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Trump Pushed for a Sweetheart Tax Deal on His First Hotel. It’s Cost New York City $410,068,399 and Counting.

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Andrea Bernstein reports in ProPublica:

In 1975, New York City was run-down and on the verge of bankruptcy. Twenty-nine-year-old Donald Trump saw an opportunity. He wanted to acquire and redevelop the dilapidated Commodore Hotel in midtown Manhattan next to Grand Central Terminal.

Trump had bragged to the executive controlling the sale that he could use his political connections to get tax breaks for the deal.

The executive was skeptical. But the next day, the executive was invited into Trump’s limousine, which ushered him to City Hall. There, he met with Donald’s father Fred and Mayor Abe Beame, to whom the Trumps had given lavishly.

Beame put his arm around the Trumps. “Anything they want, they get,” Beame said, as recounted by Trump’s first biographer, journalist Wayne Barrett.

Trump got an unprecedented 40-year tax break. According to new figures given to us by the New York City Department of Taxation and Finance, the break has cost the city $410,068,399.55 in forgone revenue to Trump and the hotel’s subsequent owners. The break ends this April.

In “The Art of the Deal,” Trump said there was a reason for the 40-year deal: “Because I didn’t ask for 50.”

Trump got it over the misgivings of some state officials. The former chairman of the state economic development agency, Richard Ravitch, recalled in an interview that Trump approached him in December 1975. Trump, who had ties to Gov. Hugh Carey, “started raising his voice, and threatening me, and said, ‘If you don’t give me a tax abatement, I’m going to have you fired.’ I said, ‘Get the fuck out of here.’”

Ravitch was not fired, but the state agency did approve the break. Trump has said the decision was made on the merits.

“Really the story of Donald Trump, rather than this Horatio Alger figure, this is a guy who managed to learn how to turn politics into money,” said Barrett during a 1992 WNYC interview, the same one in which he told the Beame story. (Barrett died on Jan. 19, 2017, on the eve of Trump’s inauguration.) . . .

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Written by LeisureGuy

22 January 2020 at 12:23 pm

The IRS Decided to Get Tough Against Microsoft. Microsoft Got Tougher.

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Paul Kiel reports in ProPublica how the US government has become an accomplice if not an errand boy for big business::

Eight years ago, the IRS, tired of seeing the country’s largest corporations fearlessly stash billions in tax havens, decided to take a stand. The agency challenged what it saw as an epic case of tax dodging by one of the largest companies in the world, Microsoft. It was the biggest audit by dollar amount in the history of the agency.

Microsoft had shifted at least $39 billion in U.S. profits to Puerto Rico, where the company’s tax consultants, KPMG, had persuaded the territory’s government to give Microsoft a tax rate of nearly 0%. Microsoft had justified this transfer with a ludicrous-sounding deal: It had sold its most valuable possession — its intellectual property — to an 85-person factory it owned in a small Puerto Rican city.

Over years of work, the IRS uncovered evidence that it believed laid the scheme bare. In one document, a Microsoft senior executive celebrated the company’s “pure tax play.” In another, KPMG plotted how to make the company Microsoft created to own the Puerto Rico factory — and a portion of Microsoft’s profits — seem “real.”

Meanwhile, the numbers Microsoft had used to craft its deal were laughable, the agency concluded. In one instance, Microsoft had told investors its revenues would grow 10% to 12% but told the IRS the figure was 4%. In another, the IRS found Microsoft had understated revenues by $15 billion.

Determined to seize every advantage against a giant foe, the small team at the helm of the audit decided to be aggressive. It used special powers that the agency had shied away from using in the past. It took unprecedented steps like hiring an elite law firm to join the government’s side.

To Microsoft and its corporate allies, the nature of the audit posed a dire threat. This was not the IRS they knew. This was an agency suddenly committed to fighting and winning. If the aggression went unchecked, it would only encourage the IRS to try these tactics on other corporations.

“Most people, the 99%, they’re afraid of the IRS,” said an attorney who works on large corporate audits. “The other 1%, they’re not afraid. They make the IRS afraid of them.”

Microsoft fought back with every tool it could muster. Business organizations, ranging from the U.S. Chamber of Commerce to tech trade groups, rallied, hiring attorneys to jump into the fray on Microsoft’s side in court and making their case to IRS leadership and lawmakers on Capitol Hill. Soon, members of Congress, both Republicans and Democrats, were decrying the IRS’ tactics and introducing legislation to stop the IRS from ever taking similar steps again.

The outcome of the audit remains to be seen — the Microsoft case grinds on — but the blowback was effective. Last year, the company’s allies succeeded in changing the law, removing or limiting tools the IRS team had used against the company. The IRS, meanwhile, has become notably less bold. Drained of resources by years of punishing budget cuts, the agency has largely retreated from challenging the largest corporations. The IRS declined to comment for this article.

Recent years have been a golden age for corporate tax avoidance, with massive companies awash in profits routinely paying tax rates in the single digits, or even nothing at all. But how corporations manage to do this and keep the IRS at bay is mostly shrouded in secrecy. The audit process is confidential, and the IRS, for all its flaws, simply doesn’t leak. Microsoft’s war with the IRS offers a rare view into how a giant company maneuvers to avoid taxes — and how it responds when the government tries to crack down. ProPublica has reconstructed the fight from thousands of pages of court documents, information obtained through public records requests and accounts from current and former IRS employees.

Microsoft declined to discuss its taxes in any detail. In response to extensive questions provided in writing, the company said it “follows the law and has always fully paid the taxes it owes.”


In 2010, the IRS announced that it was creating a new unit to audit international, intra-company deals. Tech, pharmaceutical and other giants had figured out how to use these dubious deals to avoid taxes on a colossal scale. It was hardly a secret: News articles had detailed how GooglePfizer and others saved billions. Senate hearings ensued.

Despite the publicity, nothing changed. The trend, which had taken off in the 2000s, intensified. The losses to the U.S. Treasury in uncollected taxes ran well into the hundreds of billions of dollars. In 2016 alone, according to an estimate by economists including Gabriel Zucman of the University of California, Berkeley, U.S. corporations avoided $61 billion in taxes by sending profits to tax havens.

The concept was simple. A U.S. company sold its most valuable asset — for a tech company, its intellectual property — to a subsidiary in a place (Ireland, Singapore, Puerto Rico, etc.) where the tax rate was extremely low.

The details of these deals were monstrously complex, making it difficult for the IRS to prove they were done solely to dodge taxes. Essentially, the IRS had to argue that the company had set the wrong price for its intellectual property. And to do that, the agency had to understand the company, its markets and its prospects top to bottom. It was a near-impossible task, and the IRS suffered some key losses in court, which only emboldened companies to stake out even more aggressive positions.

In 2011, the IRS picked Samuel Maruca to lead the new unit. A partner at the prominent law firm Covington & Burling, Maruca had spent decades advising corporations on “transfer pricing,” as this area of tax is called, and facing off against the agency on audits. He came to the job, he said, to help fix a broken system.

Maruca is the picture of a tax lawyer (thinning hair, glasses). But unlike many of his colleagues, he expresses himself clearly, sometimes in moral terms. He told peers at industry conferences that the nation’s corporations had grown excessively bold. “We would all benefit,” he said, “from a resurgence of moderation and heightened regard for principle.”

To restore balance, the IRS “must produce some winners,” he said. “I really want to make a difference.”

Maruca built a team of about 60 — agents, attorneys and economists — with half recruited from outside the agency. For the IRS, this was a notable influx of talent. But it was still modest when compared with the scale of the challenge.

Among the key advisers on the new team was Eli Hoory, an attorney who had worked under Maruca at Covington and followed him over to the IRS a few months later. Hoory, then in his mid-30s, had a shaved head and prominent nose that gave him an angular appearance. Known for being extremely bright, he was also frank and outspoken, sometimes to a fault. A graduate of the U.S. Coast Guard Academy, he’d served as a reservist during law school and studied at the London School of Economics before landing at Covington.

Maruca and his team set about canvassing the IRS’ inventory to find good targets for producing “some winners,” as he’d put it.

Microsoft’s Puerto Rico deal almost slipped by. The week before Maruca started at the IRS in May 2011, the agency, which had already been auditing the transaction for four years, completed its work and sent Microsoft its findings.

That 2011 assessment by the IRS isn’t public, but it’s clear Maruca and Hoory were unimpressed. The IRS, they thought, had been credulous, accepting too many of Microsoft’s numbers. They also thought the IRS was set up for failure. The agency had been able to retain only one outside expert, an economist. If the case went to court, Microsoft would surely summon a cast of varied experts to undermine the IRS’ position.

It seems likely, given the size of Microsoft’s Puerto Rico transaction, that the IRS in May 2011 had hit the company with a tax bill in the billions. But Maruca and Hoory thought the agency was thinking small.

Maruca told Microsoft the IRS needed more time, and in early 2012, the IRS withdrew its findings. By then, Hoory had taken leadership of the audit. He began sending new document requests to Microsoft, asking for more interviews and considering what other experts the IRS needed to round out its case. Over the next three years, he and his team amassed tens of thousands of pages and conducted dozens of interviews with Microsoft personnel. (Hoory, who still works at the IRS, declined to comment.)

The evidence they assembled told a story. It revealed how Microsoft had . . .

Continue reading. There’s much more.

Written by LeisureGuy

22 January 2020 at 12:17 pm

Dark Clouds Over Facebook: The $5 Billion Settlement Isn’t Finalized

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“It’s a long road that has no turning.” “The bigger they are, the harder they fall.” “Pride goeth before a fall.” And so on. Facebook is riding high now, but drawing ire and making enemies. (Much the same is true of Amazon, Apple, Twitter, Google, and the US.) Matt Stoller writes in Big:

Today I’m going to discuss some quiet but potentially significant problems hanging over Facebook and the big tech ecosystem in general. The big tech story has cooled a bit as reporters increasingly focus on the Presidential race, but it will come back. I’m going to stay on it. I also have a short blurb on the cheerleading story at the end of this newsletter, I’m going to stay on that too.

Goliath-Slaying Congressman David Cicilline

Yesterday Nancy Scola at Politico wrote a piece profiling Antitrust Subcommittee Chairman David Cicilline, who is conducting an investigation into big tech corporations. It is, as Institute for Local Self-Reliance director Stacy Mitchell notes, one of the important Congressional investigations in the last forty years. Last Friday, his subcommittee held a hearing in Colorado about how Google, Amazon, Facebook, and Apple bully entrepreneurs, with witnesses from PopSockets, Sonos, Tile, and Basecamp. All of us will recognize in their stories the basic bullying at the heart of the economy right now, and the courage these entrepreneurs showed in speaking out.

This bullying is pervasive. Yesterday, I spoke before the American Booksellers Association, book store owners who have been in Amazon’s crosshairs for two decades. Book sellers are exhausted keeping their stores going in the face of Amazon’s power, but also see the political argument shifting. Cicilline is one of the key reasons why.

I talked to these small business owners about the historical analogue to today, the anti-chain store fight in the 1920s and 1930s against the A&P, which was the Amazon of its day. A&P, like Amazon, was able to use its access to capital to sell popular products below cost, and thus kill its competitors. Today, a small book store has to make a profit and sell books at the list price, whereas Amazon doesn’t have to make money and can sell that book below cost. So Amazon wins, not because its technology is good, but because it can get access to cheap money to drive its competitors out of business.

Our local stores are dying, and so are our communities. One quote, from Supreme Court Justice Louis Brandeis, captures the political problem this caused, and it has eery resonance today. Corporate monopolies, in particular chain stores, he argued, were “converting independent tradesmen into clerks” and “sapping the resources, the vigor and the hope of the smaller cities and towns.”

Cicilline is bringing back this understanding of the moral power of free commerce, and the threat concentrated finance poses. Scola’s profile of Cicilline is worth reading, but what I found fascinating (if a bit self-serving) was Cicilline’s view of the importance of history. Here here is discussing my book, Goliath: The Hundred Year War Between Monopoly and Democracy.

Giving speeches alongside Cicilline at the event were Faiz Shakir, Bernie Sanders’ presidential campaign manager; and Rohit Chopra, a Democratic Federal Trade Commission commissioner who has strongly criticized his own agency for what he sees as its inadequate approach to Silicon Valley. Cicilline called Stoller, a staunch proponent of more stringent antitrust enforcement, “an inspiration,” and thanked him for telling such an “important story.”

The fight Cicilline is helping to lead is a political struggle over what commerce means in America. In his nomination speech for the 1936 Democratic convention, Franklin Delano Roosevelt framed the politics of commerce clearly, “If the average citizen is guaranteed equal opportunity in the polling place, he must have equal opportunity in the marketplace.”

The debate is raging, and some of it is happening over the historical narrative I wrote about in Goliath. Institutional Investor magazine had a very positive review of Goliath, basically making the argument that Republicans and Democrats are beginning to see the problem of monopoly. Meanwhile, a Marxist historian writing in the pages of the left-wing magazine The Nation said I got the history all wrong, and that we need a socialist revolution.

And there we go. The history is echoing today, as it always does.

A Long Lit Fuse Under Facebook

Last July, the Federal Trade Commission and Facebook agreed on a high-profile $5 billion for various privacy violations. While that amount of money seems like a lot, the actual settlement was underwhelming. $5 billion is a parking ticket for Facebook, and the corporation got a lot in return. First, Facebook made sure that in return for the money, the FTC wouldn’t investigate Mark Zuckerberg’s emails or do an interview with him. Second, Facebook got a total release from pretty much all potential violations of the FTC’s consumer protection law, a kind of retroactive get out of jail free card.

It’s a sweet deal, and Facebook’s stock price skyrocketed when the corporation told Wall Street about it. It was a thorough embarrassment for the FTC; not a single Senator or House member praised the commission in the days after the settlement, which is a bit unusual for such a high profile case.

Now normally this would be old news, a judge usually rubber stamps these kinds of agreements and lets them go through. It’s true that a nonprofit protested; the nonprofit Electronic Privacy Information Center (EPIC) sued to stop the settlement. EPIC’s argument was that the settlement didn’t fix the problem with Facebook, and that liability release was so vague as to be against the public interest and procedurally unfair. Judges however often ignore such pleadings. But in an unusual legal scenario, the Judge who is supposed to approve the settlement hasn’t done so, and asked the government to respond by this Friday to EPIC’s arguments.

And here’s where it gets interesting. This settlement seems like it . . .

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Written by LeisureGuy

22 January 2020 at 11:35 am

What Impeachment Is Revealing About the Republican Party

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Benjamin Wittes, editor-in-chief of Lawfare, and Quinta Jurecic, managing editor of Lawfare, wrote in the Atlantic in November 2019:

The House Intelligence Committee brought impeachment onto the public stage over the past two weeks. But now Congress has scattered for Thanksgiving, cable news is picking over the remnants of the hearings in search of content, the president is fuming, and impeachment has moved into a murky new phase, the parameters of which are not entirely clear.

So what happens next?

The public hearings lurched from physical comedy to riveting seriousness to bleak warnings about the corrosive effects of conspiracy theories on American democracy. The hearings provided new information—including the extent to which the Ukrainian government suspected a possible extortion attempt by the United States early on in President Donald Trump’s pressure campaign, along with the phone call between Trump and Ambassador Gordon Sondland in which Trump personally asked whether he was going to get his “investigations.”

But the public proceedings largely dramatized the story that we already knew about Trump’s coercive efforts with respect to Ukraine. Witness after witness made it obvious: The president was attempting to force Ukraine to announce sham investigations that would benefit Trump politically, in exchange for a White House visit and hundreds of millions of dollars of military aid. There were a lot of witnesses. They were credible. And they were, individually and collectively, damning.

There are more key witnesses, those who didn’t show up: former National Security Adviser John Bolton and Acting White House Chief of Staff Mick Mulvaney, for example, both of whom would seem to have a great deal to say about the effort to shake down the Ukrainians but who have so far refused to play ball with House investigators. Mulvaney has defied a House subpoena; Bolton, after some hemming and hawing, seems to have settled on a strategy of coyly hinting at the damaging stories he has to tell while promoting his upcoming book on Twitter. Assuming these witnesses don’t roll out of bed next week and decide to testify after all, we are probably nearly done with the House’s evidence-gathering phase of the impeachment inquiry and moving into a more evaluative phase.

What can we expect that to look like?

The first step is for Intelligence Committee Chairman Adam Schiff to figure out how he wants to refer the impressive quantity of testimony he has amassed to the Judiciary Committee, which is responsible for writing any articles of impeachment.

Under the resolution on impeachment passed by the House of Representatives in late October, the Intelligence Committee takes the lead on the investigative stage of the impeachment proceedings—which is why the hearings so far have taken place under Schiff’s lead. It’s now Schiff’s job to “set … forth [the committee’s] findings and any recommendations and appending any information and materials,” which he must prepare alongside the chairs of the House Committee on Foreign Affairs and the Committee on Oversight and Reform. (These other committees have played a less public role in the inquiry so far, but have participated in the closed depositions of witnesses and the issuing of subpoenas.) That report will then go to the House Judiciary Committee, which has the task of drafting articles of impeachment to submit to the full House for a vote.

The work of producing this report could be as crude as schlepping a pile of transcripts from the office of one committee to that of another, supplementing it with minimal commentary. But Schiff will likely want to do some kind of shaping of the record before putting it in the hands of Judiciary Committee Chairman Jerry Nadler. Just as Independent Counsel Ken Starr crafted the Starr Report, documenting President Bill Clinton’s misconduct, Schiff would be well advised to distill out of the material he has amassed some kind of narrative account of what happened and what it all means.

Controversial though it is, the narrative section of the Starr Report is actually not a bad model; it is both readable and rigorous. While Starr’s report received a great deal of criticism for being salacious and overly detailed, and many people believed the offenses it described did not amount to impeachment-worthy material, nobody has ever made a serious argument that the facts Starr recounted in it were untrue. It’s also a bit of a page-turner. Schiff does not have a lot of time, but creating a compelling referral to the Judiciary Committee that tells the story in a rigorous way is the first key step.

Once the Judiciary Committee has what we might call the Schiff Report, however, it is by no means limited to that material in shaping articles of impeachment. The House resolution specifically provides for the Judiciary Committee to undertake its own investigative work, conducting hearings and issuing subpoenas as needed. So the next big questions will be how much Nadler wants to stick to the Ukraine scandal—which, presumably, Schiff’s production will focus on—and how much he wants to branch out into other areas.

The obvious candidate here is Trump’s conduct as described in Special Counsel Robert Mueller’s report: In fact, House General Counsel Douglas Letter indicated to a federal court just last week that, as part of its impeachment probe, the House is investigating whether Trump lied to Mueller. And a federal district judge has said that she will rule today on whether the Judiciary Committee will be able to compel testimony from former White House Counsel Don McGahn regarding events set out in Mueller’s report.

The challenge for Nadler will be to prevent mission creep. Trump’s behavior over the course of his presidency is such that there is actually no shortage of impeachable offenses from which Nadler can choose. What about Trump’s alleged repeated offers of pardons to border officials in exchange for breaking immigration and asylum law—behavior that, if confirmed, would almost certainly violate the president’s constitutional obligation to “take care that the laws be faithfully executed”? What about the thousands of young children separated from their parents at the border? What about emoluments? What about the illicit payments to the adult-film star Stormy Daniels—which resulted in a guilty plea by Trump’s former lawyer Michael Cohen—and, for that matter, what about the allegations of sexual harassment and rape against the president?

The contours of what fulfills the constitutional definition of “high crimes and misdemeanors” for which a president can be impeached are open to argument. Time also presents a pressing question. How quickly does the Judiciary Committee want to move, and how narrowly does it want to focus in order to keep things speeding forward? How much does it want to expose itself to charges of making impeachable offenses out of policy differences or out of relatively small matters?

Once the articles of impeachment are drafted, it’s time to vote—first in the Judiciary Committee and then on the House floor. These votes may play a key role in the process of winnowing the articles. If Nadler successfully does the winnowing himself and persuades Democrats to keep the articles narrowly focused on the Ukraine matter, perhaps with some material from the Mueller investigation included as well, we could be looking at a small number of party-line votes, in which Democrats pass and Republicans object to just two or three articles of impeachment.

The other possibility is that Nadler could use this process as his means of establishing the limiting principles. During the Clinton impeachment, the House actually voted on four articles, passing only two. Allowing a relatively open article-drafting process has the dual benefits of letting Democrats submit to judgment a wider range of Trump’s misdeeds and also potentially reducing the partisanship of the affair. If some members want to vote on articles of impeachment on payments to Daniels, a few Democrats might team up with the Republicans to kill them, either in committee or on the floor—thereby establishing that the House majority isn’t hell-bent on impeaching Trump for anything and everything.

But this strategy also has a big risk—that of letting impeachment spin out of control. What if Democrats end up finding it hard to vote against articles and thus end up sending a raft of them over to the Senate? The task of the House, which has to present its case against Trump before the senators, becomes substantially more difficult if the articles involve diverse charges, arguable facts, or matters the president’s defenders can reasonably cast as legitimate exercises of the presidency’s broad powers.

Things get even murkier when the articles—whatever they end up including—land in the Senate chamber. The Senate’s rules for impeachment trials are an odd combination of the highly specific and the maddeningly vague. On the one hand, they specify the precise time of day the impeachment trial shall go into session the day after the House members appointed to manage the trial march into the Senate chamber and present the articles the House has passed (1:00 pm, in case you were wondering—unless it’s a Sunday). On the other hand, they don’t specify rules of evidence, leaving almost everything of substance initially to the judgment of Chief Justice John Roberts and ultimately to the judgment of 51 members of the body, the vote required to overrule Roberts on a wide variety of motions.

In other words, the course of the Senate trial will ultimately depend on two variables that are, at this stage, mysterious. The first is how Roberts understands his own role as the trial’s presiding officer. The rules permit the chief justice to be—if he chooses—quite activist in ruling on evidentiary motions and the like, subject to being overturned by a vote of the Senate itself. The rules also permit him to be—if he chooses—quite passive; he’s entitled simply to submit such matters to the vote of the body itself in the first instance. So one key question is what role Roberts himself thinks he should play.

The other question is whether . . .

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Written by LeisureGuy

18 January 2020 at 8:29 pm

Cheerleading as a model of American monopoly

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Matt Stoller at Big has two connected articles taking a look at the monopoly on cheerleading. The first begins:

Today I’m going to write about Varsity Brands, the Bain Capital-owned corporation which controls the sport of cheerleading. I love this monopoly because it’s so easy to explain, and also because the tactics Varsity Brands uses are the same that every monopolist uses, only with more glitter. But first, two pieces of good news.

One, the Federal Trade Commission blocked a merger! The FTC threatened to file suit against a merger of two companies – TreeHouse Foods and Post Holdings – in the private label cereal market. So the companies abandoned the deal. Stopping mergers like this sends a message that there are cops on the beat. The popular interest in monopoly is working. Absent a more highly charged political atmosphere, the FTC would almost certainly have let this one go through.

Two, the Federal Trade Commission and Department of Justice withdrew their 1984 non-horizontal merger guidelines. Basically they are admitting that the way they looked at mergers for forty years is dumb. It’s good but not great news. The FTC/DOJ are trying to replace those guidelines with new rules so silly they don’t even mention ‘data.’ But at least we’re out of the Reagan era hellscape.

And now…

Bring It On

One of the most fascinating parts of studying monopolies is how most of them use very similar tactics in different industries, like Bill Gates and John D. Rockefeller, or A&P supermarket in the 1920s vs Amazon. What I also love is finding weird areas of monopolization, and there are so many, because concentration is a systemic feature of the American political economy. This monopoly combines both aspects.

Two days ago, a colleague of mine, Sarah Miller, told me, ‘hey did you know there’s a cheerleading monopoly?’ I looked, and sure enough, there is! And it’s owned by Bain Capital. Sometimes the universe aligns and gives me the perfect monopoly to write about.

Cheerlebrities and Dollars

Cheerleading is a huge part of American culture, evolving from a male oriented sideline spectacle in the 1940s to a serious female-dominated sport that sits between dance and gymnastics. There were many later famous men who were cheerleaders, everyone from FDR to Jimmy Stewart to George W. Bush. Here’s a picture of cheerleader Ronald Reagan.

Today most cheerleaders are girls and young women, with one estimate of 400,000 in public high schools alone. But cheer goes way beyond high schools, there are now thousands of competitive dance teams, with members ages 7-17, who enter competitions, with something like 3.3 million who cheer in any given year, and 1.3 million cheerleaders across American who cheer for more than 60 days a year.

High school and college age athletes participate in high profile competitions, get sponsorships, endure immense amounts of pain, and show off in contests and on social media. Cheerleaders are disciplined and often fanatical. The sport causes more than half the catastrophic injuries for female athletes in America, including skull fractures. And yet thousands of young girls wear cheer leggings and t-shirts, practice arm motions and cartwheels nonstop, and obsess over Instagram star “cheerlebrities.”

It’s an expensive sport, especially at the top, with top athletes spending $15,000 or more a year for competition uniforms, practice clothes, jackets, personalized bags, summer camps, tumbling classes, squad practices with professional cheerleading programs, and choreography fees. Families involved in cheerleading are above average in terms of affluence, and even non-top athletes spend between $2,500 to $10,000 a year.

And that’s where the monopoly comes in. The key player in the cheerleading world is Varsity Brands, which makes its money from cheerleading apparel, camps and competitions. The founder, Jeff Webb, started Varsity in the 1970s to offer high school training camps and clinics, eventually creating competitions for cheerleaders.

It’s with equipment and apparel where Varsity makes its money, “everything from the sequined uniforms on cheerleaders’ backs to the big bows in their poofed-up hair.” The key to Varsity’s monopoly is its chokepoint control of major cheerleading competitions. In the early 1980s, ESPN began showcasing the new sport, giving it wide distribution. In 2004, Varsity bought the National Cheerleaders Association, and has rolled up a dozen more, including its main competitor in 2015, Jam Brands. Today, competing means entering Varsity’s world.

While Webb is an aggressive businessman, Varsity had help from private equity; Charlesbank Capital Partners bought the company in 2014. Charlesbank organized a roll-up of the industry, in its public case study noting that it helped orchestrate the Jam Brands purchase, as well as a series of “highly strategic acquisitions.” These new private equity owners had Varsity buy up sports equipment distributors and enter the marching band space. Charlesbank sold it to fellow private equity firm Bain Capital in 2018.

Varsity’s market power over the business of cheerleading is entrenched. Participating in cheerleading competitions is expensive. If you want to see a bunch of cynical cheerleaders and cheerleading families angry about monopoly power, check out the discussion on Fierceboard about the acquisition and what it meant for what they would have to pay. It’s also costly to be a spectator. Here’s a sycophantic interviewer interviewing Webb about how much it costs as a parent spectator to watch one of these events, congratulating the CEO on his pricing power. This market power extends to media. Not only does Varsity own magazines, but on Netflix’s Cheer, cheerleaders complain that they can’t watch cheerleading on TV anymore, because Varsity streams its competitions over its for-pay app Varsity TV, moving ESPN out of the picture.

In 2018, when speaking to Chief Executive magazine, Webb made it clear that monopolization was the strategy.

We were really creating an industry as we went along and it became an ecosystem in that we were creating the concept, we were creating the industry, and then we were positioning ourselves to provide all the products and services that that affinity group utilized.

Webb’s strategy worked. In 2016, competitors estimated that Varsity had 80% of the market for apparel, and 90% of the market for competitions.

Rebates, Gyms and Vertical Integration

Varsity uses tactics reminiscent of a glittery John D. Rockefeller. According to Leigh Buchanan in Inc., “Teams appearing in Varsity competitions can wear whatever uniforms they want. But rival apparel makers can’t show their wares at those events, which are important showrooms for cheer merchandise.” That is in antitrust parlance a form of ‘vertical foreclosure,’ or using your control of one part in the supply chain, in this case competitions, to block rivals who compete with you in another area, apparel. This became quite obvious when Jam Brands, which ran most non-Varsity competitions, merged with Varsity, immediately ending marketing agreements with Varsity apparel competitors.

There’s more than blocking advertising and distribution at these competitions. Webb admitted that in at least one contest, cheerleaders got more points if they used more Varsity equipment as props. In other words, it’s not just a rigged game as some sort of metaphor, Varsity actually rigged the rules of its cheerleading competition to coerce purchases of Varsity products. Indeed, Webb has testified in court that the competitions exist solely for the “promotion of his cheerleading supply business.”

This level of control hasn’t gone unnoticed. As one person in the cheerleading world sarcastically put it in 2014:  . . .

Continue reading. There’s more.

And the second picks up:

A week ago I would not have predicted that I would be studying cheerleading. I study monopolies, big tech, and politics. But after writing that story a few days ago and seeing the reaction, I think the story on cheerleading is important, because it says something about our larger political economy.

Every corporate monopoly, in every sector and across history, uses similar power arrangements: coercive contracts, secret rebates, retaliation, buying up competitors, political corruption, etc. All of these are present in the Varsity brands story. Since publishing the story, I have heard from cheer coaches, international cheer officials, parents, and one Harvard Law professor of antitrust.

Here are a few observations.

  • I missed out on two anti-competitive practices in the industry. The first is called “Stay to Play.” For many cheerleading competitions, though not all, out-of-town contestants are required to stay at a specific area hotel or set of hotels, or they cannot enter the contest. This is yet another way to raise prices on cheerleaders, and parents hate it. The second is that Varsity tends to be very aggressive about takedown notices for cheer contest video. If you film your kid at an event and put it up on Facebook or YouTube, Varsity is likely to ask you to take it down because it’s competitive with their VarsityTV streaming app. As one parent told me, it’s basically Varsity preventing you from sharing your memories publicly with your family or friends.
  • Cheerleading is more dangerous to monopolize because it involves children. There’s a whole tangled legal fight between the NCAA, the Department of Education Office of Civil Rights, and Varsity over the definition of sport. This is one area where policymakers at the Education Department, and not just at the antitrust agencies, have some authority. The bottom line is children are doing dangerous gymnastics and tumbling on surfaces like grass and rubber tracks that have not been proven safe, and one result is more catastrophic injuries than might otherwise happen. (I also heard rumblings about other safety concerns that go beyond physical injuries endured during contests.)There is an alternative to the existing Varsity model of cheerleading. Roughly ten years ago, some college coaches basically took competitive cheerleading and turned it into a safer and regulated sport. After a series of bitter fights over branding, they eventually had to name it Acrobatics and Tumbling instead of Competitive Cheer. Now there’s a battle about cheer internationally, with questions about whether and how it can become an Olympic. To give you a sense of the stylistic differences, here’s a picture of Acrobatics and Tumbling.

  • While the story I wrote was about cheerleading, it has broader implications for how we understand our political economy. For about thirty years, corporations in America have been getting bigger, and it’s harder and harder to start and run a small business. Some scholars, like Edward Lazear of Stanford University, Michael Strain of the American Enterprise Institute, and John Van Reenen of M.I.T. believe that this rise in concentration is happening for natural technical reasons. Their argument is that bigger corporations are just better at what they do because they have ‘economics of scale,’ aka it’s more efficient to produce more steel or more search queries if you’re making a lot of them. This argument comes from an intellectual movement started at the University of Chicago known as ‘the Chicago School.’Other scholars, like Columbia University’s Tim Wu, economist Luigi Zingales, and Northeastern University’s John Kwoka are making a more traditional American anti-monopoly argument that this increase in scale is a function of legal changes that make it easier to charge higher prices and exclude competitors. This would include pointing at practices like mergers, rebates, the ability to exclude competitors, and other things that, as it turns out, Varsity seems to be doing.

    This debate is more than academic. Right now, there’s a bipartisan investigation by the House Antitrust Subcommittee into large technology corporations, and it’s led by Democrat David Cicilline and Republican Doug Collins. They are wrestling with whether concentration is a function of power, not efficiency. How we resolve this debate is likely to have significant impacts on how we organize our markets and our corporations going forward.

    What’s useful about the story of cheerleading is that . . .

Continue reading.

Written by LeisureGuy

17 January 2020 at 12:34 pm

Which tech companies are really doing the most harm?

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Jonathan Fischer has a dispiriting list in Slate. It begins:

Maybe it was fake news, Russian trolls, and Cambridge Analytica. Or Travis Kalanick’s conniption in an Uber. Or the unmasking of Theranos. Or all those Twitter Nazis, and racist Google results, and conspiracy theories on YouTube. Though activists, academics, reporters, and regulators had sent up warning flares for years, it wasn’t until quite recently that the era of enchantment with Silicon Valley ended. The list of scandals—over user privacy and security, over corporate surveillance and data collection, over fraud and foreign propaganda and algorithmic bias, to name a few—was as unending as your Instagram feed. There were hearings, resignations, investigations, major new regulations in Europe, and calls for new laws at home. There was an industry that insisted it now valued privacy and safety but still acted otherwise. There was WeWork, whatever that was.

The tech industry doesn’t intoxicate us like it did just a few years ago. Keeping up with its problems—and its fixes, and its fixes that cause new problems—is dizzying. Separating out the meaningful threats from the noise is hard. Is Facebook really the danger to democracy it looks like? Is Uber really worse than the system it replaced? Isn’t Amazon’s same-day delivery worth it? Which harms are real and which are hypothetical? Has the techlash gotten it right? And which of these companies is really the worst? Which ones might be, well, evil?

We don’t mean evil in the mustache-twirling, burn-the-world-from-a-secret-lair sense—well, we mostly don’t mean that—but rather in the way Googlers once swore to avoid mission drift, respect their users, and spurn short-term profiteering, even though the company now regularly faces scandals in which it has violated its users’ or workers’ trust. We mean ills that outweigh conveniences. We mean temptations and poison pills and unanticipated outcomes.

Which brings us to this list. Slate sent ballots to a wide range of journalists, scholars, advocates, and others who have been thinking critically about technology for years. We asked them to tell us which tech companies they are most concerned about, and we let them decide for themselves what counts as “concerning.” We told them to define the category of technology companies as narrowly or broadly as they liked, which is how, say, Exxon Mobil made the list. Each respondent ranked as many as 10 companies—subsidiaries counted as part of parent corporations—with more points going to the choices they placed at the top. Then we added up their votes and got this.

What did we find? While the major U.S. tech companies topped the vote—read on to find out which came in at No. 1—our respondents are deeply concerned about foreign companies dabbling in surveillance and A.I., as well as the domestic gunners that power the data-broker business. No one thinks Twitter is the worst thing that could happen to a planet, but a lot of people worry about it a little. Companies with the potential to do harm can be as distressing as those with long records of producing it. Privacy people care a lot about misinformation, but misinformation people might not be so worried about privacy. Almost everyone distrusts Peter Thiel. And some people don’t have a problem with Amazon or Apple or even Facebook at all—which is why we included dissents for many of the top companies on our list.

We hope you’ll argue over this attempt at finding consensus, make your own mental list, and decide which concerns expressed here are too mild, totally overblown, or exactly right. —Jonathan L. Fischer

Entries compiled by Jonathan L. Fischer and Aaron Mak

30: mSpy

Year founded: 2010

Founder: Andrei Shimanovich

What it is: A phone-spying software company that allows users to monitor another person’s messages, locations, social media, browsing histories, calls, and other digital activity. Marketed to parents, the product is essentially the ultimate cyberstalking tool.

One evil thing:

Our respondents say: “I am most troubled by the growth of cyberstalking apps (pitched as legitimate help for parents and employers and deployed by domestic abusers).” —Danielle Citron, Boston University School of Law

29: Cellebrite

Year founded: 1999

Co-CEOs: Yossi Carmil and Rob Serber

What it is: A forensics company based in Israel that breaks into personal devices (cost to unlock a phone: $1,500) on behalf of its clients, which are often law enforcement or other government entities.

One evil thing: In 2017, authorities in Myanmar arrested two Reuters journalists who were covering the genocide of Rohingya Muslims. A police officer who had apparently received training from Cellebrite used the company’s technology to infiltrate the journalists’ phones. The government then used the documents the officer found as evidence in its trial against the reporters, who were sentenced to seven years in prison. (Cellebrite has declined to comment on the incident and left the Myanmar market in 2018. The reporters were eventually released in 2019.)

28: Baidu

Year founded: 2000

Co-founder and CEO: Robin Li

What it is: The Chinese multinational is the second-largest search engine and smart-speaker vendor in the world.

One evil thing: Baidu, which controls two-thirds of China’s online search market, appears to have been active in suppressing information about the 2019 pro-democracy protests.

Our respondents say: “One of the things we’ve realized in the past two decades about tech is that it’s indisputably not neutral: platforms and products have cultural norms and biases built into them by the architects and policymakers. Baidu works in concert with the Chinese government to censor and surveil its users. As we move into the next decade, Baidu will unequivocally be one of the tools China uses to continue to control its own citizens and expand its reach.” —Kate Klonick, St. John’s University Law School

27: The Grid

Customers throughout the United States: 145 million

Continue reading. This is another in the “worst of times” column.

Later in the list:

14: Tesla

Year founded: 2003

CEO: Elon Musk

What it is: The industry-changing electric vehicle–maker may be mockable for having a fan base as toxic as Star Wars, for its foible- and fine-prone CEO, and for whatever the Cybertruck is. But Tesla truly is worrisome because of its troubled record of worker safety and its dubious claims that it will soon offer “full self-driving” to customers who have already paid $7,000 for the promised add-on.

One evil thing: Tesla has been criticized for using the term “autopilot” to describe its vehicles’ less-than-autonomous driver-assist feature, since drivers may put too much faith in a feature that is not meant to do the work for them (to occasionally fatal results). It also sells that as-yet-nonfunctioning “full self-driving” mode even though the rest of the autonomous vehicle industry now concedes such a thing is years or decades away. And yet: [list of tweets from Musk saying “buy the Full Self-Driving Option” ($1000) NOW because price is going up – LG]
Our respondents say: “The very real social good that Tesla has done by creating safe, zero-emission vehicles does not justify misdeeds, like apparent ‘stealth recalls’ of defects that appear to violate safety laws or the 19 unresolved Clean Air Act violations at its paint shop. … Tesla’s approach to automated driving technology not only endangers its customers and the public more broadly, but the life-saving potential of the technology itself and those firms that are pursuing it responsibly.”  —Edward Niedermeyer, host of The Autonocast and author of Ludicrous: The Unvarnished Story of Tesla Motors

Written by LeisureGuy

15 January 2020 at 1:28 pm

The Amish Keep to Themselves. And They’re Hiding a Horrifying Secret

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Sarah McClure reports in Cosmopolitan:

The memories come to her in fragments. The bed creaking late at night after one of her brothers snuck into her room and pulled her to the edge of her mattress. Her underwear shoved to the side as his body hovered over hers, one of his feet still on the floor.

Her ripped dresses, the clothespins that bent apart on her apron as another brother grabbed her at dusk by the hogpen after they finished feeding the pigs. Sometimes she’d pry herself free and sprint toward the house, but “they were bigger and stronger,” she says. They usually got what they wanted.

As a child, Sadie* was carefully shielded from outside influences, never allowed to watch TV or listen to pop music or get her learner’s permit. Instead, she attended a one-room Amish schoolhouse and rode a horse and buggy to church—a life designed to be humble and disciplined and godly.

By age 9, she says, she’d been raped by one of her older brothers. By 12, she’d been abused by her father, Abner*, a chiropractor who penetrated her with his fingers on the same table where he saw patients, telling her he was “flipping her uterus” to ensure her fertility. By 14, she says, three more brothers had raped her and she was being attacked in the hayloft or in her own bed multiple times a week. She would roll over afterward, ashamed and confused. The sisters who shared Sadie’s room (and even her bed) never woke up—or if they did, never said anything, although some later confided that they were being raped too.

Sadie’s small world was built around adherence to rules—and keeping quiet was one of them. “There was no love or support,” she says. “We didn’t feel that we had anywhere to go to say anything.”

So she didn’t.

Even on the day the police showed up on her doorstep to question then-12-year-old Sadie’s father about his alleged abuse of his daughters.

Even on the day when, almost two years later, Abner was sentenced by a circuit court judge to just five years’ probation.

And even on the day when, at 14, she says she was cornered in the pantry by one of her brothers and raped on the sink, and then felt a gush and saw blood running down her leg, and cleaned up alone while he walked away, and gingerly placed her underwear in a bucket of cold water before going back to her chores. A friend helped her realize years later: While being raped, she had probably suffered a miscarriage.

It wasn’t until now that Sadie decided to speak up, to reveal the darkness beneath the bucolic surface of her childhood. She’s tired of keeping quiet.

Over the past year, I’ve interviewed nearly three dozen Amish people, in addition to law enforcement, judges, attorneys, outreach workers, and scholars. I’ve learned that sexual abuse in their communities is an open secret spanning generations. Victims told me stories of inappropriate touching, groping, fondling, exposure to genitals, digital penetration, coerced oral sex, anal sex, and rape, all at the hands of their own family members, neighbors, and church leaders.

The Amish, who number roughly 342,000 in North America, are dispersed across rural areas of states like Pennsylvania, Ohio, Indiana, Kentucky, New York, Michigan, and Wisconsin, according to the Young Center for Anabaptist and Pietist Studies at Elizabethtown College, a leading authority on Amish life. Because of their high birth rate—and because few members ever leave—they’re one of the fastest-growing religious groups in America. Lacking one centralized leader, they live in local congregations or “church districts,” each made up of 20 to 40 families. But the stories I heard were not confined to any one place.

In my reporting, I identified 52 official cases of Amish child sexual assault in seven states over the past two decades. Chillingly, this number doesn’t begin to capture the full picture. Virtually every Amish victim I spoke to—mostly women but also several men—told me they were dissuaded by their family or church leaders from reporting their abuse to police or had been conditioned not to seek outside help (as Sadie put it, she knew she’d just be “mocked or blamed”). Some victims said they were intimidated and threatened with excommunication. Their stories describe a widespread, decentralized cover-up of child sexual abuse by Amish clergy.

“We’re told that it’s not Christlike to report,” explains Esther*, an Amish woman who says she was abused by her brother and a neighbor boy at age 9. “It’s so ingrained. There are so many people who go to church and just endure.”

And yet, as #MeToo has rocked mainstream culture, Amish women have instigated their own female-driven movement. “It’s much slower and less highly visible,” says Linda Crockett, founder and director of Safe Communities, an organization that works to prevent child sexual abuse. “But I have seen a real uptick over the past 10 years in Amish women coming forward. They hear about each other—not on Twitter or Facebook, but there’s a strong communication system within these communities. They draw courage and strength from each other.”

“I get phone calls now….There’s a bunch of Amish who have my cell phone number, and they use it. The men call on behalf of the women,” says Judge Craig Stedman, former district attorney of Lancaster County, Pennsylvania—home to nearly 40,000 Amish—who has served on a task force that connects the Amish to law enforcement and social services. (Although most don’t have cell phones, the Amish might use pay phones or call from “English” neighbors’ homes.)

Some victims, like Sadie, have long since left the church and the Amish way of life, but others, including Esther, are still on the inside, sending out an alarm to the world they’ve been taught to reject. “They want to talk,” explains Crockett, “so they’re turning outside.” . . .

Continue reading. There’s much more, and it shows that the Amish way of life is a bad way of life, to say the least.

Written by LeisureGuy

14 January 2020 at 2:22 pm

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