wealthmonitorblog

This week Microsoft unveiled the Xbox One, its next-generation gaming console and successor to the Xbox 360. Remarkably little time was spent presenting the actual gaming side of the machine, but more emphasis was given to how it takes centre stage at the average family’s general media experience (television – DVD – internet). Gamers soon figured out the reason.

Microsoft intends to radically increase the cash flow it generates from games. There will be no backward compatibility (meaning Xbox 360 games won’t work on the latest console, forcing Xbox One buyers to buy new games) and games will be tied to user profiles (meaning you have to pay a fee to Microsoft to play a game, so borrowing from friends or picking up cheap second hand versions is a thing of the past). The reason? Consoles are bad economics.

“The Red Eye of Death”, Microsoft’s worthy successor to its infamous
blue screen, has the same colour as the company’s numbers.
Source: Wikipedia.

The (old) advantage consoles had over PC’s was the price. Besides being cheaper than game-worthy desktop computers, consoles don’t need regular hardware updates to be able to play the newest releases. The reason for this is that consoles are actually sold at a loss, at a cost of between USD 70-130 per console for Xbox 360 and USD 18-36 for PlayStation 3. How do console-makers make their money, then?

According to their business model, they make money through software licenses. Console makers get a fee for every produced/sold game but struggle to make up for incurred costs, which include R&D on top of the expensive hardware of the actual machine. Microsoft recorded USD 3bn in accumulated losses for its gaming division the past 10 years and Sony’s PlayStation division posted a USD 2.8bn loss in 2012 alone. Microsoft’s solution: reorienting Xbox towards other media uses (mostly TV) and trying to increase payments from gamers. The huge margin retailers of second hand games get has always been a thorn in the eye of developers, and to avoid the eighth generation console becoming the last of the species, some money has to be siphoned off from the second hand market to sustain the developing side. The big question is if Sony is strong enough to not make the same decision and thus gain an edge over Microsoft in selling its new console. We will find out at the launch of PlayStation 4 later this year.

The presentation of PlayStation 4. A backdrop is all we got to see.
© 2013 Sony Computer Entertainment Europe, via PlayStation.com

Investors have never been impressed with gaming. Microsoft’s share price never recovered from the popping of the dotcom bubble, as their ventures into new media such as gaming and mobile technology (grouped under “Entertainment and Devices”) fail to generate the same profits as its competitors Apple, Samsung and Google. Sony’s picture looks even bleaker: it lost 80% of its stock market value since 2000 and its share price is back at the level of the 80’s. Microsoft’s latest Windows-update, Windows 8, has been coldly received and with CEO Steve Ballmer’s neck on the line it has made the rare move of backtracking on some of its innovations. However, unless the behemoths of the 90’s succeed in reorienting their output towards current demands, it won’t take strong activist shareholders to slay them.

Windows 8 pro’s and con’s. Mainly cons, or so we heard from analysts.
Our version 7 works just fine, thank you.
© Financial Times, via ft.com.

Politics and public service is an unsure existence. Therefore it is understandable that many of our elected officials will look into other means of securing financial gains from their involvement in these fields.

Peer Steinbrück, the Social Democratic Party’s candidate to challenge German Chancellor Angela Merkel in a general election this fall, was engulfed in controversy some weeks ago, after it emerged that he made more than one million Euros in speaking fees since stepping down as finance minister in 2009. Mr Steinbrück is also of the opinion that the chancellor’s job should be rewarded with a higher salary than the current combined total of almost 300,000 Euros a year. In France, former President Nicolas Sarkozy was completely honest in the way that we’re used to from him: after losing his re-election bid, he claimed it was time “to make money”. President “Bling-Bling” is having a slightly rocky road to riches though, when, never shy to speak his mind, he insulted a room full of Jewish businessmen over the Middle Eastern crisis for a flat fee of GBP 128,000.

Nicolas Sarkozy, making rain. © Reuters

In the ten years after he left the White House, Bill Clinton made $75 million in speaking fees, delivering a total of 417 paid speeches at an average of $181,000 per event. It’s not all about the man himself, though. Gaining prominence as a major do-gooder, President Clinton’s nonpartisan Global Initiative has raised $73.1 billion in commitments from major philanthropists, CEOs and heads of state to fund charitable action around the globe. Also, paying off debts from his wife’s failed Presidential campaign put a dent in the couple’s finances. Hillary herself is expected to start fetching 6-figure fees herself now that she’s stepped down as Foreign Secretary. Whether or not to finance her next Presidential bid, only time will tell.

Bill Clinton: enter the big Kahuna.
© Drew Angerer, via Standaard.be

Tony Blair, former British Prime Minister and Thatcher’s greatest achievement (according to the late Right Honourable Baroness herself), landed himself a $1m a year advisory position at JPMorgan Chase, in addition to links with other financial institutions and acting as a middle man for various Asian and Middle Eastern interests. He commands speaker fees of up to £250k per event and operates a boutique advisory service to sovereign wealth funds as well as Tony Blair Associates, which provides strategic advice on political and economic trends and governmental reform to various Arabic governments and business interests. All his activities have earned him more than GBP 60m, not including the GBP 5m for his book deal, which he donated to a sports centre for injured soldiers.

Tony Blair: the invoice is in the post.
©Jillian Edelstein, via The Financial Times.

The bickering brothers of the UK Labour party, Ed and David Miliband, offer an interesting opportunity to see what the perfect time is to cash in in the private sector. After being edged out/stabbed in the back for the Labour leadership in 2010 (depending on the point of view: Ed’s or the other one) and a reduced role in Parliament, David Miliband announced his stepping down as MP earlier this year to take up a £300k per year positions as Head of International Rescue Committee, a humanitarian charity in New York. Already earning about £1m on top of his MP’s salary since 2010, thanks to advisory roles at VantagePoint Capital Partners (California), Oxford Analytica (UK) Indus Basin Holdings (Pakistan), Sir Bani Yas academic forum (United Arab Emirates) and a Board Membership at Sunderland Football Club, David has a good head start before his brother can commence commanding speaker fees worthy of a senior Statesman.

David Miliband: as close as he’ll ever get to No 10. For now…
© PA, via The Telegraph

It has been almost a decade since the first privately built and piloted spacecraft managed to break the 100km Earth altitude barrier, and for those of you who feel they have seen and done everything this planet has to offer it is perhaps time to start looking out beyond.

Paul Allen and Burt Rutan’s SpaceShipOne.
©Win McNamee/Getty Images, via seattlepi.com (Hearst Communications Inc).

Last year, the SpaceX Dragon capsule became the first private spacecraft to dock into the International Space Station (ISS). The company, which was founded by Paypal co-founder Elon Musk, is not resting on its laurels though: SpaceX intends to send a cargo flight to Mars in 2016 as a first step in its colonization project which aims to ship the first human colonists to the red planet in 2023.

If you are not looking for quasi-permanent residence in the great beyond, several other prominent individuals have been pouring time, money and other resources in the development of commercial spaceflight. Sir Richard Branson founded Virgin Galactic after buying Paul Allen and Burt Rutan’s SpaceShipOne’s technology following the aforementioned first private launch success. Sir Branson’s project will offer customers a flight into space where they can experience a couple of minutes of weightlessness before starting the descent back to Earth. However, at $200,000 a pop it makes for quite a steep price for an afternoon of floating fun.

Virgin Galactic: aiming to go slightly higher next time.
© 2009-2013 Virgin Galactic.

Sir Richard Branson, billionaire, businessman, space cadet.
©AFP, via yahoo.ca

Despite all these positive developments, all is not well in the space department though: the list of possible medical complications arising from human spaceflight is both endless and impressive: loss of muscle and bone mass, blindness, Alzheimer’s Disease, decompression sickness… a hypochondriac better think twice before giving NASA a call. In addition, space radiation greatly increases the risk of infertility, even with protective gear, which pretty much rules out any kind of romance involving the sirens of Titan.

Lookin’ up from down here. ©Joson Images, via ft.com

Luckily, there are plenty of safer options to enjoy the stars on a reasonable budget and allow for a return to civilization with a clean bill of health. At several spots around the world, tourism revolving around skygazing at night is greatly developing thanks to the internet. Specialized websites keep calendars and schedules for great skywatching events and more and more tour companies have started offering mixed tours, with a day trip to interesting sites on the ground (for instance safari in Africa or architecture at archaeological sites) and at night a stay at a location with a great view of constellations from a distant past.

In European football, when it comes to “new money” pouring into the game, Chelsea’s owner Mr Roman Abramovic is usually the first name that pops to mind. One need not travel far to encounter other notable Russians investing in football, though. On the other side of London, Arsenal FC is currently owned by American Stan Kroenke and Uzbekistan-born Russian billionaire Alisher Usmanov, who holds almost 30% of the club. Mr Usmanov, who has an estimated wealth of USD 18bn, seems to be betting on two horses, with his company Metalloinvest being a sponsor of FC Dinamo Moscow, his “first love”, and although he claims not to own shares in the Moscow club he does serve as Board Member.

 
Alisher Usmanov and Roman Abramovich having a private London derby.
© REUTERS, via The Telegraph.

Contrary to his compatriot Mr Usmanov, Mr Mikhail Prokhorov decided to try his hand at an NBA-team instead of a Premier League club. Well over 2 meters tall himself, the Russian became the first non-American owner of an NBA-team, having been owner of the New Jersey Nets since 2010. His tenure saw the team move from New Jersey to New York and a name change to Brooklyn Nets, related in no small part to the active involvement of Brooklyn-born rapper and minority shareholder Jay-Z. Sportive performance has been abysmal, with winning percentages of 14.6%, 29.3% and 33.3% in the last three years, failing to qualify for the playoffs. Regardless, according to Forbes, the value of the team has soared 48% during 2012, making the Nets the 9th most valuable team in the NBA, at USD 530m.

Jay-Z and the Brooklyn Nets. So far the team remains a sportive diamond in the rough.
©2013 Popdust Inc., via popdust.com

As reported last year in this publication, outside of India Mr Mukesh Ambani is mostly (in)famous for building the most expensive/expansive house in the world (in the process slightly losing sight of the aesthetic side of the project), but the Chairman and CEO of the Indian conglomerate Reliance Industries Limited also has a knack for sports. And when you say sports in India, this can only mean cricket. In 2008 his company bought Mumbai Indians in a deal worth the equivalent of USD 124m. Success has been rather limited, with one victory in the Champions League Twenty20 and one second place in the Indian Premier League.

Mukesh Ambani cheering on his Mumbai Indians.
© 2013 HT Media Limited, via hindustantimes.com

The family of Mr Ambani’s fellow countryman Lakshmi Mittal appeared to have scored a far better deal for their stake in Queens Park Rangers Football Club. Acquiring 20% in the club for just GBP 0.2m in 2007, the family increased their stake to 27% over the years. Since winning the 2010–11 Football League Championship, the club plays in the Premier League, arguably the most prestigious league in the world, but are struggling to keep up with the pace. From a business point of view the news is not good either, despite the small initial investment: the club has posted an operating loss in every season since 2005.

Now, tell us what you think about wealthy foreign investors buying into sports teams.