty. Having a factory that impacts the
community directly is very cool, he says. Some of his
workers even walk to work: As an urbanist, idealist
kind of guy, thats the coolest thing. 
 Etc.
The Kammok is
embarrassingly simple
to set up. Two Python straps
wrap around trees, fence
postsjust about whatever.
Then you clip the cradle to the
straps with Kammoks
carabiners, and just like that,
youre staring at the sun.
66
or an object so closely associ-
ated with laziness, the hammock
has been busy recently. Far from
the cumbersome, macram-style
cradles strung across backyards
of yore, the modern hammock
is portable, easy to set up, and a
favorite of hikers, campers, and
do-nothings alike.
Hammock became as much a verb
as a noun (as in, If you need me, dude,
Ill be hammocking) in the late 1990s.
At music festivals such as Lollapalooza
and Lilith Fair, listeners hammocked
as they jammed to G. Love & Special
Sauce and Shawn Colvin. From there,
the hammock migrated into the camping
etai
It t ill
t
PHOTOGRAPH BY WILLIAM MEBANE FOR BLOOMBERG BUSINESSWEEK; SET DESIGN: HEAVY SETTING
To get into the Kammok
without looking like a fool, do
world, where it became a what you do when climbing supports as much as
into a tiny sports car: Put
warm-weather alternative your bottom in first, then
500 pounds.
to a tent. swing over your legs. To Kammok, which
Now the hammock is egress, do the reverse. began with a Kickstarter
found on college quads campaign in 2011, sells a
and in parks, a current-day version $128 kit; sales from 2014 to 2015 were
of the picnic blanket. From 2013 to up 120 percent. Its portable adven-
2015, sales more than doubled, from ture, says Haley Robison, Kammoks
$26 million to $53 million, according chief operating officer. You can
to NPD. The market researcher reports create diferent spaces within existing
that the largest demographic buying environments that give you renewed per-
them is teens. Thats probably because spective and allow for a moment of relax-
hammocks provide instant gratiication. ation and relection.
One of the hottest brands, Austin-based Thats one way to put it. Or you can
Kammok, is making a sling with bark- grab a beer and sack out, telling your-
friendly straps. The lightweight, durable self that youre not being lazyyoure
hammock can be hung in minutes and engaged in some serious hammocking. 
 J.Crew crepe de
Weddin s chine
hi jjumppsuit, Etc.
$495

and custom m colors. Alalo igured

out they w were asking for their

HERE COMES THE

bridesmaid ds. I kept being like,
Leave e us alonethats not
ou r business! she
say ys. But I inally real-

BRIDE? ize
ten
ed we should be lis-
ning to them. When
sh e looked at the tra-
Just because youre walking down the aisle dittional bridal wear
doesnt mean you have to look like a wedding cakee ma arket, Alalo saw an
op pportunity: Now it
By Carrie Battan ma akes up 20 percent of
Refformations estimated
$25 million annual
h e n C a r r i e B r a d sh aw all things wedding. The mosst rev venue. This month

W
prepared to wed Mr. Big expensive piece in H&Ms line the company expanded
in the first Sex and the is $649. Most of the options att its bridal
b line to include
City movie (2008), she Asos are less than $200. a su uite of dresses in
presented her proposed Its about as shocking as vibrrant colors.
dress a knee-leng th, an Elizab beth Taylor A
All of these compa-
cream-colored vintage divorce e that thiss niess are playing catch-up
number and a demure shift co oincides with with Crew. While the label
suit jacketwith the smug delight of a mov ve away fro om is strug ggling now, it had the
someone about to commit an act of forma al attire in daily foresig ght to apply its brand
rebellion. The plain Jane ensemble l i f e a n d t ow a rd of cassual elegance to the
telegraphed her am mbivalence rel axed attitu udes mark ket in 2004. Today its
toward the sacred d vows, abbout marriiage. br al wear line is more
and Carries friendss were Pew Re se arch loww-key than everone of 67
aghast. Its pretty but Center
C ask 18- itss most popular wedding
its just so simple, saiid t o 29-year--olds dresses is a jumpsuit.
the proper, polite e in 2014 if it was
The ease of some
Charlotte. That wass mportant ffor a
im of our dresses lend
as kind as it got. coommitted co ouple themselves to casual
Were Carrie ge tting to
o tie the knot, and weddings, garden
married in 2016, he er friends onnly 36 perce ent said weddings. Theyre not
might not spit out the eir cosmos: yess. So if the w
wedding stufy, says Somsack
The low-maintenancce wedding is, like, wha tever, S
Sikhounmuong, J.Crews
dress is now so uncon ntroversial, wh y be a sla ave to lead womens designer.
its trendy. This year, both U.S. yourr moms dress code? d ? Stalwarts suc
such as Davids Bridal,
retailer Forever 21 and d British Therres this idea that women which represents 18 percent of the
chain Asos started selling have b been dying to get married bridal wear market, still dominate the
attire for a more chill bride, since theyt were little girls, and scene, but even its starting to get hip.
including short dre esses they h have all these idealized Last year, Davids began introducing
and separates. Swedens fantassies about more casual pieces such
H&M offers boho-chic their w wedding, as jumpsuits, separates,
pieces, and online-on
brand Nasty Gal has a
nly says Ya ael Aflalo,
founder and chief
MOST OF THE and short bridal gowns;
that segment now makes
collection of Littlle executive e oicer of OPTIONS AT up about 6 percent of its
White Dresses. Style
aside, since cool-g girl
eco-fash ion label
Reformation. (The
ASOS ARE LESS business. Market research
showed that newlyweds
wedding wear requ uires fant asi e s being THAN $200 were throwing parties in
less ornamentation n and poufy gowns, big laid-back venues such as
material (in some casses, a lot bouquets, and barns and restaurants
less), its cheaper th han tradi- bridesmaiids in full peach.) I dont more liberated spaces, says Lori
tional gowns. The ave erage bride know thosse girls, she says. Conley, a Davids merchandise manager.
COURTESY THE BRANDS

spent about $1,400 on o her dress Reforma ation got into this world It was a call to action that they needed
last year, according almost by accident. Executives something more functional. Because
to an annual survey Reformation noticed la ast year that women if youre navigating your way around
Ariel dress,
by the Knot, an $198 were reque esting some of its wispy, decorative hay bales, you cant really be
online resource for pared-down dresses in big batches worrying about your train. 
 Etc. Fashion

editor
p hoto
eek
sw

Ad
es
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am
in
us

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gB

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niy
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om

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kins

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Car

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r
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ed
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$400; Saint Laurent SoHo, 80 Greene St., New York

Wendy

$175; sunglasshut.com

PHOTOGRAPHS BY RYAN DUFFIN FOR BLOOMBERG BUSINESSWEEK

writer
tt ,

e
Be nn
Drake

Outit credits, top left: Stella McCartney top, $680; stellamccartney.com. Top right: Bonobos shirt, $85; bonobos.com. Bottom left: Gitman Vintage shirt, $180;
gitmanvintage.com. J.Crew jacket, $228; jcrew.com. Bottom right: Rag & Bone dress, $350; rag-bone.com. Jennifer Fisher earrings, $235; jenniferfisherjewelry.com
 Etc.

Cr
st
i na

i
Li n
d

bl
ad,
David

e
ditor
Barton Perreira Justice

Purc

Oxydo OX Punto Alto

e l l,
co
ye

$295; select Solstice eyewear boutiques

p
dito
r
$520; barneys.com

69
Eight mirrored sunglasses that will relect well on you
Market editor: Shibon Kennedy
Mykita + Maison Margiela MMTransfer001

Ste
ph
an
ie
T
ra
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ito

Givenchy GV 7017/S
r

$395; select Solstice eyewear boutiques

$899; mykita.com
STYLIST: SHIBON KENNEDY; HAIR AND MAKEUP: REBECCA GARCIA

ctor
t dire
, ar
ah
Pr

jc
Ne

Outit credits, top left: J.Crew Wallace & Barnes shirt, $118; jcrew.com. Top right: Altuzarra dress, $2,150; neimanmarcus.com. Eddie Borgo earrings, $85; eddieborgo.com.
Bottom left: Tome dress, $1,350; tomenyc.com. Bottom right: Hilfiger Edition shirt, $179; tommy.com
 Etc.
MAN OF MYSTERY
A new Netlix documentary about
Tony Robbins reveals little more than that he likes
dropping F-bombs. By David Walters
ast month, at a Tony Robbins-led
L
Unleash the Power Within seminar
in Dallas, at least 30 people were
treated for burns sustained during
a hot coal walk. For the 56-year-old
best-selling author, business strat-
egist, and self-help speaker, it was
an unfortunate bit of PR: Witnesses
described the exercise, undertaken by
7,000 attendees, as poorly organized and
mismanaged, saying that several partic-
ipants paused midwalk to take selies.
But if theres a silver liningand when
youre a life coach with a net worth of
$480 million and a client list that once
included Mother Teresa and Nelson
70 Mandela, you can probably ind onethe
incident is sure to drum up interest in
director Joe Berlingers Netlix documen-
tary, Tony Robbins: I Am Not Your Guru.
Spoiler alert: Theres no hot coal walk
in I Am Not Your Guru, a behind-the-scenes
look at Robbinss Date With Destiny
course in Boca Raton, Fla. If anyone is
stepping lightly here, its the ilmmaker.
Granted not-quite-all access to the six-day,
The Critic
$4,995-per-head event, Berlinger trains his
camera on Robbins at every phase: deliv-
ering keynote addresses on happiness and
fulillment to a frenzied audience; engag-
ing participants in emotional one-on-ones
about their dysfunctional childhood; con-
fabbing backstage with staf and crew;
even meditating beachside
at his sprawling Palm Beach
mansion. The result is more
infomercial than expos.
A SIX-DAY,
The vibe at the Date With $4,995-PER-
Destiny seminar is World
Wrestling Entertainment
HEAD DATE
title bout meets big-tent WITH DESTINY
revival. Robbins warms up
on a minitrampoline before
electrifying the crowd with gravel-voiced
bromides like I didnt come here to ix
you, because youre not broken! and
Life is happening for us, not to us! and
occasionally just by cursing a blue streak.
The most revelatory aspect of the doc may
be how often Robbins drops the F-bomb,
a technique he describes as using taboo
words to provoke people back to the
reality of the moment. (No word on how
Blessed Teresa of Calcutta responded to
that method.)
Conspicuously absent from Guru is
any critical analysis of Robbins and his
motivational practices. Berlinger is best
known for his Oscar-nominated Paradise
Lost trilogy, about the murder convictions
in 1994 of three teens in West Memphis,
Ark., and their eventual exonerations. (He
also directed the Bloomberg Businessweek-
produced doc Hank: Five Years From
the Brink, about Hank Paulsons role in
preventing the collapse of the global
economy.) Here he pays little attention to
the self-help masters own path to enlight-
enment. Instead, he allows his subject to
get by on glancing mentions of an unsta-
ble, alcoholic mother and a vague will to
serve. The ilmmaker simi-
larly fails to call out Robbins
on objectively bad advice.
In one scene, he demands
a seminar participant put
her boyfriend on speaker-
phone to break up with him
publicly; it gets awkward.
At other times, Berlinger is
stymied by limited access to
the small-group workshops from which
Robbins receives personal information
about the people he later counsels
information he sometimes passes of as
intuition in cold readings reminiscent of
1980s televangelists with earpieces.
For a ilm that makes a spectacle of
radical honesty (Raise your hand if
youre suicidal, Robbins nonchalantly
instructs at one point), the essential irony
of Guru is that its director commits a sin of
omission: He neglects to mention his own
transformative experience at a Robbins
seminar in 2012, as well as the role his
subject played in funding this shoot, rev-
elations that are part of the docs produc-
tion notes. Despite the ilms titular claim,
Robbins is very much allowed to play the
guru for the full 116 minutes, with no one
willing to separate the sage advice from
the snake oil.
Near the end of the ilm, Berlinger
does manage to ask his subject if he thinks
people would appreciate a better under-
standing of Tony Robbins, the person. I
dont think people give a s---, Robbins
responds. For a figure whose 38-year
career has been built on always having the
COURTESY NETFLIX
right answer, its a myopic and disingenu-
ous conclusion. Perhaps someday another
documentarian will hold Robbinss feet
to the ire for such details. 
 What I Wear to Work Etc.

GENEVIEVE JONES Your wall is

incredible.
Its an inspiration
Whats P.S.I Made DYLANLEX board of everything I
This ?
collect: pins, patches,
Were an online
art, necklaces, nail
destination for
polish, tear-outs from
how-to content
magazines, quirky
fashion, accessories,
staplers, scissors,
apparel, home
Sharpies. Its fun.
dcor, entertaining,
and lifestyle.

Are you a collector

or saving scraps
OSCAR DE LA RENTA for craft projects?
One-thousand percent
collector. Some might
say hoarder.
What did
you make in
this outfit?
The bracelets.
Theyre colorful
enamel, with How many closets do
nail polish and you have?
pufy paint. Two. Ones for mostly 71
blouses, dresses, skirts,
and pants, and the other
has jackets and outerwear.
I have a massive vintage
PIERRE HARDY jewelry dresser. Thats my
thingmy irst memory
is wearing clip-on jewelry.
Are those safety pins in
your ears?
Theyre safety pin earrings.
I love them for the obvious Is that jumpsuit
reasons: Theyre a little
bling, fancy, and crafty. comfortable?
This is my new
favorite item.
It its like a dream,
and I love that

ERICA it has pockets.

PHOTOGRAPH BY CHRISTOPHER LEAMAN FOR BLOOMBERG BUSINESSWEEK

REBECCA MINKOFF

DOMESEK
34, founder,
Did you make your
necklace?
No. Martha Stewart once
asked me if I made a bracelet I
was wearing, and I said, No,
its Herms. I love making
P.S.I Made This, things, but that doesnt mean
I always need to wear them.
Los Angeles LANVIN

Interview by Arianne Cohen

 Etc. How e Here?

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IAN CLARK
Chief executive officer, Genentech; head of North American
commercial operations, Roche
In 1966

My tutor specialized in farming

Its the oldest Education wild deer alongside cattle. That didnt
boys school in lead anywhere, but its how I got
into biochemistry and genetics. Later
England. I got Warwick School, on, they were kind enough to
a scholarship, Redhill, England,
class of 1978 give me an honorary doctorate.
and my parents
University
were very of Southampton,
enthusiastic. class of 1981

With Work
daughters Experience
Georgina
(left) and
Isabella, 1994
198292
Graduate trainee,
sales representative,
72 marketing director, I knew that without a University
regional sales manager, graduation,
G.D. Searle Ph.D., I wasnt going to
1981
be the person discovering
199397 the molecules, so I was
Vice president for sales
and marketing, Sanoi interested in management.
I was working on drugs for high
blood pressure and stroke. Its a signiicant 1998
VP for Eastern
responsibility to develop and Europe, Ivax
We launched a drug called
market drugs for people who have serious Gleevec for a type of blood-
illnesses. Its hard to do well. 19992002
U.K. chief operating based cancer and asked
oicer, Canadian
president, Novartis
patients who had beneited to
come in. That was the irst
Alongside scientist 200308
Dr. Napoleone Ferrara Senior VP, general time I emotionally connected to
manager for bio-
(right), 2005
oncology, executive
what we are trying to achieve.
VP for commercial
Avastin was a operations, Genentech
breakthroughit limits 2009
the blood low to tumors. Head of global product
strategy, chief
Its now indicated for marketing oicer, Roche
six diferent tumor types. 2010
Present
CEO, Genentech;
The challenge is running an enterprise head of North
of 14,500 employees and continuing American commercial
operations, Roche
the culture of great science. In the last
six months, weve had four medicines
At the proclamation of Biotechnology
approvedfor lung, blood, bladder cancer, Day in Sacramento, on April 7, 2016, exactly
Courtesy subject (6)

and melanomawhich is extraordinary. Life Lessons 40 years after Genentechs founding

e.
at

le g
1. Find a career where what youre doing is meaningful and enjoyable. 2. Creating a great workplace is what allows people to do good work. 3. De
 Youve earned your
money, but are you
owning it?

In life, you question everything. The same should be true

when it comes to managing your wealth. Do you know
what your investment recommendations are based on?
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