If You Win Powerball, Will You Be Able to Hold on to Your Haul?
The U.S. Powerball lottery is holding a drawing this week for a jackpot that’s already reached $1.5 billion. That’s after the 18 drawings held since November failed to yield a winner, causing the grand prize to swell to this record sum.
This jackpot is drawing such attention that more people are buying tickets, and even the lottery’s own projections are changing rapidly. During the weekend the payout was an estimated $1.3 billion. Monday it was revised to $1.4 billion and on Tuesday it hit $1.5 billion.
That makes it the largest lottery grand prize the world has ever seen, even compared with the “El Gordo” lottery in Spain, which in December awarded a larger cache of prizes ($2.4 billion) but spread it among thousands of winners.
The odds of winning this huge sum of money on Wednesday are very small (1 in 292 million). You are 250 times more likely to be hit by lightning. If every adult in the U.S. purchased just one ticket, each with a different number, there would still be a good chance (about 15 percent) that no winner would arise and the pot would grow even larger.
On Wednesday night, however, a winner is actually very likely, since many lottery players are not limiting themselves to a single ticket and the massive prize is luring hordes of Americans to try their luck, along with—reportedly—thousands of Canadians.
Once a winner is declared a more interesting question arises: What happens to all that money and the lucky ticket holder(s)?
Fortunately for us, academia has a lot to say about it.
Most of the academic research has dealt with smaller lottery prizes and inheritances, since there are relatively few giant jackpot winners. But while the $1.5 billion jackpot is eye-wateringly large, the actual payout will be much less.
Wednesday night’s winner or winners will not actually receive $1.5 billion. Assuming just one person wins it, he or she can either choose a lump sum payment that amounts to about $930 million or will have to wait 30 years for all the payments to accrue.
And then there’s the taxman’s big bite. Forbes estimates that a single winner in a low-tax state, like Florida, who elects to take all the money in one lump sum instead of in 30 payments will get a check for about a half-billion dollars.
That jackpot is starting to look a lot smaller, though it’s still a fair chunk of change.
Previous research suggests many people quickly spend any unexpected windfalls. A 2001 paper (by economists Guido Imbens and Bruce Sacerdote and statistician Donald Rubin) found that lottery winners saved just 16 cents of every dollar won.
Other studies found that instead of getting people out of financial trouble, winning the lottery got people into more trouble, since bankruptcy rates soared for lottery winners three to five years after winning.
It is not only winning the lottery that causes people to spend. My own research found that the average person in their 20s, 30s, and 40s who was given an inheritance or large financial gift quickly lost half the money through spending or poor investments.
Overall, research shows lottery winners and people getting windfalls spend or blow through much of the money. Nevertheless, lottery sales in the U.S. have increased dramatically since their introduction in the 1970s.
So how exactly does a lottery winner blow through hundreds of millions of dollars?
Demographic research on lottery players' characteristics shows that lottery playing peaks when people are in the 30–39 age range and actually falls as people get older.
The average person in the U.S. lives to age 79. This means a sole winner “blowing through it all” (and ending up with no assets to show for it) would have only about 45 years to spend the entire after-tax half-billion dollars (assuming a lump sum payment). That means the person would have to spend more than $10 million a year, roughly $30,000 per day (ignoring any interest accrued).
It is important to understand that most of the academic research separates out spending from investing. If a lottery winner “blows” all his money on expensive homes, paintings, and very high-end cars, his net worth does not actually change.
Instead, he has simply transferred one asset, which is cash, into another asset, like real estate, artwork, or exotic cars. At the end of his life, if real estate, art, and auto prices have not fallen, he is still just as rich as when he won the lottery.
Blowing through the money, which leads to bankruptcy and low savings rates, means the winner has nothing to show for their spending besides a good time.
We’ve already established that a sole winner of this week’s lottery will probably end up with a lot less than $1.5 billion. But imagine for a second that a lucky person manages to win all of that money; would it be possible to spend it all and arrive at life’s end with nothing to show for it?
In fact, it has already been done once by a man named Huntington Hartford, who lived from 1911 to 2008.
Huntington was the heir to the Great Atlantic & Pacific Tea Co. fortune. This company, which started just before the Civil War, is better known as the A&P supermarket chain. A&P was the first U.S. coast-to-coast food store, and from World War I to the 1960s was what Walmart is for today’s American shoppers.
Huntington inherited approximately $90 million when he was 12. Adjusting for inflation means he was given almost $1.3 billion as a child, after taxes. Huntington declared bankruptcy in New York in 1992, approximately 70 years after being handed one of the largest fortunes in the world.
Huntington had the reverse Midas touch. He lost millions buying real estate, creating an art museum, and sponsoring theaters and shows. He combined poor business skills with an exceptionally lavish lifestyle. After declaring bankruptcy, he lived as a recluse with a daughter in the Bahamas at the end of his life.
Huntington’s life story—coupled with academic research that suggests people quickly spend their windfalls—means not only that you have very long odds of winning Wednesday’s $1.5 billion Powerball jackpot prize, but you have just as long odds of keeping money around after winning it.
If you are planning on playing, I wish you good luck. If you are planning on winning, I wish you even more luck.
David Bowie, the Man Who Sold the World Securitized Rights to His Back Catalog
Sure, David Bowie was the most inventive rock star of his era. And yes, he matured gracefully (more or less) into an elder statesman of pop, working with younger independent acts and capping his late career with a pair of moving, reflective LPs.
But did you know he also left his mark on the world of asset-backed securities?
OK, so the achievement doesn't quite rank up there with albums like Low and Ziggy Stardust. But in 1997, Bowie, who passed away from cancer Sunday at 69, did manage to kick off a brief financial craze after becoming the first musician to sell bonds backed by the royalties on his catalog.
Bowie was unusually well-placed to pull off the deal because, unlike most artists, he owned the rights to the bulk of his songs. He had considered raising cash by selling off the catalog entirely. But a financier named David Pullman, who knew Bowie's business manager, suggested trying the bond route. Wall Street was falling deeply in love with securitization, and bankers were pooling all manner of loans and other assets into complicated investments to be resold. The income stream from Bowie's ever-dependable album sales seemed ripe for the same treatment.
Bowie “made this decision within less than a second,” Pullman told me when we chatted Monday. “Instead of asking questions, he says ‘Why haven't we started yet?’ ”
Thus, the “Bowie bond” was born. The rocker inked a licensing deal with the British record label EMI to rerelease 25 albums recorded between 1969 and 1990 in return for a hefty royalty rate, which was used to back a set of 10-year bonds with a 7.9 percent interest rate. The Prudential Insurance Co. paid $55 million for the whole offer.
The deal had a few major advantages for Bowie, Pullman told me. First, it gave him a big upfront payment that he could invest elsewhere without permanently selling the rights to his music, which would return to him once the bond was paid down. “These songs were his babies and his legacy and he wanted his family to have it,” Pullman said. By securitizing his royalties rather than using them as collateral for a bank loan, Bowie also avoided any personal liability for paying back the debt. Meanwhile, some have suggested that issuing bonds may have saved Bowie taxes that he would have had to pay had he sold his catalog outright, though Pullman disputes this.
Either way, others took notice. In the years that followed, musicians and bands like James Brown, the Isley Brothers, and Iron Maiden imitated Bowie with their own bond issues. Perhaps more importantly, the Bowie bond popularized the notion that any intellectual property could be packaged into a security. Before then, nobody had "even ever talked about" it, Pullman said. Movie studios were especially enthusiastic. In 2002, for instance, DreamWorks closed a $1 billion securitization deal based on future revenues from its films.
Of course, we all know what happened to the music industry in the early 2000s. Piracy decimated album sales, and soon song-backed bonds looked like a less desireable investment. In 2004, Moody's downgraded its credit rating on the Bowie bonds to just above junk, though ultimately they never defaulted, paying off after 10 years. Digital downloads helped revive the labels' fortunes somewhat, and in 2007, a private equity investor nearly bought EMI with the intention of securitizing a good chunk of its back catalog. But the financial crisis scotched that plan.
So, how influential was Bowie's greatest financial hit? On the one hand, the idea of securitizing intellectual property has never taken off the way some hoped. On the other, Bloomberg points out that a large market has bloomed in "esoteric" asset-backed securities, a catchall term for bonds based on things like time-share rentals and the money earned from stud race horses. “Bowie’s bonds were as groundbreaking as his music,” one money manager told the news service. “Not only were they followed by a number of other artists, but they set the template for deals backed by a whole range of assets.”
Again, that's not going to make anybody forget Heroes. But as far as quirky biographical footnotes go, it's not bad.
How This Guy Convinced the Jacksonville Jaguars to Buy His Fish-Oil Cookies
In 1998, Mark Ansley thought his 16-month-old son was deaf and brought him to a doctor. His hearing was fine, the physician said, but Zack was on "the spectrum." Ansley didn't know what that meant, so the doctor explained that autism is a neurological disorder and that there is no cure. One thing that might help support Zack's brain development, the doctor said, was to make sure he eats foods high in omega-3, a fatty acid known to promote healthy brain development.
"Growing up in the South, my grannie always gave me cod liver oil to prevent colds," Ansley says. "But there was no way Zack was going to ingest that, given the fact he has a high sensitivity to taste and smell."
Zack refused to eat most foods. If the smell, taste, or texture wasn't just right, he wouldn't touch it. As he grew, his diet consisted almost exclusively of macaroni and cheese, chocolate milk, and McDonald's hamburgers—yes, the all-American diet, but Ansley knew he had to get Zack to eat nutritional food. He tried dozens of products that boasted healthy ingredients but nothing seemed to work. One day, Ansley came across a cookie made with chia, which is high in protein, and omega-3. "Zack ate half a dozen," Ansley says. Ansley decided he would make his own fish oil cookie, but it would take more than a decade for him to get the company on all fours.
He was no stranger to the food industry, having run Ansley Foods—a $5 million business selling barbecue ribs to soldiers in Iraq and Afghanistan through the Department of Defense—for eight years. About five years ago, as the war in Iraq drew to a close, Ansley decided to finish what he'd started years ago and perfect his "brain food" cookie recipe.
In 2012, he formally launched Zack's Snacks (under parent company SnapFoods), with a line of four different foods packed with chia and omega-3, with his flagship product being the "Omega Rounds," or fish oil cookies. Ansley calls his snacks "stealth health" because they're made with natural ingredients like rolled oats, fresh fruit, and vegetables and contain no GMOs, preservatives, or artificial ingredients, but still taste like snack food.
This year, Ansley added fruit and vegetable sorbet and ice cream sandwiches, all made with ingredients like spinach, beets, and kale. You'd think veggie ice cream would taste awful, but it actually tastes pretty good.
While omega-3 is beneficial to developing brains, Ansley knew healthful cookies weren't just for kids. Chia and fish oil are great for athletes looking for fuel and Ansley knew the perfect guy to punt his product to—one of his neighbors, a football player for the Jacksonville Jaguars. Ansley would see the guy walking his dog around the block, but he didn't have the nerve to approach him. But one day, he decided to go outside and strike up a conversation with Demetrius McCray, who plays cornerback. He told him about the potential benefits of omega-3 cookies. McCray was intrigued, but before he would take the cookie seriously, he had to run it by the Jags' dietitian, Mindy Black.
With strict exclusive agreements with sponsors like Gatorade, any whiff of a competitive product is not allowed. (Players also have to be wary about ingesting prohibited substances.) But Gatorade doesn't make fish-oil cookies, so Black decided to take a look at the packaging when McCray asked her to check it out.
"I was skeptical at first; the guys are always bringing me some new product their friend made to check out," Black tells Inc. "But I turned it over and read the ingredients and saw that the first ingredient was oats, not sugar, and figured the guys wouldn't touch it."
Black put a few Omega Rounds on the "fueling station," a designated area packed with approved foodstuffs, drinks, and smoothies for the players. Soon enough, the samples were all gone and the guys were asking for more. "Now, Zack's Snacks are approved for the fueling station," Black says. And you can imagine how much fuel an NFL team consumes.
Getting your product on an NFL fueling station, which only has about 10 products, including peanut butter sandwiches, protein bars, fresh fruit, and smoothies, is a big deal. Black says hundreds of food companies pitch her during the season, so Ansley is lucky, especially as a small outfit.
What convinced her to approve Zack's Snacks? Black says it was the omega-3. While each cookie has only 100 mg of omega-3, she says each player usually eats three, which then makes it "brain food."
"We have known rich omega-3 can decrease the risk of Alzheimer's in adults and is also known as an anti-inflammatory. In children, omega-3 helps brain development," she says.
Black is also the sports dietitian for Jacksonville University's athletic department, so she recommend all 501 athletes eat Zack's Snacks, giving Ansley another hungry demographic. "Athletes are superstitious and do not like to break their routine," Ansley says. "They are very careful about what they put into their bodies."
With other colleges and pro teams expressing interest, Ansley believes his small company, which has taken in only $100,000 in revenue but has raised $500,000 by crowd funding investors at One Spark, a Florida-based accelerator, will be expanding quickly. In February, a Zack's Snack's commercial will air on the Impact Network and feature a handful of NFL players like T.J. Thomas.
Ansley is also in talks with the U.S. Olympic team and has made a deal to provide Zack's Snacks to Major League Football, a new minor league launching teams in eight cities without NFL teams.
"I started this to trick my son to eat healthy foods. We started with Omega Rounds and now have spinach and kale sorbet," he says. "Kids love it and they eat it. It's been my goal this whole time, even though my son is now 19, to be able to feed him healthy food."
GM May Have Just Changed the Game for Electric Cars. Here’s What It’s Up To.
General Motors, America’s largest carmaker, has been slow on the uptake when it comes to the most significant trend in mobility: using more electricity to power automobiles. It famously killed a promising electric vehicle in the 1990s, and invested in the gas-guzzling Hummer as Toyota rolled out the Prius. The Chevrolet Volt, unveiled in 2010, wasn’t an electric car—it was a plug-in hybrid whose high sticker price and weak battery (it could go only about 35 miles on the all-electric charge) made it an ineffectual demonstration project.
But the Chevrolet Bolt, which GM is showing off this week at the Detroit Auto Show, represents both a quantum leap and a leap of faith by the company. It has a battery that can propel a car for 200 miles—six times more than the original Volt could travel on electricity. After federal tax rebates, it costs about $30,000—substantially less than the Volt, and a price point at which millions of cars sell each year. Unlike the Volt, which seemed to have lukewarm backing from GM’s top brass, the Bolt seems to have enthusiastic support at headquarters. “First of all, with 200 miles plus, you really take away range anxiety,” GM CEO Mary Barra told me Monday. And she quickly pivoted to point out the Bolt’s driver-friendly technology—connectivity, upgradability—that has nothing to do with mileage. “When we look at the Bolt EV, it’s a great car to drive,” Barra said.
Add in the aggressive price, and it’s clear GM isn’t trying to sell the Bolt as a sop to environmentalists or a nod to regulators. Rather, GM says it’s trying to make a car that might find buyers whether gasoline costs $4 a gallon or $2 a gallon. “You can look at the car, and you can buy it just because you love the car as well as the fact that it has a 200-mile electric range,” said Barra. “This wasn’t a compliance play.” All shrewd CEOs talk up their products. But I was on a Volt test drive several years and never heard an executive refer to that car as “fun,” as Barra described the Bolt.
Barra wouldn’t comment on production numbers or sales expectations. “We’re building it at Orion [a factory in Michigan], and we’re flexible at that plant.” But she indicated that the Bolt is an important sign of things to come—not that GM’s fleet will be all-electric, but that it will be more electric. GM has demonstrated that it can make a nonluxury electric car that offers Tesla-like range. And it can plug the knowledge and components it developed to build the Bolt into other vehicles. “Across the portfolio, you will see higher-density batteries with improved costs and that’s one of the things we can achieve with our scale,” Barra said. “You’ll also see more hybrids. You’ll see everything as being more fuel-efficient.”
The idea that GM—or any American company—could speak credibly about leading in fuel efficiency and alternative power sources would have seemed fanciful seven years ago, when GM was still in bankruptcy. But because of its persistence, and because of the reluctance of Ford and Chrysler to plunge ahead with all-electric cars, GM has acquired a bit of swagger.
While many other mainstream auto companies are announcing plans to develop more plug-in hybrids and all-electric vehicles in years to come, GM dealers will have products to sell within 12 months. “A lot of other [original equipment manufacturers] are announcing what they’ll have down the road,” Barra said. “But look at what we have. We have the second-generation Volt. We now have the next-generation Bolt. And look at the Malibu hybrid. We’re not stopping. We have a leadership position in electrification.”
The Bolt may not be able to singlehandedly alter the sales dynamics of the car industry. And it’s entirely possible that it won’t find a niche in the marketplace. But it’s already helping to alter the narrative. In the U.S., a startup (Tesla) and a Japanese company (Nissan) have largely owned the dialogue (and growing market) surrounding all-electric vehicles. With a range nearly twice that of a Nissan Leaf and at a price less than half today’s entry-level Tesla, the Bolt has the potential to change that.
The December Jobs Report Was Pretty Great
It seems American businesses finished 2015 on a bit of a hiring spree. U.S. employers added 292,000 jobs to their payrolls in December, the Department of Labor announced Friday, capping off a strong winter and solid overall year for the labor market. With its most recent revisions, the economy added an average of 284,000 jobs per month during the fourth quarter, and 221,000 per month for all of 2015. That's not quite as brisk as 2014's average of 260,000. But ultimately the U.S. has managed to keep adding jobs at a healthy pace for two straight years, while reaching 5 percent unemployment. This is good.
OK. So there's the happy news. Less wonderful: Labor force participation is still stuck at lows previously not seen in decades and barely moved while all this hiring was going on in the winter. Meanwhile, the number of long-term unemployed hasn't really budged since June. So, the job market still has yet to overcome some lingering weakness.
And then there's the issue of earnings. The pace of wage growth picked up toward the end 2015, but a lot of people are still disappointed by the fact that hourly pay only rose by 2.5 percent over the year, suggesting it's still a sign of slack in the labor market. I'm not so sure it is. In ordinary circumstances, 2.5 percent growth would be uninspiring. But you have to remember inflation has been incredibly low. And the consumer price index is up just 0.5 percent for the year, which means workers are seeing a real boost to their pay. It also might mean that there's less pressure on employers to raise wages to keep pace with the standard of living. My podcast-mate Felix Salmon points out that core CPI—which is to say, the inflation rate minus food and energy—was actually up a full 2 percent this year. But given that things like gas prices are pretty important to how businesses and families make decisions, I'm not sure how relevant that is. To me at least, the whole issue still seems a little murky.
Anyway, on we go to 2016. Keep up the pace, America.
Gilt Just Had Its Biggest Flash Sale Ever—for Itself
As it was foretold, so it has come to pass. Hudson’s Bay Co., corporate parent of Saks Fifth Avenue, has purchased discount flash sale site Gilt Groupe for $250 million in cash. As I noted in a post on rumors of the sale in December, Gilt was once valued at $1.1 billion, meaning that the site, like the commodities it sells, really did turn out to be a bargain.
The most surprising element of the announcement is the suggestion that Gilt may come away from this exchange with a new retail model. In a press release, Gilt CEO Michelle Peluso proposes the site will benefit from its new connection to HBC’s other retail outlets. “Our members will find having a brick and mortar presence valuable and a positive addition to the Gilt experience,” Peluso says.
The press release goes on to explain that customers may be able to return items purchased from Gilt online at Saks Off 5th retail locations, of which there are almost 100 sprinkled throughout the United States in both suburban and metropolitan locations. It also notes that HBC could create “Gilt concept shops inside Saks Off 5th locations,” though it does not elaborate on how the company plans to square these physical shops with Gilt’s existing flash sale model.
While this is a sensible bit of corporate synergy, it’s also a striking development for a company with a business model like Gilt’s, one specific to the digital environment that birthed it. In this regard, however, it may simply be following retail trends. As I’ve reported before, many apparel companies that started online have begun to open physical locations. This general movement suggests the possible limitations of e-commerce models where, as Gilt’s devaluation demonstrates, competition comes all too easily.
For Gilt, the resulting shake-up may be helpful, potentially allowing it to restore some of its lost luster. HBC, for its own part, claims that it will benefit from Gilt’s highly developed digital platform.
Macy’s Is Laying Off 4,350 Workers Because It Didn’t Get What It Wanted for Christmas
Donald Trump is celebrating. Macy’s, which dumped the Donald’s eponymous clothing line after his controversial remarks about undocumented workers last year, announced Wednesday that its 2015 Christmas gift was a giant lump of coal.
Despite ongoing turnaround efforts by the department store chain, Macy’s reported that sales at Macy’s and Bloomingdale’s stores fell by almost 5 percent in November and December. The company also announced plans to cut about 4,350 employees, ranging from sales associates to senior corporate management. And on cue:
.@Macys was one of the worst performing stocks on the S&P last year, plunging 46%. Very disloyal company. Another win for Trump! Boycott.— Donald J. Trump (@realDonaldTrump) January 7, 2016
Company officials blamed everything from unseasonably warm holiday weather to a decline in spending by international tourists for the less-than-cheery Christmas sales. There’s likely something to all of these explanations. It was a record-breaking 72 degrees on Christmas Eve in New York City, hardly the kind of conditions that inspires people to buy mittens and puffer coats. And the hotel trade is suffering too. National hotel occupancy rates fell by 4 percent between Dec. 20 and Dec. 26 over the same period last year, according to STR, a hospitality industry-tracking firm, while actual revenues dropped by 10 percent in New York City.
But Macy’s almost certainly has larger problems—and, no, ditching Trump’s dress shirts isn’t among them. Historically, the department store appealed to the middle-class shopper. But that’s a shrinking segment of the population. As a result, Macy’s finds itself, at least in the view of many retail analysts, betwixt and between, neither here nor there. It’s not a budget department store like J.C. Penney, where sales increased by 3.9 percent during the same period as Macy’s end-of-year decline. Nor is Macy’s a luxury department store, nor is it a fast-fashion superstar like Zara or H&M.
In the view of some investors, the store should turn to its real estate assets for salvation. As the Wall Street Journal points out, Macy’s owns valuable property in New York, San Francisco, and Chicago, and activist shareholders have urged the company to monetize it by such methods as selling and then leasing it back.
Perhaps Macy’s still has a use for Donald Trump.
Previously in Slate:
China’s Stock Market Is So Insane It Closed After 29 Minutes. Here’s Why.
Investors around the world are flipping out once again over problems in China, where stock markets were forced to close after a mere 29 minutes Thursday thanks to new rules that halt trading when shares crash too far.
Why the tumult? There are two big stories behind China's abortive trading session and the global sell-off it's inspiring. The first, which is mostly worrisome for the People's Republic, is about the government's inept attempts to manage its stock markets. The second, which is worrisome to the whole world, is about the specter of China's slowing economy.
Let's start with the ineptitude. This week, China debuted a new "circuit breaker" system that was designed to bring calm to its ever-chaotic market and is accomplishing exactly the opposite. When shares on a benchmark index fall 5 percent, trading pauses for 15 minutes so everybody can stop to contemplate what's going on and maybe pop a Xanax.* After a 7 percent drop, buying and selling end entirely for the day. While this is somewhat similar to the way American markets work, the range within which stocks are being allowed to trade is apparently too small for China's markets, which are prone to big swings. When stocks have started falling this week, investors have responded by rushing for the exits, knowing it might not be long until shares fall below the 7 percent mark and the door shuts on trading. Once you account for Thursday's 15 minute breather, traders only had an EP-length 14 minutes to sell, sell, sell. As one Chinese fund manager succinctly summed up the situation to Bloomberg: “This is insane.”
But why are shares falling in the first place? One reason is that China’s ban on selling by large shareholders, put in place after this summer's market crash, is expiring this week, though regulators are replacing it with lighter limits that should prevent a mass liquidation. The more important issue is growth. China’s economic engine is widely acknowledged to be slowing down. But because the country's GDP stats aren't exactly reliable, everybody can only guess how bad things really are. That makes people exceptionally jittery. Earlier this week, markets were spooked by disappointing manufacturing data. Thursday, they panicked thanks to the falling value of the yuan, which the central bank set Thursday at its lowest level since March of 2011. That suggests the government may be trying to give its economy a jolt by weakening its tightly controlled currency to boost exports.
In other words, it looks like the Chinese government is nervous. And that makes investors around the world nervous. The most obvious concern is that a severe Sino-slowdown will simply drag down world growth, since China's appetite for food, energy, and raw industrial materials drives a good chunk of the global economy (just ask poor, recession-addled Brazil). But there are other, more speculative issues that might be causing agita. For instance, there's the possibility of a currency war. If China continues cheapening the yuan, its Asian neighbors might follow suit to keep their own exports competitive. But when countries devalue, global investors often pull out their cash and move it elsewhere (after all, if you own a stock priced in Japanese yen, and the yen is falling, you're basically losing money). So it's possible to envision a scenario where China sparks a currency race-to-the-bottom that causes Asian markets to crash.
But again, that's all very speculative. For now, the bottom line is that China looks troubled, and that leaves the rest of the world anxious. Plus, its own stock market is comically insane.
*Correction, Jan. 7, 2016: This post originally misspelled Xanax.
Nobody Wants to Eat Chipotle’s Burritos Anymore
Been to Chipotle lately? No? Well, join the club. Thanks to the food safety crisis that has left hundreds of people ill with E. coli, salmonella, and norovirus since summer, the burrito chain is hemorrhaging customers. Sales at restaurants open for at least a year were down 14.6 percent during the fourth quarter, worse than the company initially projected. Business deteriorated badly in December after the Centers for Disease Control and Prevention announced it was investigating five new cases of E. coli. Sales proceeded to fall a whopping 30 percent for the month. So, so many uneaten flour tortillas.
The pain gets worse. Chipotle said Wednesday it has also been slapped with a grand jury subpoena related to a criminal investigation by federal prosecutors and the Food and Drug Administration, who are looking into a norovirus outbreak in California. “We intend to fully cooperate,” the company said, because, well, it kind of has to. Regarding the whole health scare, it also admitted: "Future sales trends may be significantly influenced by further developments." While obviously legal boilerplate, the line still deserves some sort of award for corporate understatement.
It goes without saying that the company's stock got hammered. The guys behind Dos Toros must be freakin' thrilled.
Gamers Are Outraged at the Oculus Rift’s Price. They’re Buying It Anyway.
In two years, we’ll all be wandering the streets with virtual-reality headsets pasted to our noggins. Either that, or every VR prototype will be buried under a concrete slab in a New Mexico desert.
While there’s perhaps some middle ground between universal adoption and humiliating failure, that hasn’t been reflected in the rhetoric around the Oculus Rift. It is hard to think of another consumer tech product that has gone through so many cycles of hype and backlash before it has even been released to the public. (Oh, wait, no it isn’t: Google Glass. Hmm—hold that thought.) Now, the long-awaited consumer version of the Rift headset is finally available for preorder, and the price is higher than expected: $599.
What do you get for your 600 bucks? The headset will come with built-in headphones, a microphone, a sensor, an Xbox One controller, and the newly announced Oculus Remote.
For gamers who’ve waited two years to get their hands—er, heads—on one, Wednesday’s announcement induced some nasty sticker shock.
I would say I'm about $400 excited for the Rift, and $200 not excited for the Rift.— Charlie Hall (@Charlie_L_Hall) January 6, 2016
Instead of paying $600 for an Oculus Rift, I’m just going to give my kids $5 to spin my office chair around until I throw up.— Paul Haddad (@tapbot_paul) January 6, 2016
That’s partly because the first prototypes of the device, the Oculus Development Kit 1 and DK2, cost just $300 and $350, respectively. As the Verge’s Adi Robertson pointed out, the low price was a big part of what made the headset such a breakthrough.
The Rift looks even less attainable when you consider the hardware required to run it. Forget smartphones and laptops—you’ll need a high-end desktop PC, probably one purchased in the past year, with a fancy graphics card. That could run you upwards of $2,000. The specs are so stringent that Oculus offers a special compatibility tool that will tell you whether your machine is up to the task. If it isn’t, you’ll have the option starting in February to preorder a package that includes both a Rift and a Rift-ready PC for $1,499.
So, yes, the Oculus Rift is expensive, and parent company Facebook could have done a better job managing expectations ahead of Tuesday’s announcement. But the outrage is largely misplaced.
New technologies often start out pricy, for the simple reason that it costs a lot of money to design, test, and manufacture a product for which a market and supply chain do not yet exist. The Rift headset is a complex and powerful device, as Oculus founder Palmer Luckey was quick to point out on Twitter (a little defensively). Even at $600, the company is “not making any money on Rift hardware,” he said.
If the product delivers on its promise, a high initial price tag is unlikely to pose a long-term obstacle to its success. Early adopters will gladly foot the bill, then strut around making everyone else jealous until the price comes down to a level ordinary consumers can afford. Oculus is also wisely appealing to its earliest supporters by offering the Rift for free as a thank you to those who bought the original development kit on Kickstarter.
The Mac cost $2,495 at launch in 1984, forever dooming the personal computer to obscurity— Kyle Russell (@kylebrussell) January 6, 2016
Indeed, at the same time that Twitter erupted in indignation over the Rift’s price, avid gamers clogged Oculus’ servers as they raced to enter their credit card numbers. The estimated ship date for the first preorders was March 28. But as the orders piled up on Wednesday, so did the wait times. Try to buy one now, just a few hours after it was announced, and you’ll get an estimated ship date sometime in May. (Luckey says those wait times may shrink as the company works to weed out fraudulent orders.)
Yes, a high price tag can backfire if the product fails to live up to the hype. Those same early adopters who are so willing to shell out on a preorder can turn into a pack of wolves if the goods are underwhelming. And the jealousy of those who can’t afford the hot new gadget can curdle into resentment and derision. See: Glass, Google.
There is some risk of a Glasshole-style backlash against the Rift. They’re both computing devices that are worn on the face, for one thing, with all the antisocial signals that sends. They both look pretty dorky, despite the best efforts of their respective design teams. Both may ultimately turn out to have been a little ahead of their time.
Having used various versions of the Oculus headset several times over the past two years, however, I doubt the Rift will suffer the same ignominious fate. Impressive as it was technologically, Glass offered a clunky user experience from the start. The Rift does not.
The feeling you get the first time you look left, right, up, and down and see gorgeously rendered graphics in every direction is hard to describe. It reminded me of what it was like to play a Sega Dreamcast for the first time, or to try an iPhone after years of wielding a Motorola Razr. And no, strapping your Samsung to your face is not the same.
Besides, if Oculus had stripped the product down to sell it more cheaply, it might have followed in the tracks of another great tech disappointment: Nintendo’s Virtual Boy, which famously sacrificed features like a full-color display to launch at a more affordable price ($179). It flopped so badly that virtual reality became a punch line for a decade afterward. Luckey and company appear to have learned the relevant lesson: Affordability won’t help you if the gaming’s no fun.