00:01:22.680I'm a freelance journalist and the author of Bad Company, Private Equity, and the Death
00:01:26.700of the American dream. So the first line of your book is, until it cost me my dream job,
00:01:31.840I had never given private equity much thought. Using that personal story, can you give us a
00:01:37.580little bit of a primer on how private equity works? I remember following this story so closely.
00:01:44.560This is when we were all on Twitter all the time, too. So yes, go ahead.
00:01:48.680Yeah, so I worked a dead spin. I was the editor in chief there. And that had really been my dream
00:01:54.420job for years until I got it. I just really loved the site's ethos, the way it covered sports,
00:02:00.420but also other things. And I came in sort of knowing that we were likely to be sold soon
00:02:08.180after I got there. And I knew private equity was in the mix. But honestly, I didn't really know
00:02:14.520what that meant. And what I found out fairly quickly after we got bought by a private equity
00:02:21.180firm based in Boston called Great Hill Partners, is that like the fundamental thing about private
00:02:26.220equity is their incentives are not necessarily the same as the incentives of the company they've
00:02:32.420acquired. Not at all. Not at all. Like they don't give a shit. Like they're just like,
00:02:36.180this is raw material for us to extract money from. But I didn't know that when they came in.
00:02:43.280And so I was like, well, that's been doing well. We all want it to do more well. We all have ideas
00:02:49.880about how it can do more well. So great, this should be easy, right? And they talked a big
00:02:56.440game about like, you know, we want to beef up the business side so that we can monetize you better.
00:03:02.740And we were like, yes, absolutely. That's what we want to. And then we realized that like,
00:03:09.740they weren't making money by making Deadspin profitable. They were making money by extracting
00:03:17.520resources from Deadspin and its sister sites. And so it quickly became clear that this wasn't going
00:03:26.200to end well, because they were telling us to do things that made no sense in terms of a money
00:03:33.200making strategy, right? Like, one of the things that I felt super defensive at the time about
00:03:40.180pushing back on was this idea that like, we had some sort of journalistic purity, and we wouldn't
00:03:47.080let people touch what we were doing. And like, yeah, I didn't want a bunch of bozos telling us
00:03:52.920what to do editorially. But also what they were telling us to do editorially was stuff that was
00:03:58.320going to make less money. Yeah. So it wasn't like, oh, my God, you couldn't possibly touch
00:04:04.440our precious children. It was like, no, no, we're trying to run a business here. And you're telling
00:04:09.020us things that will tank the business. And sure enough, it tanked the business.
00:04:12.720Well, and this is the thing, and we'll get into this in detail as we go through this conversation, but that like broke my brain when I first started to understand what private equity did was I think a lot of us understand like business people as charged with like making businesses make money, right?
00:04:32.780like that's always the goal and even people like publicly owned companies if a company has like
00:04:38.000shareholders and is publicly traded like they are trying to make more money so that than the
00:04:42.220shareholder like and make the price of the stock go up and blah blah blah like it's more complex
00:04:45.920than that but somehow still like this concept of like make more money for the company make the
00:04:51.820company more successful and then private equity sees companies as a very different thing can you
00:04:59.540explain that a little bit? Yeah. So like the ideal version of private equity is you buy a company,
00:05:05.560you own it for a short time, and then you take it public again. That happens in a very tiny number
00:05:12.560of cases, relatively. Many, many, many companies, way more companies than are under other types of
00:05:19.980ownership, go bankrupt or go out of business entirely than in private equity situations.
00:05:27.280And so the idea that private equity firms are sort of like specialists, right, they're coming in to save struggling businesses, is just not true. What they're specialists in is finance. And they are very good at making money for themselves.
00:05:45.320but that's very different than making money for the company that they own so one of the biggest
00:05:52.800strategies they use in companies that are real estate intensive so like retail often local
00:05:59.520newspapers hospitals too you sell off the real estate that they may have owned for decades right
00:06:05.660so they're not paying a mortgage they own that real estate outright and in the cases of like
00:06:09.980retail, they own a ton of real estate all across the country. You sell off that real estate,
00:06:16.400the private equity firm pockets the proceeds. And then you're charging your own portfolio company
00:06:22.940rent for the very same pieces of land they used to own. So absolute divorce of incentives,
00:06:31.880where what is good for the private equity firm is literally the opposite of what is good for
00:06:38.180the portfolio company. And so it's this maddening system where I actually argue that it's
00:06:46.620anti free market capitalism, right? Because it's like, there is no alignment of incentives where
00:06:53.560you're trying to make money for the thing that you own. And that really causes like a breakdown
00:06:58.320of our understanding of how a capitalist society is supposed to work.
00:07:02.640Right. And like, even if I don't believe in like, the like fetishization of the small business owner or whatever, right? But like, even if you did, these companies are actually, they demolish the small business owner. Like if you have if you have come to own like, five veterinary practices in the Pacific Northwest, like, that is a prime target. They're like, okay, venture, we're gonna get that guy, right?
00:07:29.280Yes. So it's counter even like the narrative of like, we love small businesses in this company. We love the entrepreneurial spirit, like all of those things. Right. Right. What it actually is, is like we love small businesses because we can roll them up and consolidate them and make them into giant businesses that may very well die. But like, that's not really our problem.
00:07:51.180Right. So some people might look at the episode title for this and be like, I thought this was about pop culture. But culture studies tagline very broadly is like, think more about the culture that surrounds you. And I think that private equity has absolutely affected the culture around us in so many different ways. So how do you think about that, especially as someone who is a journalist who is affected by what private equity has done to our journalistic landscape?
00:08:18.280i think it's a real problem that nobody understands how pervasive and how dominant
00:08:25.660private equity is now yeah so you know if we want to talk about culture even in the narrowest terms
00:08:33.400right like private equity owned taylor swift's first several albums yeah private equity owns
00:08:39.060a24 now which is like has always been like the cool indie movie makers right and then if you
00:08:46.140broaden it slightly from that, if you start looking for what private equity controls in your
00:08:52.840own life, you will find things that really horrify you. It is dictating how you live your life in
00:08:59.420ways that you don't know. And you don't know by design, because private equity wants to keep it
00:09:05.040from you, right? It doesn't like put it that doesn't paper over the sign and say, like,
00:09:10.020Bain Capital now owns your vet like that exactly I mean I've had several friends who for whom it
00:09:17.600took months to realize that their landlord was actually a private equity firm right because
00:09:24.040you're writing your rent check to a company not to the private equity firm right and it's only
00:09:31.180once you go digging that you see the layers and layers and layers of shell companies and you're
00:09:35.860like wait a second blackstone or carlisle or whoever it is is actually cashing my rent checks
00:09:42.140like that's bananas um i say in the intro to the book that i had a friend in brooklyn
00:09:47.540where i live who like within a couple of months realized that private equity owned her apartment
00:09:52.640building owned her children's nursery school and her primary care physician had just narrowly
00:09:59.240fended off an attempt from a private equity firm to buy that so it is like everywhere it's buying
00:10:06.000public utilities now like your electric company might very well be controlled by private equity
00:10:11.420firm um it's really a huge part of your life whether or not you know it and because you
00:10:18.980emphasize this in the book like there's a reason it's called private equity they don't have to
00:10:24.200report a lot of stuff like they're there's very little transparency about how decisions are made
00:10:30.820how profits are spread around like all this sort of thing like it's a very it's a black box in a
00:10:35.460lot of ways yeah they've gotten away with avoiding regulation that requires them to disclose
00:10:43.740a lot of information that other types of companies have to disclose yeah and so that makes it
00:10:49.880incredibly difficult to even tell who's in charge in a lot of cases, much less what is their business
00:10:57.940strategy, right? Did they make money or lose money last year? All of these kind of basic things that
00:11:04.120we take for granted that we can know about other types of companies. In a lot of cases, you just
00:11:10.400can't find out. I was looking into various hospitals, which hospitals are a big part of my
00:11:16.820book and um there are hospitals that I could not figure out which private equity firm owned them
00:11:25.120um and I'm like a professional reporter like I'm pretty good at this I know how to work public
00:11:29.960records but when the layers of shell companies go so deep it can be really really tough um
00:11:38.420and you know a lot of stuff doesn't get announced with a press release
00:11:42.400Yeah. And yeah, it's just like this brutal landscape. I mean, it makes it very difficult
00:11:47.900to report on, which I didn't know going in. But it also just if you're a person who lives in the
00:11:54.400world, and you want to know who controls your life. It's hard. Right. And the cost of your life.
00:12:01.420We're going to get a lot more into that, too, as we keep going. But I want to start with our
00:12:04.920questions. First question is from Libby. How is private equity supposed to work? It seems like
00:12:10.920we always hear when it goes bad but is there a time it has actually helped a business okay so
00:12:16.440I like this because I think it's very easy for us to just be like this shadowy cloud descended upon
00:12:23.360American businesses but like there's a reason why it was legal there's a reason why a lot of
00:12:28.320pension funds and like different like retirement funds like invest in it and it's not just because
00:12:33.100it makes money right like there is something about private equity that we was understood as like
00:12:38.040something that works. Can you explain this? Yeah. So I won't get too deep into the nitty
00:12:44.520gritty history. But what we now think of as private equity started in the 1960s with what
00:12:52.240they then called bootstrap deals, which were essentially buying small family owned businesses
00:12:58.260who had potential to expand, but didn't have the capital to do it. And then it was like, okay,
00:13:04.700now you have this huge infusion of capital you can go achieve whatever your dreams are
00:13:10.140that system like more or less worked and today private equity likes to say through their chief
00:13:18.320lobbying group that the majority of private equity investments are actually in small businesses are
00:13:25.260more like those 1960s bootstrap deals than they are toys r us or a major hospital chain or whatever
00:13:33.140it is that is true and by all accounts it seems like they are more successful in those deals
00:13:42.600but just because it is the majority of deals does not mean it is the majority of money
00:13:49.640and the majority of people affected so obviously the biggest acquisitions come with the most money
00:13:56.760So like, to me, it's a little bit of a tangential point to say most of our deals are in small businesses, because if you have a bunch of tiny deals in small businesses, and then some catastrophically bad deals in huge businesses, like, I'm not really sure it's much of a defense.
00:14:20.700well and the other thing that it makes me think of and we'll talk about this a lot more in our
00:14:24.380future questions is like an example that i've heard a lot is a couple of people came together
00:14:31.700and started a small business or a family practice or a veterinary practice or a dentist practice
00:14:37.480and they have been practicing for however long and they're ready to get out of the business and
00:14:41.780it used to be you'd pass this business down someone in your family find another partner
00:14:45.980whatever you'd sell the practice to another practicing dentist or vet but now if you have
00:14:52.200private equity which is willing to pay a lot so whoever worked so hard for this business
00:14:57.860is able to sell off the practice to private equity at a very like at a great price yes and then they
00:15:04.800don't have to think about it anymore right so if you are just looking for your retirement which
00:15:09.300especially i think there are people who like some of these fields are not as lucrative as we think
00:15:15.260they are right like there there needs to be more of a retirement plan like this is the way that
00:15:19.360they're going to retire for the rest of their lives they sell it off so it's a small business
00:15:24.420that private equity has helped but then that business is now run under the imperatives of
00:15:29.340private equity which is extracting as much profit as possible which may be like
00:15:33.500joe schmo veterinarian was not practicing under those same principles right totally it's i'm in
00:15:39.400a bunch of doctors groups on facebook that are like talking about the influence of private equity
00:15:44.240in medicine and it's always so fascinating to me because if you are a retiring doctor in private
00:15:50.160practice you will get so many private equity offers it's like mind-boggling and you know
00:15:57.560I'm not going to blame any individual person for taking the best offer to you know pad out
00:16:03.840their retirement savings like obviously um and I think a lot of people get into those situations
00:16:13.760hearing private equity firms say oh yeah don't worry nothing's going to change your patients
00:16:19.960are going to be in good hands yes and i can promise that that is not the case they are not
00:16:26.060interested in buying a small doctor's practice or veterinary practice or dental practice or
00:16:31.920whatever it is to keep it independent and keep it operating with the relatively small margins that
00:16:39.740you marginally successful private practitioner maintained. They are going to roll it up. And
00:16:47.320again, like people get to make their own choices. I'm not, I'm not convinced that an individual
00:16:52.380doctor has some moral obligation to make sure his practice stays running in exactly the same way he
00:16:59.840ran it. But if you are a patient of that practice, you should know that things are about to change
00:17:07.280and change really quickly. One thing I've heard a lot of tension in in these groups is younger
00:17:11.920doctors, dentists, veterinarians, practitioners, who there's no opportunity for them to build the
00:17:18.620same sort of thing, right? Their student debt is significantly more than let's say two, three,
00:17:23.780like 20, 30 years ago. And there isn't the same practice of like, okay, you're going to be brought
00:17:29.960in as a partner in our private practice, and then slowly accumulate like the stability of being part
00:17:37.000of a practice. Instead, it's like, oh, I'm part of this practice. And the senior partners just
00:17:41.680sold it off to private equity. And here I am left with the consequences, which make me a worse
00:17:46.480doctor. Yeah, no, I mean, I think the entire medical system changed underneath multiple
00:17:56.560generations of doctors, right? The guy I profile in the book is in his mid 80s. And it changed in
00:18:04.080between the time he started aspiring to be a doctor and the time he went into practice. And
00:18:09.400this was, you know, in the late 70s. So much less now when you're right, like student loans are
00:18:16.460are brutal residency slots are so competitive. There's, we have this weird tension where there's
00:18:22.480a massive shortage of doctors, but also the number is kept artificially low by the residency slots.
00:18:28.860And so if what you went into medicine to do is like be a community doctor in the old school framework, that's pretty tough to pull off now.
00:18:45.320Even if you move the doctor, my book moved to a rural community in Wyoming, being from Texas, because he specifically wanted to work in rural medicine. And he still ended up working for one of the largest private equity firms on earth. Like it is so difficult to avoid. And that is not the creation of private equity, right? Like, it's not like they said, Oh, look, we can undermine our medical system in all these ways.
00:19:15.200Like we have a deeply broken medical system and private equity realized they could take advantage of that for their own gain.
00:19:24.120But I think it's really, you know, I spend a lot of time in the first hospital chapter of the book kind of tracing this history because I don't think you can really understand how private equity came in without understanding like the ways in which this system got all borked to begin with.
00:19:43.280Right. And I think one of the promises, too, is like economies of scale that like, OK, if we own a bunch of practices, then it will make things like accounting easier or buying equipment easier so that you can see how there is a reason that some places would need private equity.
00:20:00.940like oh yeah right yeah it sounds great in theory right so in the two hospitals in wyoming that i
00:20:08.220write about the private equity firm came in and said look we're just gonna like centralized billing
00:20:13.500centralized it all of those services where you don't necessarily need them to be based on site
00:20:20.380and that will free up so much money for you to do patient care and what happened was they did
00:20:28.140centralize all those things but they also stripped the patient services from the hospital so we went
00:20:34.860from it and billing were off-site to all of a sudden oh you can't deliver a baby at your local
00:20:42.700hospital anymore yep like you have to drive 35 miles away possibly in a wyoming winter um because
00:20:51.320baby like delivering a baby is not like cost effective right oh yeah no we're in the city
00:20:57.500care is a massive money loser. And it's like, those are the terms on which private equity firms
00:21:04.820think. And if you're like a person who's trying to have a baby, that's the furthest thing from
00:21:10.040your mind, right? You just want to like safely deliver a baby. One of the craziest statistics
00:21:15.740in the entire book to me was that after the private equity firm took over, the number of
00:21:21.620medevac flights out of that county in wyoming increased 900 because they couldn't do almost
00:21:29.740anything at the local hospital anymore so all of a sudden you know anything that was acute but
00:21:35.680should be treatable locally they had to get you out yeah to a bigger city and so it's just like
00:21:42.060talk about like inefficiencies yes exactly and who pays for the cost of the medevac and i mean
00:21:49.280some insurance does cover it but not all right no definitely not all and like if you're on you
00:21:55.120know a disproportionate number of rural residents are on medicare and medicaid yep and if you get
00:22:01.060life flighted out in that situation like probably that bill is going back to the taxpayers in some
00:22:08.560form so it's like really like like who's paying for private equities profits it's like yeah the
00:22:15.420taxpayer yeah no truly it like makes no financial sense for anybody other than that one firm yeah
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00:26:33.980you. Okay, so next we're gonna, we're gonna do a it's a question that was the result of me
00:26:45.000accidentally saying in one of our calls for questions, I put venture capital instead of
00:26:51.040private equity. And I quickly fixed it. But I do think that sometimes these terms get a little
00:26:57.440mixed up in people's heads. So let's read the question and then we can talk a little bit more
00:27:01.420about it. This is from Becca. How are venture capital and private equity different? They seem
00:27:06.260bad in similar ways. Did private equity kill Joanne Fabrics and childcare? How can we stop
00:27:11.980the omnivorous private equity machine. So I feel like you and I are uniquely equipped to talk about
00:27:17.240this, having you worked at a journalistic outlet that was killed by private equity. And I worked
00:27:23.020at one BuzzFeed that has been excavated of its heart and soul by the demands of venture capital.
00:27:29.880Yeah. So I do think that they are very different in many key ways, but also
00:27:35.080the end result is often the same. What do you think?
00:27:38.820Yeah, I mean, I'm always glad when people ask this question, because it is maddening to me when people are like, look, private equity killed this thing. And I'm like, so no, that's venture capital. Not to defend venture capital, but they do work pretty differently.
00:27:53.320So the basics are that in the case of venture capital, VC firms invest in, you know, usually early stage companies, and then they expect huge returns, right?
00:28:08.960The common link between venture capital and private equity is you have to grow, grow, grow, grow, grow.
00:28:14.700But in the case of private equity, companies are being bought outright. And so that means that rather than I'm a CEO, and I'm responsible for providing returns to my investors, if I'm a CEO, I'm not in charge of the key business decisions, the private equity firm that employs me is in charge of the decisions.
00:28:38.400And so the other problem is that in venture capital, you make investments and you're fully
00:28:45.860cognizant that you may lose that investment, right? You're pressuring your CEO to make all
00:28:51.980sorts of decisions to ensure that you don't lose your investment. But in the case of private equity,
00:28:58.780most of that money is not from investors themselves. The vast majority of that money
00:29:05.480is loans and the loans come from all sorts of you know banks investment banks whatever but that
00:29:13.540those loans are assigned not to the private equity firm who made the decision to take them out but to
00:29:22.160the portfolio company yeah so if i want to buy the culture study podcast and i am a private equity
00:29:28.360firm. I'm like, great. I'm going to pay $1 million for this. I'm going to borrow $800,000
00:29:35.260to buy it. And if it goes under, not my problem, because only the employees of the Culture Study
00:29:42.820podcast are responsible for paying it back. Right. This is the thing that like, absolutely
00:29:47.820blew my mind when I first came to understand it. And I think the first time I understood it was
00:29:51.680when I read the case study of Toys R Us a while ago, that like, oh, you buy it and then you saddle
00:29:57.460it with debt and then of course it goes bankrupt yeah like duh you sell off all of its stuff you
00:30:04.380all the good stuff for parts and then it has all of this debt as well yeah toys r us was really
00:30:10.140the one that got me hooked on this too because what happened was toys r us was acquired for like
00:30:15.960six billion dollars and i don't remember the exact number but roughly five billion dollars of that
00:30:22.540was debt that was only toys r us was responsible for it so then they sold off toys r us as real
00:30:29.060estate and when toys r us went under the private equity firms were sort of like shrug i don't know
00:30:36.400amazon and it is true that it was harder for toys r us to operate in the age of amazon but it is also
00:30:42.840true that they never really tried there were no innovations or even basic store improvements
00:30:49.980happening even when like everybody could see that all of these basic steps needed to be taken
00:30:56.020and the reason that the steps weren't taken was because there was literally no money because they
00:31:01.140were buried under debt um several years into uh their private equity ownership toys rs had shaved
00:31:09.420off like one million dollars off of their five point whatever billion dollars of debt like the
00:31:17.400interest payments alone were just crippling them yeah you can't dig yourself out of that hole
00:31:22.500there's just no way no no it's like I mean it's like student debt right it's like yeah yeah yeah
00:31:27.660of course you never get out of it like the interest payments alone eat up half your monthly salary
00:31:32.040right I think like if we if we want to explain to listeners some of how like the larger buckets
00:31:38.540that these like venture capital funded stuff versus private equity acquired stuff even that
00:31:44.180idea like funded versus acquired like private equity acquires existing businesses and then
00:31:50.980puts profit imperatives on them that turn them into a certain type of business that is very
00:31:56.100like is profit-minded like the the idea that like providing pregnancy services is not a good
00:32:02.400money-making strategy right like that's at the heart of it and then venture capital it's a new
00:32:07.240company yeah and oftentimes and this happened with buzzfeed right like you pump a lot of money
00:32:12.940into it with the hope that like okay we're gonna grow really really really really big and then
00:32:17.140we're gonna make a ton of money yes but at some point that runway runs out yes no totally and then
00:32:24.940what do you do right I mean the venture capital thing is like these are the new hot exciting
00:32:29.940things right and I never worked at BuzzFeed but I sure remember the moment where like BuzzFeed was
00:32:34.780going to transform the media industry and like BuzzFeed was swallowing up like every journalist
00:32:40.640on earth right um and I didn't work there but I sure did talk to them about jobs multiple times
00:32:46.180because for a hot minute there it was like that's where all the jobs were and private equity on the
00:32:51.820other hand is like the opposite where they're like taking over these distressed assets and claiming
00:32:57.600to save them um so it's like newspapers like local newspapers yeah I mean local newspapers are a huge
00:33:04.700one um that's another big focus on my book um and it's like right it local newspapers were the very
00:33:11.960opposite of buzzfeed right like buzzfeed came through with this hot new strategy and local
00:33:19.040newspapers still hadn't adapted to the rise of the internet like in basic terms so when private
00:33:25.800equity came in there it was like i mean on one hand like oh no this is going to be really really
00:33:32.380bad. On the other hand, it was sort of like, well, who else would like these publications have made
00:33:38.760such catastrophically bad business decisions that they all but ushered private equity in the door.
00:33:45.920Well, and here's where we get to like the common middle, which is that if you look at buzzfeed.com
00:33:50.660today, and like the website of a local newspaper that's owned by a chain that is owned by private
00:33:56.140equity, they look somewhat similar, and that there is like a lot of AI generated stuff,
00:34:01.140there's a ton of ads clogging everywhere there's like no attention to the reader experience or like
00:34:06.940an attempt to create loyalty or do journalism right like they they have in order to only
00:34:14.080generate profit because that with buzzfeed as well now they have to like figure out what are
00:34:17.720our profit centers it's the lowest common denominator yes totally no that's such a good
00:34:23.060point i had never thought of that but you're right they like sort of end in the same place
00:34:28.660when they go really wrong like yes there's this phenomenon of ghost newspapers which are
00:34:34.020local newspapers that continue to operate but literally employ zero staff um but they can make
00:34:41.140money because there are some advertisers still coming in and there are some folks you know
00:34:46.180granted exclusively older folks at this point but there are still some folks who are so loyal to the
00:34:52.960concept of a local newspaper that they'll never stop subscribing even when it's literally not
00:34:58.680giving them anything um and it's just it's kind of it is like i like the phrase ghost newspapers
00:35:07.480because it is kind of creepy it's like buzzfeed was this massive thriving organization that was
00:35:18.660providing content on basically anything you could dream of and a local newspaper was like once
00:35:26.000completely invaluable to its home community as a source of local news and then in both cases like
00:35:34.500they're literally all gone right and like deadspin now is directing people to like online slot
00:35:41.740machines yeah Maltese gambling yeah it's like funny but it's so sad it's so sad no it's so sad
00:35:50.480I mean the Deadspin thing is so sad because like there was a couple of year period in between
00:35:56.220everybody from the staff that I was part of quitting and it being sold to a Maltese gambling
00:36:02.160company where they were like no no we can totally bring it back and it's like no you can't like
00:36:07.800nobody read it like this was a site with like 20 million unique visitors a month off of a staff of
00:36:15.66020 people like that's crazy deadspin was punching so far above its weight and the idea that like you
00:36:23.120could lose the entire staff and like just hire like five new people who just like write words
00:36:33.660just like right words right not funny i mean not interesting not bombastic like not any of the
00:36:40.560things that people understood as like what made deadspin work right i mean that was the thing it
00:36:45.180was like some people were calling the new deadspin staff scabs and they understandably took unkindly
00:36:53.540to that because like they took jobs that were posted um but the bigger thing was like it was
00:36:59.340just terrible on one i think i tweeted at one point that like honestly being sold to the
00:37:06.100maltese gambling company seemed less depressing than like doing the weekend at bernie's thing
00:37:13.080with the corpse like at least now we're all on the same page that it doesn't exist anymore
00:37:18.980but the number of years it took people to get there was um a little depressing well private
00:37:25.660equity doesn't see art it doesn't see experimentation it doesn't see creativity
00:37:32.680like all of those things are not they don't understand them as profit centers even when
00:37:37.600they are the thing that actually animates a company right or that like makes a vet practice
00:37:43.040invaluable like yes i think that was really one of the core issues with the deadspin acquisition
00:37:49.220was that they had no understanding of what made deadspin deadspin and so their theory was
00:37:55.200well okay we're looking at ESPN ESPN is orders of magnitude bigger than Deadspin so we want to be
00:38:01.940ESPN it's like wait a second hold on like there are so many things wrong with that theory and
00:38:07.820literally like I would say to them like well you know like part of the reason ESPN is so much
00:38:12.360bigger is because they employ literally thousands of people and part of the reason they're so much
00:38:17.260bigger is they have rights to broadcast professional sports games are you trying to get Deadspin to
00:38:24.280the point that it is broadcasting professional sporting events because that's like a wild
00:38:30.080ambition and on one hand i sort of saluted on the other hand like that's bonkers that's truly nuts
00:38:37.160um and so like they just hadn't like thought of it they could only see we like big yeah yeah yeah0.98
00:38:46.980and so like yeah it was just oh man it was maddening because it felt so stupid yeah that's0.77
00:38:55.860the thing you're like I'm a journalist not a business person and I can see that this is very0.97
00:39:00.500dumb right exactly like telling us to cut the stuff that drives the most traffic like what
00:39:07.660what did they want to cut I'm trying to remember oh they wanted to cut every all non-sports content0.97
00:39:13.400right and you're like no this is what it's like people right it was it was only 10 percent of our
00:39:19.460total story output and it each like on average each non-sports article generated twice as much
00:39:26.760traffic as the sports article so it's like okay I guess like maybe you can make an argument about
00:39:34.100like consistency of identity or whatever but literally how are you going to make up the KPIs
00:39:40.500right yeah um like just basic stuff okay so this next question will help us get into the the0.97
00:39:48.380stupidity of it all um and about just the why would you take it a successful business this0.97
00:39:54.200comes from claire i loved beauty counters products i was so sad when the company seemingly out of the0.99
00:40:01.060blue announced it would be shutting its doors beauty counter was sold to carlisle who changed
00:40:06.500the business model and subsequently ran the company into the ground. Why would a private
00:40:11.080equity firm radically change the business model of a successful company? It seems like hubris in
00:40:16.400the extreme. All right. So how do you think of an example like this one? Okay. So there's several
00:40:23.360things here and the beauty counter story was like a legendary disaster. Multiple Carlisle
00:40:30.740executives called it the worst deal of their entire career. So it really was a nightmare.
00:40:38.820One was that private equity is always sort of towing the line between distressed assets,
00:40:47.300but like, maybe they'll fail immediately. Right. And so in the way, can you define what you mean
00:40:54.960by distressed assets. Yes. So distressed assets, you know, is not a technical term. But basically,
00:41:01.880it's it's a business that is struggling for some reason. And private equity loves distressed
00:41:09.280assets, they say because they can come in and turn them around, you know, we're the turnaround
00:41:14.780specialists, we're the superheroes who can save the business. Realistically, it's because they
00:41:22.140can sell off many of the assets like the real estate cut a bunch of costs um lay a bunch of
00:41:29.540people off and sort of cut costs without growing the business but but increase profit margins
00:41:37.980just by cutting costs alone yeah um so for years retail was very fertile ground for private equity
00:41:47.300They loved retail. Toys R Us was one of only many huge, huge American chains that private equity took over, and one of many huge American chains that was driven into the ground by private equity.
00:42:00.600more recently private equity has discovered that in their opinion retail is essentially too far
00:42:10.560gone and so they've gone they've pulled back from retail entirely so beauty counter was actually
00:42:18.660carlisle's last deal in the retail space and as soon as that one started going badly they got out
00:42:27.480of retail entirely um so very very very few private equity firms will touch retail at all
00:42:35.620anymore and they started turning more toward housing hospitals businesses that are seen to
00:42:43.480be sort of recession proof industries yeah um the other thing but but beauty counter there must have
00:42:50.260been something like even though this listener thinks that the business model was super successful
00:42:56.060like they probably weren't turning as much profit like there was some sort of fundamental weakness
00:43:01.300that made them vulnerable to like i think of it as like a wounded deer like private equity smells
00:43:07.200blood right yeah so the beauty counter story part of what's weird about that one is it was a clash
00:43:15.640of two very classic american forms of capitalism one was private equity and the other was mlms
00:43:22.660um beauty counter was a people react poorly to the phrase mlms but that's what it was it was a
00:43:31.800tiered system where you have people working for you selling products and your commission depends
00:43:37.260on the people below you selling product mlms don't tend to be very sustainable businesses
00:43:45.280yes so it seems basically true that beauty counter was doing well at the time at which carlisle
00:43:53.960bought it but i think carlisle probably correctly saw that there was sort of a ticking clock on that
00:44:01.780and what happened was and you know i have not reported on beauty counter directly but i have
00:44:07.700read a lot about it and what happened was beauty counters fate sort of turned immediately after the
00:44:16.600acquisition even before anything had changed right so like they lost a lot of consultants
00:44:23.400because people who had started doing it during the pandemic then decided they wanted to do other
00:44:30.240things so they were sort of at the top of their game when carlyle bought them which is unusual
00:50:58.980It's so disheartening and depressing to see the damage to important care industries like veterinary care and nursing homes done by private equity. What kind of legislation could exist that would be able to curtail or stop this type of business model?
00:51:12.860So I think first, let's just underline, we've talked about this a bit, but what are the
00:51:18.240effects of private equity acquisitions on the care industries?
00:51:40.040So there have been studies in hospitals that show the rate of preventable medical errors goes significantly up when private equity comes in.
00:51:51.160There's been a lot of good reporting about autism therapy practices and how, you know, these are often parents who find themselves sort of desperate for solutions to help their child.
00:52:05.660and they find a place that they're happy with and then private equity comes in and their care gets
00:52:13.060a lot worse um people are also you know seeing much higher prices um that's definitely true
00:52:21.760in dentistry and in um veterinary care uh it's absolutely correct that the price of vet care
00:52:28.400goes so far up when private equity comes in there's this very like trendy chain of vets
00:52:36.160in new york where i live um that is private equity owned and i don't think most people
00:52:42.100know that it's private equity owned but people know of it as the expensive vet and i'm like
00:52:47.060yes you know why it's the expensive vet it's because they're owned by a private equity firm
00:52:53.260and we should talk about why it's expensive too because i think i mean part of it is that they're
00:52:57.620pushing services that cost extra money onto you like i think of at the dentist whenever you have
00:53:03.360someone like really pushing teeth whitening oh yeah it's like oh yeah because that is a profit
00:53:08.120center for this dentist practice um or they can make more money from the vet practice if they pay
00:53:15.460the vet techs less right which means if they're someone's getting paid less and they have to work
00:53:20.720more hours like the burnout levels are higher and so you get worse care this is why there's like
00:53:26.440incredible really devastating like rates of depression and suicide amongst vet workers like
00:53:33.220then none of this is disconnected when you turn something into like an exploitative
00:53:36.660profit center like there are ramifications not just on the people who are receiving these services
00:53:41.880but the people who are offering them yeah exactly i mean staff gets cut um in a lot of cases like
00:53:48.780supplies get cut there have been a lot of horror stories from nursing homes hospitals etc about
00:53:55.080um not having enough basic supplies to do you know the procedures they need to do for patients
00:54:03.240which can obviously be an incredibly bad thing and then it's also just like you start
00:54:09.560charging more money for the same stuff right and I think veterinary care is a particularly
00:54:17.940interesting example to me especially when it happens in places like New York City where I live
00:54:23.860you and I are both like adults with dogs who are obsessed with their dogs and who don't have
00:54:30.540children right and so like when it comes to do our dogs need a medical procedure like we will
00:54:37.900spend as much money as we have like I will empty out my bank account to take care of my dog and
00:54:44.540private equity loves that right because if a three thousand dollar procedure yesterday is a
00:54:51.740$5,000 procedure today, I will be very upset about the fact that it is $5,000 and I will also
00:54:58.300find a way to pay $5,000 because that's what my dog is to me. On the other side of the coin in
00:55:04.380things like autism therapy, nursing homes, etc. It's sort of a different kind of desperation where
00:55:12.160there aren't enough of those kinds of practices for the number of people who need them. And so
00:55:17.820you do end up with people who are just desperate for solutions and will pay whatever they can and
00:55:24.860more you know there are horrible stories of people driving themselves into massive debt bankruptcy
00:55:32.280financial ruin trying to pay for one of these specialized types of treatments and so
00:55:41.220So that all adds up to make it very, very, very attractive to private equity. And it's sort of a brutal reality that right now there is no good way of stopping that.
00:55:58.540um in terms of solutions there are several things I am like not an activist on this and really
00:56:08.240didn't want to go into prescriptive mode in the book oh and did your editor make you because that
00:56:13.720has happened to me no I mean I think I think I stayed away from actual prescriptive writing in
00:56:21.220the book um but i did spotlight people who are trying to do something about it yeah yeah and so
00:56:29.460the the solution most people think of first is regulation um elizabeth warren has proposed a
00:56:40.420bill called the stop wall street looting act several times now um for the first time in 2018
00:56:46.740I believe. And that will never pass unless there is a dramatic change in who is in Congress,
00:56:54.740because this is not a Democrat Republican problem. Nobody on either side of the aisle right now
00:57:02.140has any incentive to do anything to seriously regulate private equity. And I mean, the Warren
00:57:08.280Bill is is radical. I mean, it would essentially regulate private equity out of existence,
00:57:13.380which i think a lot of people are sort of like that's too far for me so that's the most radical
00:57:21.720solution is you could regulate it out of existence if you changed who was in congress
00:57:27.420there are a lot of smaller bills often on the state level that often grow out of crises so
00:57:37.460there have been two recent bills to just bring a little more scrutiny to private equity deals in
00:57:43.680healthcare, one in Pennsylvania and one in Massachusetts. And both of those grew out of
00:57:49.560just catastrophic failures of hospital chains that left a lot of patients out in the cold.
00:57:55.800Yeah. I mean, Massachusetts is very, very, very blue. And Pennsylvania is a little
00:58:00.580more borderline, but is still more democratic than a lot of states. And so things can work
00:58:07.740there that can't work in a lot of other states. And even so, in those two cases, they only came
00:58:15.820after a catastrophe, right? So they didn't stop the catastrophe from happening. But I think there
00:58:23.700is an increase in the number of people thinking about this in a serious way and thinking about
00:58:31.360what solutions might look like and some of those steps like what has happened in Pennsylvania like
00:58:37.300what has happened in Massachusetts are meaningful and could show other people potential partial
00:58:44.180solutions but then I think a lot of the work is just in reinventing industries and that is exactly
00:58:50.820the long, slow, hard work that private equity firms aren't willing to do. And frankly, a lot
00:58:57.300of other people aren't willing to do either. So we talk about local media. And it's like,
00:59:03.100local newspapers got themselves into their own mess, right? They opened the door for private
00:59:08.460equity, and then private equity came in and sort of profited off the remains. And the only way to
00:59:17.480deal with that you know no no law is going to help you with that or very few laws are going to help
00:59:24.000you with that and if they are it's only going to be in combination with all of these other steps
00:59:30.880right so because like the law could regulate the ability for the equity firm to acquire this
00:59:38.560newspaper but it couldn't restart a newspaper exactly right right and so the character who
00:59:45.700is the focus of the media section of the book has become part of this wave of local startup
00:59:53.780nonprofit newsrooms and that's something that's just like genuinely interesting to me not because
01:00:00.680it's a silver bullet but because in a lot of communities it is bringing some sort of local
01:00:06.640news back when they haven't had them in years or maybe over a decade right and so that's like
01:00:14.920genuinely kind of exciting but that is tough work and usually requires like a couple of like
01:00:23.140benefactors oh yeah which you know like this is not unprecedented in our nation's history right
01:00:29.620like the idea of a hybrid model of like wealthy benefactor then like you build a subscription
01:00:37.240and trust model that like makes it so it's not entirely dependent upon like wealthy benefactor
01:00:42.180Totally. And it's also not uncomplicated, right? Like, we have seen at the Washington Post, the potential problems with having a billionaire who you believe to be a benevolent billionaire in charge. So it's, it is definitely not a silver bullet. And there are all sorts of other interesting experiments happening in the media industry.
01:01:06.300And I think realistically, it's just going to have to be a combination of a bunch of different things. If people want to be serious about pulling industries like that back from the brink, it's harder to reinvent an industry like healthcare or housing, because they're so tied in with regulation, right?
01:01:27.540it's like it's just harder to reinvent how hospital care works but even there i mean
01:01:35.160the last chapter of the hospital section of my book i won't fully spoil what happens because
01:01:41.680i think it's like the most dramatic reveal in the entire book but some just like local wyoming
01:01:50.460residents set their minds on doing something absolutely audacious, and they pulled it off.
01:01:58.940And they're very clear-eyed about the idea that their audacious solution cannot be everybody's
01:02:03.820audacious solution. But they're very much like, right, but you have to think about audacious
01:02:09.060solutions. And only you can think about what audacious solutions work in your community.
01:02:15.240The way to combat private equity is to move in the absolute opposite direction, where instead of big decisions being made by a faceless group of executives hundreds or thousands of miles away, they have to be made at the community level and then acted on from there.
01:02:34.620I even think of the example of what was born of what happened with Deadspin with Defector, right? Like, instead of private equity, you have a writer-owned cooperative. Like, it's so beautiful.
01:02:47.760Yeah, no, exactly. I mean, my pals and former colleagues who founded Defector, like, that was a totally crazy idea. Worker owned media basically did not exist at that moment. And they did it, right? And now some other folks have done it too.
01:03:06.020And like, I am very clear eyed about the limitations of something like worker owned media as a solution for everything. I think it would be very, very difficult to make that work in local media outside of New York City, where it's working quite well with Hellgate, one of my favorite sites on the internet. But there are a lot of communities that cannot support that that desperately need coverage, right, need coverage much more desperately than New York City does.
01:03:34.520but it's something right it is like people trying something and showing that it can be done
01:03:41.820and coming up with a solution that maybe even if it doesn't work for everybody it works for
01:03:49.940somebody um and that's really valuable yeah i just keep thinking about the fact that there
01:03:55.880are some industries that should not be understood as profit centers yeah like child care it cannot
01:04:02.760be made into a profit center like we are trying to but just the way like it's not a thing that
01:04:09.620can operate at like massive efficient scale because you're dealing with small children
01:04:15.260who need like the ratio of supervision to kids is just such that like right yeah so what happens
01:04:22.720when something can't be a profit center we have to support it as a public and so what's the like
01:04:27.840there's this tension I think between like no we don't necessarily want to live in a country that
01:04:32.860every single thing is publicly funded yeah or maybe we do but maybe maybe like an ideal scenario but
01:04:39.640but how do we ascertain how do we have the wisdom to understand what things how to fund things that
01:04:46.040cannot be profit centers how do we fund those things I mean if you have the answer to that
01:04:50.700I know that's our great imagination we're going forward when are you running for senate
01:04:55.940Um, yeah, I think it's so tricky because the, a lot of the sectors where private equity sees the greatest profits are the ones that are hard to be sustainable on their own.
01:05:10.740um so i mean hospitals for example like the problem with solving health care in this country
01:05:19.620is it so fundamentally messed up that you sort of have to burn the entire system down
01:05:28.220and start again from scratch and how do you do that when there are like 300 million people
01:05:34.020like already relying on it right i do think it's really important to be clear about the
01:05:40.820problems that private equity did not create but that they are perfectly happy to profit off of
01:05:47.880and so yeah child care is another one it's like we don't live in a country that believes that
01:05:54.840you should be able to access child care no matter your income strata like that sounds i think to a
01:06:01.420lot of us like a crazy fact but it is just the fact of the matter we do not live in that country
01:06:06.980yeah and so i mean i guess theoretically in that case more easily than in hospitals
01:06:15.500congress could say okay nursery school preschool whatever is free now that essentially happened
01:06:22.680in new york city where 3k for three-year-olds became free because the mayor just like declared
01:06:29.560it to be free yeah it's hard for me to imagine that happening on the federal level right so
01:06:35.920then it's like well if you're lucky enough to live in one of the places that does you know
01:06:43.300adopt that ethos then great for you but for the rest of you like sorry i just love your idea your
01:06:50.520point from earlier that like the way we combat it the way we rebuild from it is by coming up with
01:06:58.400vibrant creative ideas and they're different and they can't they're like every single place every
01:07:04.500solution is different but like they demand you know people doing that work and this is the thing
01:07:11.040that like I think depresses me is that oftentimes people are so burnt out from dealing with private
01:07:18.600equity owned spaces yes that doing that creative work that creative generative community-based work
01:07:26.760is feels impossible so we find ourselves in this quagmire of like well if i didn't have to deal
01:07:32.860with all of this shit then maybe i could figure out a solution but like here i am paying like0.76
01:07:37.400trying to work enough so i can pay my vet bill yeah i mean we haven't talked as much about housing0.98
01:07:43.360in this conversation but um that's one of the other one of the four industries i write about
01:07:48.860in my book and the protagonist of the housing section who was a tenant at a very large apartment
01:07:56.100building in Northern Virginia that was taken over by a private equity firm. She really went head to
01:08:05.380head with the private equity firm both while she lived there and afterward, which is really
01:08:11.140amazing to me because it's like, you know, she doesn't make a ton of money. She has two kids.
01:08:16.780She's like trying to work and support a family and take care of her kids and all of these things.1.00
01:08:21.700and like she doesn't need more problems right and she's just like a firecracker she is one of the0.88
01:08:30.300most impressive humans i've ever met um she when she believes in something she will just fight and
01:08:38.900fight and fight for it but she has been repeatedly frustrated by her inability to get that many other
01:08:45.460people fighting with her yeah even though she realizes like in a lot of cases these are people
01:08:51.300who are more vulnerable than she is right like the apartment complex she lived in was a huge number
01:08:59.020of very recent immigrants mostly from africa and it's like their housing situation may very well
01:09:06.620feel tenuous enough that confronting their landlord is the last thing they're going to do
01:09:14.380right people just like have other problems um what's the reason i focused on the four people
01:09:22.060who i focus on in the book is because they are the exceptional ones who just said we don't care
01:09:30.300we're you know we are passionate enough about fighting this to do it come hell or high water
01:09:36.140um not everybody can be like that but isn't it great that there are a few people who are like
01:09:47.280that I think that's a great place for us to end I would really really strongly recommend the book
01:09:53.960it is so accessible and as you said like there are these stories that really make
01:09:59.320the effects the machinations like it makes it real in a way that is very compelling um and also
01:10:08.380hopeful ultimately so anyone who's listening just go out and get a copy um megan where can people
01:10:14.380find you on the internet if they want to hear more from you i'm greenwell on blue sky um i'm
01:10:19.920me greenwell on instagram those are sort of my main points of uh communicating with the world
01:10:27.660Um, and also you can order the book wherever, wherever you find books.