March 12, 2015
Capital allocation is a senior management team’s most fundamental responsibility. The problem is that many CEOs don’t know how to allocate capital effectively. The objective of capital allocation is to build long-term value per share. ... Capital allocation is always important but is especially pertinent today because return on invested capital is high , growth is modest , and corporate balance sheets in the U.S. have substantial cash. ... Internal financing represented almost 90 percent of the source of total capital for U.S. companies from 1980-2013. ... M&A, capital expenditures, and R&D are the largest uses of capital for operations , and companies now spend more on buybacks than dividends. ... This report discusses each use of capital, shows how to analyze that use, reviews the academic findings, and offers a near-term outlook. ... We provide a framework for assessing a company’s capital allocation skills, which includes examining past behaviors, understanding incentives, and considering the five principles of capital allocation.
Five Principles of Capital Allocation:
1. Zero - based capital allocation
2. Fund strategies, not projects
3. No capital rationing
4. Zero tolerance for bad growth
5. Know the value of assets, and be ready to take action to create value
One day last summer, Howard Stern ripped into his bosses at SiriusXM on his morning radio show. He accused them of gamesmanship, of treating him like a common employee, of disrespecting his talent. “Whenever you f--- with me, I will f--- with you worse,” he said. “I always win.” ... Explaining why he was so livid, Stern told his listeners that his bosses had recently asked him if he’d like to move the start of his show an hour later, to 7 a.m. That way everybody would get an extra hour of sleep. It seemed like a generous offer; Stern thought it over and accepted. It was then, he said, that management balked, insisting he’d misunderstood. He could start his show at 7 a.m., they informed him, if and when he renewed his contract with Sirius XM Holdings, which is set to expire in December 2015. Stern said he was enraged by what he felt was a strategic bait-and-switch. (A spokesperson for SiriusXM declined to comment.) For the next several minutes, he vented. “It’s not even clear to me who works for who,” Stern said. “I’m pretty sure if I left, it would be very bad for the company.” ... Stern is 61 years old. For 40 years he’s been rising before dawn to entertain and titillate drive-time commuters with a kaleidoscopic, screwball performance that’s teeming with anxiety, misfits, satire, celebrities, profanity, pranks, and porn stars. He’s the top rainmaker in American radio, capable of generating hundreds of millions of dollars a year in revenue for whomever employs him and his entourage of baroque sideshow performers known as the Wack Pack. ... On paper, the marriage between Stern and SiriusXM has never been better. Yet its future remains in limbo. Stern, who declined to be interviewed for this article, hasn’t said if he intends to extend his contract. ... The coming battle for Americans’ ears, whether in the car or on a computer or smartphone, promises to be fierce. In this unsettled territory, an exclusive deal with Stern could be a fearsome weapon. In theory, he could do for somebody in Internet radio what he did for Sirius in satellite radio.
Diller was born in San Francisco in 1942 but his parents moved to southern California and he spent his childhood in Beverly Hills. His father worked in construction. “He was lucky,” he says, “to be in that business at that time after the second world war when all the veterans were coming home.” His father’s company “essentially built the San Fernando Valley,” on the other side of the hill from Los Angeles. “All those lovely tract homes,” he says, grimacing, slightly. ... Los Angeles, he says, “has utterly no stimulus of any kind” and as a young man it took him a while to work out what he wanted to do in life. “The truth is I was kind of in hibernation until I was 19. I was cosseted [and] would have stayed with [my parents] until now, if I could have.” He went to UCLA where he lasted “literally, three weeks” before dropping out. “I wasn’t interested or stimulated . . . I was just a dope.” ... Then an actor who was the father of a friend set him up with a job in the mailroom at William Morris, the talent agency where Diller’s fellow media mogul David Geffen also got his break. “I woke up,” Diller says. “It was the first time I’d been curious about anything.” ... He immersed himself in the industry. “I spent three years reading the file room. I basically read the history of the entertainment business from A-Z.” He became a junior agent but a serendipitous turn of events took him to the east coast when he landed a job working for a mid-level executive at ABC. “The day I got the job, they fired the tsar of all ABC programming, reached down and picked my guy. So, instead of being the assistant to a mid-level person in Los Angeles, I moved to New York.” Within six months Diller was running the programming department.
Early last year, General Khalifa Haftar left his home in northern Virginia—where he had spent most of the previous two decades, at least some of that time working with the Central Intelligence Agency—and returned to Tripoli to fight his latest war for control of Libya. Haftar, who is a mild-looking man in his early seventies, has fought with and against nearly every significant faction in the country’s conflicts, leading to a reputation for unrivalled military experience and for a highly flexible sense of personal allegiance. In the Green Mountains, the country’s traditional hideout for rebels and insurgents, he established a military headquarters, inside an old airbase surrounded by red-earth farmland and groves of hazelnut and olive trees. Haftar’s force, which he calls the Libyan National Army, has taken much of the eastern half of the country, in an offensive known as Operation Dignity. Most of the remainder, including the capital city of Tripoli, is held by Libya Dawn, a loose coalition of militias, many of them working in a tactical alliance with Islamist extremists. Much as General Abdel Fattah el-Sisi has boasted of doing in Egypt, General Haftar proposes to destroy the Islamist forces and bring peace and stability—enforced by his own army. ... Haftar is a top-priority assassination target for Libya Dawn’s militias. Last June, a suicide bomber exploded a Jeep outside his home near Benghazi, killing four guards but missing the primary target. Now there is heavy security around Haftar at all times. At his base, soldiers frisk visitors and confiscate weapons. A few months ago, someone reportedly attempted to kill him with an explosive device concealed in a phone, and so his men collect phones, too.
Two new "blue books" help enthusiasts track prices for white-whale whiskeys on the secondary market, raising questions about the true value of rare bottles. ... One of the first things I do every morning is check the markets. E.H. Taylor “Tornado” is up 23% since October. Michter’s 25 now goes for a cool $1,000. Four Roses Mariage is being moved for some seven times retail cost. ... If those don’t sound like stocks, it’s because they’re not. And though these prices I’m referencing come out of a Kelley Blue Book, I’m not talking about used jalopies either. Allow me introduce you to the wild world of secondary-market whiskey selling, and the online “blue books” that now attempt to monitor such rapid price changes. ... Within the past year, two pricing guides have emerged to track the secondary market for highly coveted whiskeys. Bourbon Blue Book is the more bare-bones option, while Bottle Blue Book additionally monitors month-to-month growth trends. Both are now helping whiskey geeks make more informed decisions about their black-market buying and selling. ... You wonder who is going to be the first distillery to say, “You know what? Since the market has determined that we make a $400 bourbon, that’s the price it’s going to start hitting store shelves at.”
Inside the studio where ESPN is betting billions on the future of sports ... Under president John Skipper and the Disney umbrella, ESPN has spent the last decade amassing an untouchably large amount of live sports programming. The network’s empire extends from football and basketball; to auto sports and the X-Games; to ultimate frisbee, poker, and bowling. It broadcasts the World Cup and the Masters, Monday Night Football and the NBA Playoffs. By any measure – it’s the most popular cable channel by a mile; it commands a per-subscriber fee from cable companies equal to the next five most expensive combined; it’s valued at more than $50 billion, 13 times as much as Disney-owned ABC — ESPN is the country’s most powerful media company. The calculus is as simple as it is devastatingly effective: sports is practically the only TV that millions of people still insist on watching live, and ESPN owns almost all the sports. ... The new SportsCenter set is the crown jewel of the building: 9,700 square feet of space that will be used to broadcast the show on ESPN’s mass of channels. The revamped set was designed to make SportsCenter more personal, to show anchors moving around and interacting, but also to help the show move at the speed of the internet. ESPN has long been criticized for allowing news to break overnight while it ran repeats of the previous day’s shows; now the premier show in sports can update and broadcast in real time.