In a late contender for understatement of the year, Sam Bankman-Fried yesterday told an audience that he “had a bad month.” Wall Street traders have jumped out of windows for less so I kind of respect his positive attitude. Let’s all take that same energy into December, and if we lose less than $10 billion, we can say we had a good end to the year.

The lowdown

• 📉 SBF attempts to explain the collapse of FTX at a New York Times event.

• 🏦 Wall Street finishes the month with a rally after Jerome Powell signalled further rate rises but at a slower pace.

• 🎵 Spotify CEO joins Musk in attacking Apple's 30% cut on transactions occurring through the App Store.

Flex your finance muscle 💸💪

On Thursday last week, we took a deeper dive into SPACs and the mechanics of SPAC redemption rights. You can jog your memory here.

Today we are looking at:

SPAC voting incentives

A SPAC is structured to perfectly align the incentives for all investors to vote in favour of the Initial Business Combination (IBC).

• Ordinary SPAC investors – when you purchase a unit in a SPAC, you receive both a share and a warrant. Even if you redeem your share, you hold onto the warrant which encourages you to vote in favour of the IBC. The warrant is akin to a risk-free bet that pays out if the SPAC is successful.

• Sponsors/Promoters – they typically take a 20% stake in the SPAC for minimal investment. They are incentivised to get ANY deal done because 20% of a company whose share price craters after IBC is still preferable to liquidation of the SPAC.

• Those who put up ‘at risk’ capital – This group may or may not include the SPAC sponsors. They have put up the capital required to get the deal done, including paying costs such as listing fees and due diligence on potential companies. Like the sponsor, this group would prefer any deal to no deal.

Because of these very strong incentives, SPACs generally see an overwhelming majority in favour of an IBC, regardless of individuals’ beliefs about the merits of a particular company.

One thing sponsors do risk is their reputation, as Chamath Palihapitiya, once dubbed ‘The SPAC King,’ is finding out.

Featured stories

Football club finances part 2

Michael Lewis’ book Moneyball talks about the challenges of running a profitable sports team when some owners see their role more as a public good than as an investor in a business. What is true in baseball appears to be true in football too.

We mentioned yesterday that the spending required to remain in the topflight of football is immense and so profits are hard to come by. Given this, are the public markets really the right place for football clubs? ($).

Italian Serie A club Juventus is listed on the Borsa Italiana. Its share price faltered this week when the entire board resigned after accounting irregularities were identified by CONSOB – the Italian securities regulator. The issues relate to the way the club accounted for players’ salaries and ‘loyalty bonuses’. There are also questions around the capital gains made on player transfers.

Juventus made a net loss of €254 million in the 2021/22 season. Unfortunately, for fans and investors alike, this sizable loss was not enough to guarantee success on the field, with the club finishing fourth last season. Investors may sell but fans will have a harder time disposing of their allegiances.

The content we're consuming today

• Acquired: The Complete History & Strategy of Enron – In the wake of the FTX collapse, this podcast adds to the conversation by looking at its parallels with the collapse of Enron.

• The New York Times: An Italian Village Hit the Jackpot. Will That Save or Destroy It?($).

Off-balance sheet items

• The 31st edition of Deloitte’s Annual Review of Football Finance came out in August and contains some really interesting insights – for instance, the expected additional revenue for a club moving from the Championship (secondtier league) to the English Premier League is at least £170 million over three seasons.

The bottom line